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The All-Time Greatest Compilation of Special Situations in a Single Post



January 30, 2011 – Comments (2) | RELATED TICKERS: SIX , CODE.DL , MSG

So I was perusing this week's issue of Barron's while watching my son's karate class yesterday and I was absolutely amazed by the number of special situation investment ideas that were presented in part three of its semi-annual Roundtable.  The sheer number of ideas there inspired me to compile them all into one post that I will modestly call "The All-Time Greatest Compilation of Special Situations in a Single Post." ;)

First up we have a number of post-bankruptcy investment ideas that were presented by Roundtable member Meryl Witmer.  Let me begin by saying that one would have been much better off investing in all of these companies several weeks or even several months ago because they all have run up significantly since emerging from bk.  


IDEA 1: Six Flags Entertainment [SIX] 

Special Situation: Emergence from Bankruptcy

Six Flags, the operator of theme parks such as Great Adventure, emerged from bk in May of last year.  If one had invested in it right when it re-listed on a major exchange, they'd be sitting on a solid 50%+ gain, even better than that from the 52-week low that was established a month or to later.  

Current Price: $59

Target Price: $75

Key Points

-  The company said replacement value for its assets is $5 billion to $6 billion. 

-  Company's new CEO, Jim Reid-Anderson, has been successful at turning around bankrupt companies in the past.  

-  New CEO's compensation package depends upon how well the company performs, specifically Ebitda.  If he can increase SIX's Ebitda to $350 million, he will receive 1.25% of the stock.

-  This goal can be achieved by merely increasing the company's profitability by $3 per visitor.

-  Moved company HQ from New York to Texas, saving $16 million annually.   Six Flags gets about 25 million visitors a year, each spending about $36, all in. 

-  Other catalysts include potential for international licensing and 1,000 undeveloped acres.

-  Company's loss carry-forwards enable it to avoid paying taxes for the next 10 years.


Idea 2:  Tronox [TROXV]:

Special Situation: Emergence from Bankruptcy

Meryl Witmer pick.  

Tronix is a manufacturer of titanium dioxide (used to improve the durability and opacity of plastics, paints and cosmetics) that was unfairly saddled with liabilities when it was spun-off from its parent company Kerr-McGee [KMG] in 2006.  

This one is a little more difficult to trade at the moment because it has not officially re-listed on a major exchange yet.  This is actually a good thing because if the company does well, investors will be able to capture more of the run-up in its stock.  The company is currently trading on a when-issued basis at $94/share.

Current Price: $94

Target Price: $120 - $140

Key Points

-  "Tronox's plants are valuable because they produce titanium dioxide using a proprietary chloride method, which is lower-cost and produces a grade required by certain end users. Only five companies have this technology."

-  Company owns mines that contain seven years worth rutile, the raw material used to produce titanium dioxide.


Idea 3:  Spansion [CODE]:

Special Situation: Emergence from Bankruptcy

Meryl Witmer pick.

Current Price: $19.90

Target Price: N/A

Spansion is a flash-memory producer, specifically NOR flash, that was crushed during the Great Recession and eventually had to file for bankruptcy.  It officially exited bk in May 2010.  Its stock currently sits at only around 10% of where it was when it listed again, but it's well over the 52-week low of $13.73.  NOR flash memory is used in things like cars and cable boxes.  CODE and Micron Technology [MU] control 60% of the NOR market.

Key Points

-  Supposedly has an excellent new CEO in John Kispert. 

-  Regaining market share.

-  Exited slowing cell phone flash market.  

-  $1.7 billion of NOL carryforwards.

-  Potential to win lawsuits agains companies for stealing its intellectual property...victory could be worth a couple of hundred million. 


Idea 4:  National Fuel Gas [NFG]:

Special Situation: Hidden Assets

Mario Gabelli pick.

Current Price: $67.83

Target Price: $130 ?

I have written about NFG in the past, I believe because I have seen Mario Gabelli's compelling case for the company before.  National Fuel Gas is made up of three parts, a Buffalo, NY natural gas utility worth an estimated $19/share, a nat gas pipeline the Marcellus shale region, and some natural gas production, all worth an estimated total of $40/share.  

After backing those assets out, the company has a market cap of $2.4 billion versus the potential to reap over $8 billion from the shale gas drilling rights that it owns.


Idea 5:  Fortune Brands [FO]:

Special Situation: Spin-Off

Mario Gabelli pick.

Current Price: $61.03

Target Price: $110 ?

The company is splitting itself into three parts spirits (Jim Beam, Maker’s Mark, Sauza, Canadian Club, Laphroaig, and Courvoisier), housing products (Moen, Master Lock and Aristokraft), and golf products.


Idea 6:  Sara Lee [SLE]:

Special Situation: Spin-Off

Mario Gabelli pick.

Current Price: $17.17

Target Price: $23 for meat + ? for coffee

This food processing company is mainly involved in the meat and coffee segments.  It sells its products under the Hillshire Farm, Ball Park, Jimmy Dean, Sara Lee, State Fair, Earth Grains, Colonial, Rainbo, Holsum, IronKids, Mother’s, Sunbeam, Sun-Maid, San Luis Sourdough, Heiner’s, Douwe Egberts, Senseo, Maison du Café, Marcilla, Merrild, Pickwick, Café Caboclo, Café Pilão, Bimbo, CroustiPate, Ortiz, and BonGateaux brand names.

After much speculation that it would be sold (and the unfortunate corresponding surge in the price of its stock) the Company just announced last week that it is not for sale, but is splitting into two companies instead.  This news immediately caused the stock to drop by nearly $2.50/share.

Key Points

-  $500 million of cash from the sale of assets.  It wasn't mentioned in the article, but I believe that SLE is now using this cash to pay a $3/share special dividend. 

-  Gabelli values meat business at $23/share.

-  Coffee business is attractive.


Idea 7:  Madison Square Garden [MSG]:

Special Situation: Spin-Off

Mario Gabelli pick.

Current Price: $24.91

Target Price: $55 and rising

-  "The economic value of the company isn't in the New York Knicks or Rangers but in Madison Square Garden's cable networks. They have 16 million subscribers. They receive $2 per month per subscriber. The value of the cable networks equals the market value of the company, so you are getting everything else for free."

-  "They have air rights over the Garden, which are valuable. They have naming rights for lots of venues."

-  Knicks are most valuable NBA franchise according to Forbes.

That's all the time I have for now.  My youngest just work up from his nap.


2 Comments – Post Your Own

#1) On January 30, 2011 at 7:59 PM, outoffocus (22.86) wrote:

I thought your tickers meant "six code message".  I was wondering what the 6 code message was.

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#2) On January 31, 2011 at 10:53 AM, TMFDeej (97.46) wrote:

That's right focus, I've embedded a secret code within the text of this blog post.  Decoding it will reveal the secret hiding place of the lost Confederate Gold, the truth about who was on the grassy knoll, and the exact time / date of the plunge protection team's next move.


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