Jeffrey Smith: Using Board Dynamics to Enhance Returns – ValueWalk Premium

Jeffrey Smith: Using Board Dynamics to Enhance Returns

Jeffrey Smith of activist hedge fund Starboard Value is speaking now. Smith is giving a presentation entitled “Using Board Dynamics to Enhance Shareholder Returns”. Smith is the first of a big trio of famous activists speaking this afternoon from the 9th Annual Value Investing Congress.

Jeffrey Smith: Using Board Dynamics to Enhance Returns

Jeffrey Smith is a Managing Member, CEO and CIO of Starboard Value LP (“Starboard”). Prior to founding Starboard, Smith was a Partner and MD at Ramius LLC. He was also the co-founder and CIO of the funds that comprised the small cap value and opportunity investment platform at Ramius LLC. Prior to joining Ramius in 1998, Smith served as VP of Strategic Development for The Fresh Juice Company. Starboard is currently engaged in an activist battle with Smithfield Foods, Inc. (NYSE:SFD), which wants to sell itself to Chinese food company, Shuanghui International. It will be interesting to see if Jeff discusses the topic today.

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Jeffrey Smith live coverage

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here we go….

86% hit rate with 13F filings

Plan, Path and Value!

Substantially improving the cash flow.  How we can get companies to stop spending money on businesses that aren't worth the investment.  Throwing good money after bad

We seek businesses with good CORE businesses, could be low growth or seeking next opportunity to grow

Most ACTIVE, active investor.  Lot of experience.  Added or replaced over 111 corporate directors on 40 plus companies

Pitching Wausau Paper Corp. (NYSE:WPP) –Tissue business

Under-performing stock over last 3 and 5 years.

Work in progress – year 1: took a 6% stake and publicly urged company to sell non core assets in order to focus on the HIGHLY-ATTRACTIVE tissue business!

Sold the paper business, printing business, and timberland

Company mgmt turned over, but new CEO is from Wausau Paper Corp. (NYSE:WPP) –so NOT a real change

Starboard added 2 new directors to Wausau Paper Corp. (NYSE:WPP) board

Year 2- still own technical paper business –increased position to 15% and urged nicely to become a pure play away-from-home towel & tissue company

FINALLY- sold technical paper business for $105 Million

Added 2 more board members

NOW:  Currently pure play away-from-home towel and tissue company with stable and growing cash flows

invested $220M into a new tissue plant, that is state of the art and only one in the world

Revenue has gone down because the company has refocused.  Smaller but with much larger EBITDA margins

They think cost savings could be $100M

Enterprise value of $702M  (7x pro-forma)

The old Wausau Paper Corp. (NYSE:WPP) had no TISSUE experience, but starboard has placed 4 board members, all with key tissue industry leading experience!!

Current Opportunity:

$15M in potential reduction —Headquartered in Wisconsin, but now have no more plants in Wisconsin.  now only have plants in Ohio and Kentucky.  They should move corporate office to Kentucky where their new $220M tissue machine lies.

$30M in clearly identifiable cost savings –new machine currently ramping production.  Cutting out the middle man on rolls of tissue.  New machine is vastly more efficient

In addition to cost savings, they can grow the business in a new market that they have in the past not had access too. They have only played in the value tissue market, but now can produce high quality tissue, which their vendors have asked them to provide in the past.  They will also now use recycled feed stock, which competitors can not do!

The cost savings alone make this a very cheap stock, but with the growth (sort of a call option) $140M EBITDA by 2017 seems legit and should be valued at 10-11x, more in line with peers, with seems conservative because Wausau Paper Corp. (NYSE:WPP) has superior technology now.

(12:37pm EST)  Wausau Paper Corp. (NYSE:WPP) needs to change its name because they no longer produce paper and the name is misleading.

They should buyback stock and issue a dividend with current capital structure and Cash Flow generation.

Full Disclosure:  Kirr Marbach & Co, owns a position in Wausau Paper Corp. (NYSE:WPP) and may trade in and out without further acknowledgement.


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