Tecumseh's (TECUA) shares closed out 2012 at $4.62. Now trading at $9.50 the shares still have significant upside left, perhaps even another double from here.
As I wrote on Jan. 8, 2013 with the stock trading at $4.88, activist shareholder Roumell Asset Management saw a company with a market cap of ~$80 million with ~$270 million in tangible book value. Not bad, right? Upon further examination by industry experts, Roumell discovered that the company could be liquidated for between $237 million and $334 million. The fact is the real estate is worth far more than what the company's books show. For example, the real estate value where the Hyderabad plant is located could bring in $67 million to $91 million. The company lists the total value of all its real estate around the world at $13.8 million on its balance sheet.
Even more credibility was added to Roumell's thesis when, a few days after I first wrote about Tecumseh, Roumell revealed in a filing that the firm and the company were approached by a Brazilian company interested in purchasing Tecumseh's Brazilian assets for between $50 million and $125 million. Roumell had previously valued those assets at $40 million to $60 million.
Roumell wants to see the company monetize the Brazilian assets, the Hyderabad property, and another plant in India; pay shareholders a special dividend; exit the company's unprofitable household R&F business; and focus on its profitable commercial refrigeration business. The company has almost $400 million in carry-forward NOLs, which would allow it to operate effectively as a tax-free entity for many years to come.
Unlike many of these activist situations, the company's management and board of directors seem very cooperative. On Jan. 21, 2013, the company's chairman, and grandson of the founder, resigned citing the pace of the strategic decision making by the company. Two days later the company revealed that for the past several months it has been working with Sagent Advisors, LLC, to explore strategic alternatives. Recently, in another 13D filing, far from the usual "throw all the bums out" type of language usually seen in these things, Roumell called on the board to promote the current CEO to the additional title of chairman.
In the same 13D filing dated Feb. 20, 2013, Roumell puts forth two independent directors the firm would like to see nominated to the board. Both nominees seem extremely qualified, and one already holds a very significant stake in the company.
Here are their resumes from the filing:
We believe it would be difficult to attract two individuals to join the board of directors whose talents and relevant experiences are more closely aligned with the Company's strategic objectives. Mr. Suliman has a long history in corporate restructuring, capital formation and M&A transactions, and he possesses an enviable investment track record as a private investor. In 2003 Mr. Suliman and his partners, led by The Baupost Group, acquired control of NationsRent, a leading construction equipment rental company facing imminent liquidation. Upon gaining control, Mr. Suliman served as Co-Chairman and Executive Director of NationsRent and led the sale of the company in 2006 to Ashtead, plc. for $1 billion following a successful turnaround. If Mr. Suliman were to join the Company's Board, he would immediately represent the largest shareholder among all directors, as we understand Mr. Suliman currently holds 58,207 of the Company's Class B shares.
Mr. Jackson is currently the Chief Accounting and Administrative Officer (effective February 13, 2013) of Freedom Group, Inc. ('Freedom' or 'Remington'), immediately prior to this promotion, he served as the Chief Strategy and Acquisition Integration Officer since January 2012. Freedom's majority owner is Cerberus Capital Management, LP. Since 2007, Mr. Jackson has had an active involvement in over 15 acquisition and divestiture transactions along with a number of capital markets transactions. From April 2006 to January 2012, he served as Freedom's CFO. Prior to joining Remington in 2003, Mr. Jackson was with PricewaterhouseCoopers and an Audit Partner in their Middle Market Advisory Services group. While Mr. Jackson currently holds no Company shares, he brings proven skills, as demonstrated by his success in the very demanding, results-oriented private equity environment. Along with Mr. Suliman, Mr. Jackson would immediately bring a strong record of operational, financial and restructuring experience to the Company that shareholders, customers and employees deserve.
In the filing, Roumell asks all shareholders who support the inclusion of these nominees to let their views be known to the board. (You can contact the board via the Tecumseh website.) Also in the filing, Roumell is very complementary of the Tecumseh's new commercial compressor, citing interviews with customers some of whom claim to be designing new commercial refrigeration around it.
Altogether we have a company trading for ~$100 million below its drastically understated tangible book value. We have an activist shareholder with a superb plan to realize much of that value while retaining the company's core strengths. We have a company management and board who seem to be pursuing this plan. We have two vastly qualified director nominees (one of whom has over $500,000, at the current share price, of his own money in the stock). We have highly praised new products.
When the restructuring is completed, I believe shareholders will enjoy a share price that well exceeds the $13-$16 estimated breakup value.