In the past, we have made asymmetric investments which are not for hedging purposes, but which also offer large payoffs on relatively modest commitments of capital where we similarly believe that the market has mispriced the probability of a positive outcome .... We recently identified an investment that broadly falls into this category. We expect that we will be able to share this investment in greater detail in the upcoming months .... It is both an attractive standalone investment and one that offers significant hedging benefits for our portfolio. For a modest amount of capital commitment, this investment offers the potential for extraordinary profits.
All three have a significant real estate component. Ackman is a real estate guy at heart and seems to like buying operating business where he can acquire valuable real estate indirectly. Ackman’s reference to the significant hedging potential of the investment, could be interpreted as being inversely correlated with a company's existing assets, or perhaps hedging in the form of diversifying exposure to a specific asset class. Using the latter assumption, all three might qualify in some way, but it’s a little harder to argue. As an activist, we might assume that active intervention is required to unlock value; however, if as Ackman stated it is attractive as a standalone investment, perhaps active intervention is not anticipated in this case.
I think all three fit the bill for Ackman and offer the possibility of asymmetric returns, but the “significant hedging” criterion is questionable. He has a history with shorting MBIA (MBI) so he knows it well. If I had to pick one, my favorite pick out of these three is SuperValu (SVU), which is an out of favor supermarket stock that has seen its value significantly eroded over the past five years. The company has annual revenues of $37 billion and trades at EV/EBITDA of 4.44x. While SVU's traditional supermarket properties have been a drag, SVU's Sav-A-Lot dollar store concept has about 1,200 stores and is growing rapidly (SVU expects to double the number of stores by 2015), and SVU's distribution business is healthy. The company owns approximately 24 million square feet of real estate. An improvement in SVU's traditional supermarket business would make this a home run.