Carl Icahn released a statement yesterday in which he claims his affiliate companies will soon launch a $22-a-share takeover bid for WCI Communities Inc., of which he already owns a 14.6% stake. The move sent shares higher by 15% to $21.80, the largest single day gain for WCI since 2002; the stock is down 29% over the last 12 months. Icahn's latest move has puzzled Wall Street pundits, who predict continuing weakness for the company, which is based in one of the nation's weakest housing markets, Florida. WCI, which builds luxury condominiums, also has more debt than its peers. Icahn likely took the following three things into account when formulating his current valuation: 1) its large land holdings in Florida are very possibly undervalued, 2) the 20% deposit on unfinished apartments WCI charges prospective buyers, making cancellations unlikely 3) WCI trades below book and will likely bring in more than $1 billion in revenue in FY2007. Icahn's proposed offer values the company at just over $950 million. The offer is conditional to WCI's board enacting a 'poison pill,' which allows it to ward off hostile takeovers. Icahn left the current board and management fighting words, saying: "[CEO Jerry] Starkey and the current board are not qualified to navigate WCI through the difficult industry conditions that lie ahead." The board responded by telling shareholders: "If Mr. Icahn's unsolicited tender offer is formally commenced, shareholders are urged to take no action until they have been advised of the Board's recommendation."
Sources: Press Release, Wall Street Journal, Business Week, Bloomberg, TheStreet.com
Commentary: Temple-Inland, WCI Communities: Icahn Files to Nominate Board of Directors • Homing in on WCI Communities • Cramer's Take on WCI
Stocks/ETFs to watch: WCI Communities Inc. (WCI). Competitors: Brookfield Homes Corporation (BHS), Pulte Homes (PHM), Hovnanian Enterprises (HOV), NVR, Inc. (NVR), Centex Corporation (CTX)
ETFs: SPDR S&P Homebuilders (XHB)
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