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Intertape Polymer Group (ITP) is a company that makes packaging products like plastic films and tape and is headquartered in Montreal, Quebec and Sarasota/Bradenton, Florida. With over 2,000 employees and 2006 annual revenues of over $800 million, the company has a market cap of just $127 million and is currently selling at 0.17 times 2006 sales. This low valuation stems from the fact that the company is unprofitable and at the same time has a large debt burden of $310.73 million, giving it a debt to equity ratio of 1.096.

A couple of interesting events have transpired at Intertape over the last few months. The company received a buyout offer (pdf) at $4.76 per share in May from private equity firm Littlejohn, which represented a tiny premium of 5.5% over the average trading price of the last 30 trading sessions before the announcement. Over 70% of the company's shareholders rejected this bid in late June and the stock took a deep dive. One of the reasons for this downward pressure is that a portion of the company's long-term debt is due in 2009 and the company does not have enough liquidity to pay this debt.

When the buyout failed, the company decided to raise $88 million through equity financing and announced a rights offering (.pdf) that allowed existing shareholders to buy additional shares at $3.44 per share. The stock immediately reacted with yet another sell-off bringing the price down to just $2.36 in early August. This reaction was a little surprising given the fact that three of the company's largest shareholders had entered into a standby purchase agreement to commit $56.6 million in case the rights offering was not fully subscribed and Intertape's senior officers had agreed to commit $6 million of their own money as standby capital. The company has also brought in its founder and former CEO to handle the turnaround. The stock has since rebounded to $3.10 as I write this blog entry.

The company is restructuring its operations by closing facilities with the goal of becoming profitable and as you can see from the second quarter results (pdf), it narrowed its net loss from $18.2 million in June 2006 to $8.1 million in June 2007. The company actually achieved $14 million in EBITDA in the last two quarters and after excluding restructuring costs, adjusted EBITDA came in at $18.4 million in Q2.

As expected, sales have declined 13% on account of this restructuring. Unlike my other turnaround pick Blockbuster (BBI), there is too much uncertainty surrounding Intertape for it to be considered a long-term play at this point but I am looking for a short-term bounce of anywhere from 10% to 30% in the stock over the next few months based on the price of the rights offering, the Littlejohn bid that was rejected and management's efforts to make the company profitable once again.

Investing in turnaround situations is extremely risky and if I decide to act upon Intertape, I plan to allocate no more than 1 to 2% of my capital to this position.

Voluntary Disclosure: I currently do not hold a position in Intertape Polymer Group.

Source: Watching the Tape on Intertape