David Einhorn was a guest on Bloomberg TV this morning. JOE was one of the topics that came up, and below are a few quotes, as transcribed by me:
Well, I don’t think taking over St. Joe would make very much sense. The talk yesterday was that Bruce Berkowitz and maybe some private equity guys were going to pay a big premium for the company and so that caused a lot of excitement. What I think is that this is going to be a very hard thing to take private on a reasonable basis because there is no cash flow in the company. The company has negative profits and they have no means of generating ongoing cash to service debt. Which means that there’ s not a lot of bank lending for the sort of undeveloped land that St. Joe has at this stage of the cycle which means that it’s going to be very tough, I think, to finance a leveraged transaction for this company.
We’ve heard what management publicly has to say, and frankly, it’s a lot of bad math on the other side of the calculation, because they say, “well, you’ve got this many acres and what’s it worth per acre”. But if you take into account how long it’s going to take to sell it, how much money they have to put in to get those acres ready to be sold, and the ongoing operating costs of the company, it’s very hard to see how somebody entering St. Joe at $20 is going to do very well.
What’s kind of neat about the St. Joe analysis as a short as opposed to some other things is that there’s no ongoing business. They have this many acres. Ten years ago they had twice as many acres. All they do is sell acres. They take in cash for selling the acres. Most of it goes to the operating expense of the company so there’s not a lot of profits left for shareholders. And so basically, this isn’t an ongoing business, it’s basically a run-down of the assets. And my feeling is that if they continue on their current course, it’s going to take them a few decades, but, by the end of the day, there just won’t be anything left.
Update: Bloomberg’s article on this, “Einhorn Says St. Joe Buyout Would Be ‘Very Tough’”
Disclosure: I am short JOE.