International, Inc. (NYSE:OIS) has four business segments: Well Site Services, Tubular Services, Offshore Products, and Accommodations. We believe that the company trades at a significant discount to the sum of its parts. Though the shares trade at slightly less than 7x 2013 EBITDA (a multiple typically associated with its lower multiple businesses), the majority of its profits come from Accommodations, which is a high growth, high return-on-capital segment that deserves a much higher valuation. At 8.6x 2013 EBITDA, an appropriate multiple given a sum of the parts analysis of OIS’s business mix and where comparable companies trade, OIS would be worth close to $120 per share. We believe that OIS could unlock significant shareholder value by converting the Accommodations unit into a REIT and separating it from the rest of the company; if completed, it would suggest a valuation of $155 per share.
Greenlight Capital Q1 2013 Letter: Closed positions
Greenlight Capital Q1 2013 Letter: ESV
We bought ESV, an offshore contract oil driller, after the Macondo oil spill. At the time, we believed that the shares were depressed over fears of curtailed offshore drilling. Subsequently, the fears were resolved and the drilling business recovered. We earned a 34% compounded return over our 4+ year holding period. The return was helped by favorable trading around the position. We sold in order to redeploy the capital into OIS.
Greenlight Capital Q1 2013 Letter: XRX
Xerox Corporation (NYSE:XRX) did not perform as well as we had hoped. We bought the shares based on expectations that synergies from its acquisition of Affiliated Computer Services would lead to revenue growth and margin improvement. Unfortunately, the company did not deliver. Despite this, we sold the shares for a modest gain.
Greenlight Capital Q1 2013 Letter: AVB
We finally gave up on our short of AvalonBay Communities Inc (NYSE:AVB). Our initial short in early 2007 worked nicely during the credit crisis, but we overstayed our welcome. It is a mediocre business with cyclical risk and an extreme valuation due to its REIT nature. Nonetheless, the company recently acquired Archstone properties and issued a lot of stock. The shares declined from their recent highs and we took the opportunity to admit defeat and exit with a loss.
Greenlight Capital Q1 2013 Letter: MBIA Short
During the quarter, we finally declared victory on our MBIA Inc. (NYSE:MBI) short, which we have held in some capacity since 2002. It was rough sledding for the first five years until the stock collapsed from $76 to $2 between 2007 and 2009. This was another case of a misunderstood business and a management team engaged in assorted accounting and business chicanery. While it is possible that sleepy regulators will ultimately put this company and its management out of their misery, the opposite seems equally possible. We’ve decided to enjoy the healthy profit we made and step aside for the time being. Cumulatively, this was the third most profitable short position in our history.
Greenlight Capital Q1 2013 Letter: Personal update
We have several organizational updates. At the 17th Annual Partner Dinner in January we announced the promotions of Alexandra Jenkins and Claire Davis to Partner. Alexandra joined Greenlight in 2004 and over her years here, the Partnerships have benefitted from her ability to conduct detailed objective analysis resulting in thoughtful and often humorous position write-ups. With great dedication, she has contributed to many successful investments including Lanxess and many retail shorts. Greenlight had a relationship with Claire for many years through Greenlight Masters before she joined in 2009 and brought her unique skill set to the investment team. Notably, she has done the heavy lifting on many of our short positions including St. Joe, Green Mountain and Herbalife. We congratulate Alexandra and Claire on their promotions to Partner!
Greenlight Capital Q1 2013 Letter: New Analyst
Garrett Jones joined Greenlight as a research associate to work in our Dallas office. Prior to joining Greenlight, he was an analyst at Nicusa Capital, a concentrated value-oriented long/short equity hedge fund. From 2006 to 2009, he was a consultant at Booz & Company where he focused on corporate modeling. He received his MBA from Columbia and his B.A. from Dartmouth. Garrett is both an Eagle Scout and a black belt which makes him our top choice to explore St. Joe’s