Activist Embattled Small-Cap Spinoff Coming

Activist Embattled Small-Cap Spinoff Coming

We sent this to subscribers of our free small-cap newsletter with ActivistStocks last week. Sign up to get all our small-cap updates as we send them out.

Spinoffs have historically been great places to find orphaned stocks, although much of the market has caught on to this secret. In part, thanks to Joel Greenblatt’s book You Can Be A Stock Market Genius.

One of Greenblatt’s best quotes is about using spinoffs and other corporate events to find investment opportunities.

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Something out of the ordinary course of business is taking place that creates an investment opportunity. The list of corporate events that can result in big profits for you runs the gamut—spinoffs, mergers, restructurings, rights offerings, bankruptcies, liquidations, asset sales, distributions.

if spinoffs are opportunities, small-cap spinoffs must be the holy grail. Manitowoc (NYSE: MTW) is already a small-cap, with a $2.2 billion market cap, but it’s getting even smaller this week.

Manitowoc operates as a crane and a foodservice business, but not for long. Ralph Whitworth and Relational Investors got involved with Manitowoc years ago, with Carl Icahn taking the torch and finally convincing Manitowoc to split up. Icahn still owns close to 8% and Glen Robbins’ Glenview Capital is also a major holder – owning 7%.

Manitowoc shares are down 28% over the last twelve months and off more than 50% from its early 2014 high. The cratering of oil prices has exacerbated this selloff, leading much of the market to forget about Manitowoc’s foodservice business. Shares of the spinoff will start trading March 4th as Manitowoc Foodservice (NYSE: MFS).

Now, Manitowoc’s foodservice spinoff checks a lot of boxes for small-cap investors – including Law # 3 – Investor Exclusion on the Six Small-Cap Laws list. Pre-spinoff, Manitowoc is already being shunned by the media and analysts. When the spinoff comes, the foodservice stock will be further pressured as institutional investors

Manitowoc bought the foodservice business last decade as a way to decrease the volatility and cyclicality of its earnings. The remaining crane business will be very volatile, but it’s not likely that it makes it long as an independent company. But the crane business does have a few things going for it – for one, it’ll get a hefty $1.3 billion dividend from the foodservice spinoff and be able to offload leverage onto the newly spun company. Manitowoc plans to further shrink the crane business as well, saying the global footprint is too large.

Icahn does have a board seat at Manitowoc and will also get a board seat at the foodservice spinoff. He managed to convince Manitowoc to make the corporate governance measures at the spinoff very shareholder friendly as well. The idea is to make the spinoff as enticing as possible from a takeover perspective.

We’ve upped our small-cap coverage. After all, Ibbotson shows that small-caps posted an average return of 12%+ from 1927 to 2007 — $1,000 in small-caps in 1925 would equal $16 million today, compared to the $3 million you’d have by investing in large caps. We’re doing something big. Want to be apart of it? Sign up for the FREE SMALL-CAPS NEWSLETTER.

P.S. We’ll be launching a quarterly subscription service that profiles underrated small-caps and under-the-radar hedge fund managers. The idea is to fish in a pond where there are less fishermen. We’ll be profiling managers that have a history of outperforming – the April issue features a manager that’s generated ~15% annualized returns since inception and has a proven track record of finding micro-caps with impressive upside – learn more here.

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