Wintergreen Fund annual report to shareholders for the year ended December 31, 2015.
New York – (BUSINESS WIRE) – Wintergreen Fund, Inc. today released its 2015 Annual Report. The shareholder letter appears below and is also available at http://www.wintergreenfund.com.
Dear Fellow Wintergreen Fund Shareholder,
As we look back on Wintergreen Fund, Inc.’s (NASDAQ: WGRNX, NASDAQ: WGRIX, the “Fund” or “Wintergreen”) first ten years, we are extremely pleased with what we have accomplished. The Fund has sought to act with integrity and to stand up for our shareholders when faced with management teams who we believe have misbehaved. The Fund has remained focused on its long-term, global value investing approach, and has not wavered in an attempt to chase short-term performance. It has clearly been a difficult period to be a true value investor, but we believe that remaining disciplined, while so many others have strayed, offers our shareholders a great opportunity for future success.
Wintergreen Fund – Portfolio Holdings
The Fund had strong 2015 returns from long-term portfolio holdings Reynolds American Inc. (NYSE: RAI, “Reynolds”), Alphabet, Inc. (NASDAQ: GOOG, NASDAQ: GOOGL), and Altria Group Inc. (NYSE: MO) Securities that underperformed included Franklin Resources, Inc., which was sold during the year, Birchcliff Energy Ltd., and Canadian Natural Resources Ltd. The Fund also utilized forward currency contracts, which had an overall positive impact on performance during the period.
The time is always right to do what is right. – Martin Luther King, Jr.
Every now and then, controlling shareholders of an excellent business foolishly attempt to enrich themselves at the expense of minority shareholders. At the close of 2014, the Burkard family announced its intention to sell its controlling stake of Sika AG (SIX: SIK) of Switzerland to a French competitor, Cie de Saint-Gobain, which has long coveted this prize of a company. The problem in this proposed deal is that the Burkard family, which conducted negotiations away from Sika’s Board of Directors, would receive a premium in the sale and all other shareholders would not. Now held up in the judicial process due to strong and swift legal action taken by Sika’s Board of Directors, and backed by key minority shareholders, we think this brazen attempt to deprive shareholders of Sika’s full and fair value will fail. Shares of this little-known gem of a company—a maker of high value-added construction materials to satisfy growing demand for stronger, lighter, and more energy-efficient building and automobile structures – have been knocked down to a discount, which we intend to exploit. Out of the range of possible outcomes in the battle for control, we believe the current plan of the Burkard family is the least likely, and when this corporate governance distraction is resolved in the favor of the Board of Directors and minority shareholders, the focus will return to the company’s attractive fundamentals of organic sales growth in both developed and emerging markets, earnings-accretive bolt-on acquisitions, and steady cash flow generation.
Try not to become a man of success, but rather a man of value. – Albert Einstein
Reynolds has been a core Wintergreen Fund investment for many years. The Reynolds management team utilizes a value formula that consists of wielding pricing power, generating substantial free cash flows, and returning much of that cash through raising dividends and share repurchases. The company acquired the Newport brand via the takeover of Lorillard during 2015, and traded away lower-return assets, for an attractive price. Reynolds’ market share of the U.S. cigarette market has increased from around 25% to 33% with the addition of Newport as of December 31, 2015. According to Reynolds’ management, the deal is accretive on an earnings per share basis in the first 12 months and will have “strong double-digit accretion second year and beyond.” Reynolds may execute a rapid pay-down of debt after the Lorillard deal, which will increase the prospects of accelerating stock buybacks. With our investment in British American Tobacco plc (LSE: BATS, “BAT”), the largest shareholder in Reynolds with ownership of 42% of Reynolds outstanding shares, we should further benefit from the ongoing success of Reynolds. Since BAT has acquired affiliates of some portfolio companies in the past, we would not be surprised to see one day the complete purchase of Reynolds’ shares that BAT doesn’t already own.
I’m mad as hell and I’m not going to take this anymore. – Network (1976 film), News Anchorman Howard Beale
Many of us who have seen the movie Network have a very clear mental picture of an angry news anchorman yelling an instruction for all of his viewers to get up from their seats, go to their windows, open the window, and shout out to the world that they are mad as hell and not going to take it anymore. Yelling out of the window was a novel approach to vent, but it did not offer any course of action to meet or correct complex issues.
With roots that go back to the early 1900’s, Consolidated-Tomoka Land Co. (NYSE: CTO, “CTO”) is a land company in Volusia County, Florida, that was formed as the remains of a liquidating trust from Baker, Fentress & Co. In 2006, when Wintergreen Fund first invested in CTO, it was and still is a company with approximately 10,500 acres of largely undeveloped land near the famous Daytona International Speedway and Interstate 95, a primary north-south highway. Although CTO has sold off some acreage over the years, and it has improved the quality of its income property portfolio, in our opinion, CTO has largely not taken advantage of or participated in rising land values during the ongoing real estate recovery. We believe CTO’s stock price is significantly undervalued, and the increase in stock price over the years generally tracks the increase in value of the real estate market. Since initiating a position, Wintergreen has encouraged meaningful changes at CTO including the replacement of what we viewed as a flawed management team and the implementation of annual elections for directors through the removal of the staggered board structure which had worked to entrench the previous slate of directors.
During the last decade, while Wintergreen has owned a significant portion of CTO, we think the company has been plagued by management issues, lack of overall vision to design and implement a development plan for the company, and the overarching real estate market that, while it was sour for a few years, provided well-run companies with the opportunity to prepare for the current upswing in the real estate market. We believe this current upswing, combined with favorable interest rates makes it a great time to take action. However, we believe that CTO has again lost its way.
To invigorate and motivate management to re-focus on the best interests of all shareholders, advisory clients of Wintergreen Advisers, as beneficial owners of more than 25% of the outstanding shares of CTO, have initiated a shareholder proposal (the “Wintergreen Proposal”) for the 2016 annual meeting of CTO shareholders. The Wintergreen Proposal is for CTO, in order to capitalize upon the revitalized real estate market in Daytona Beach and Volusia County, to hire an independent advisor to evaluate ways to maximize shareholder value through the sale of CTO or the liquidation of CTO’s assets. We believe