SAC Capital Tells Clearwater Paper To Split Its Businesses

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SAC Capital Tells Clearwater Paper To Split Its Businesses


Shareholder activism comes to the fore at Clearwater Paper Corp (NYSE:CLW), with a disclosure by Steven A Cohen’s hedge fund, SAC Capital, that it owned 1.64 million shares in the company, a 7.2% stake, and that:

“On August 16, 2012, a representative of SAC proposed to the Board that it: (i) initiate the separation of the Issuer’s Consumer Products business from its Pulp and Paperboard business, to enable the Issuer to pursue the divestiture of one or both businesses to one or more strategic and/or financial buyers; (ii) engage an investment banking firm to advise on the feasibility and prospective terms of such potential divestitures, including identifying potential buyers; and (iii) nominate and elect two new independent members of the Board (thereby increasing the Board’s size from six to eight members).

SAC has therefore told the company in no uncertain terms to take appropriate preparatory actions for the sale of one or more of its businesses to unlock value.

The Form 13D also referred to an earlier letter dated May 1, 2012, to Clearwater Paper Corp (NYSE:CLW)’s CEO, where SAC had raised concerns about undervaluation of the company and offered to open a dialogue to consider “a variety of options” to realize shareholder value:

“Investment funds managed by S.A.C. Capital Advisors, L.P. and its affiliates currently, beneficially own over 7% of the outstanding common stock of Clearwater Paper Corporation (“Clearwater” or “the Company”). We have followed the Company for many years, and have been a significant shareholder for most of the past 12 months. Through our research and diligence, we have gained an appreciation for the exceptional quality of the Company’s assets and are excited for the future prospects of the business.

However, as we have highlighted to you and your team in past conversations, we believe Clearwater is deeply undervalued by the public markets. Despite the high quality assets and long-term secular tailwinds, we believe the Company’s public market valuation is being undermined by several issues, including uncertainty and volatility created by the acquisition of Cellu Tissue, a lack of visibility on financial performance, and uncertainty about the Shelby expansion due to the Metso Paper USA litigation.

We believe the Clearwater Paper Corp (NYSE:CLW) management team and board of directors have a variety of options to address these issues and realize tremendous shareholder value. We look forward to continuing our dialogue with you about these and other general strategic matters.”

Valuewalk reported on the May 1 letter here.

Clearwater produces and sells private label tissue products, as well as paperboard. Primary customers include both major retailers and wholesalers. The firm manufactures its line of products in a variety of locations in both the United States and Canada.

For 2Q it reported earnings of $21.5 million (91 cents per share) compared to a profit of $13.9 million (59 cents per share) in 2011. Revenues were $473.6 million. Strong sales of tissue, pulp and paperboard led to a jump in Clearwater’s quarterly earnings, said CEO Gordon Jones. The company repurchased 238,482 shares of stock during the quarter at a cost of $7.5 million as part of a strategic buyback program.

Other notable shareholders in Clearwater include Royce & Associates (9.76%) and T. Rowe Price Group, Inc. (NASDAQ:TROW) (8.22%).

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