Spin-Off Value Plays

Whitney Tilson pens a good column in the Financial Times about finding value in spun-off companies. He mentions owning two -- one of which I own and will be familiar to regular readers of Controlled Greed.com: Mueller Water Products. I own both the A and B shares.

Here's part of what Tilson says:

So what is Mueller worth? Using three different valuation methodologies – private market value, peer public company multiples and a sum-of-the-parts analysis, we think Mueller shares are worth in the mid-$20s, versus under $15 today. We think that is plenty cheap for a stable, high-quality business and have been buying aggressively at today’s prices.

Wilson also mentions CBS (CBS/NYSE) in passing, though he doesn't say he owns it. You know I do -- and unlike Mueller, it's been a winner so far. But both positions are still relatively new to the portfolio. So new that performance to this point is, well, pretty pointless.

Comments

[Amit Chokshi]

I think its worth about $22 or so and I've spent a lot of time looking at this one. I haven't bought it yet, mainly because I think it can drop much more than investors realize. I have experienced in the LBO world (was a former ibanker) and know MWA and WLT, and MWA had publicly traded debt for a while and if you look back to prior housing/real estate busts, the company took it on the chin pretty hard. A lot of people are focused on the infrastructure play (i am) but I think ignoring how long the co's exposure to real estate development could play out. I'm liking it at mid $13.00s (around now) so will prob start accumulating but wouldn't surprised if you buy it at $12

[John]

Amit: I have no idea the short term prices for MWA and MWAB, though what you say about in falling to $12 could well prove to be true. This stock strikes me as one someone could buy now and mark their calendar for a few years down the road and find they've made a nice gain. Though there are no guarantees, of course. :-)