While taking a look at Bill Ackman’s portfolio after writing about his position in Target (TGT), I came across his recent purchase of Alexander & Baldwin (ALEX). As followers of Ackman and Pershing Square know, Ackman likes to take concentrated positions in companies and, at times, will agitate for changes. He did this with Target, although he was unsuccessful in his attempts to get on the board, and he also recently did this with J.C. Penney (JCP).
With Alexander & Baldwin, Ackman teamed up with Richard McGuire of Marcato Capital Management to buy 9.9% of the company. Ackman was the heavy lifter here and purchased 8.57% of the outstanding shares on March 21. Shares are nearly 20% higher because of the disclosure. It’s interesting that this $1.9 billion market cap company, which is relatively unknown, also has eight other guru owners. Primecap Management and Third Avenue Management each own more than 4% of the outstanding shares. Presumably they would support Ackman’s efforts.
Alexander & Baldwin owns nearly 90,000 acres of land in Hawaii and offers shipping services in the Pacific. While valuations aren’t necessarily cheap, this appears to be a break-up play by these value investors. The dividend is 2.8% and the P/E is 20. The company recently came out with poor guidance related to its shipping business because of fuel costs, which will lead to a first-quarter loss. However, they also said their real estate and agribusiness continue to have a positive outlook.
Alexander & Baldwin was founded in 1870 and is located in Honolulu, Hawaii. They operate in three segments: real estate, transportation and agribusiness. The following information on their segments comes from their website:
Real Estate - Developing real property, primarily in Hawaii | Selling residential and commercial property | Managing a portfolio of commercial/industrial properties
Transportation - Carrying freight, primarily between Pacific Coast ports, Hawaii ports and Guam | Conducting related shoreside operations | Arranging domestic intermodal transportation
Agribusiness - Growing sugar cane and producing raw sugar | Growing, marketing and distributing coffee
The company’s real estate holdings and their agribusiness holdings don’t appear to be related to the shipping business. Certainly shares are not being valued correctly with such disparate businesses, especially since commodity prices are surging. The fast rising prices of sugar and coffee would give a more focused producer a much higher valuation. The vast majority of revenue comes from the transportation segment, yet the real estate holdings make up nearly half of assets and operating profit. Not only that, but after reading through the company’s most recent conference all, it appears that the agribusiness is not being managed to its potential.
It will be interesting to see what Ackman persuades the company to do. My minimum expectation is that there would be a spin-off of at least one segment, if not both the agribusiness and real estate. With high institutional ownership and strong value-oriented owners, it would be hard to believe there will be that much of a fight by management and the board.
Disclosure: No positions
Also check out:
- Bill Ackman Undervalued Stocks
- Bill Ackman Top Growth Companies
- Bill Ackman High Yield stocks, and
- Stocks that Bill Ackman keeps buying