John Keeley Comments on SunCoke Energy (SXC)
In a number of our quarterly commentaries as well as our shareholder reports, we have talked at length about our anticipation of more opportunities in our restructuring investment themes, notably corporate spin-offs. Recent developments within corporate restructuring as well as the increasing appetite of companies to pursue strategic mergers and acquisitions have been increasingly positive over the last two quarters. In 2011, spin-off activity was the highest it has been in over 10 years. Although a number of the 47 announced spin-offs were international, nearly 25 were domestic, providing our research team with an attractive opportunity set of ideas to consider. We believe our knowledge and enthusiasm toward this area of inefficiency is well-documented, and the value proposition of this theme continues to present itself. Examples of recent spin-offs include Suncoke Energy (SXC), an operator of metallurgical cokemaking facilities, which was recently spun-off from Sunoco Inc. (SUN). We anticipate strong growth opportunities as the stand-alone company is no longer capital constrained, given its parent company's lack of interest in growing the cokemaking side of the business. Additionally, international growth opportunities are now more relevant as the company seeks to partner with multi-national steel producers to provide coke for their steel mills. We believe the company's prospects are misunderstood by the market, and as a result we believe the company is currently underfollowed by sell-side analysts.