Jeff Smith Wants MeadWestvaco Corp. (MWV) to Spin Off its Specialty Chemical Business in Order to Unlock Obscured Value

In early-June, Jeff Smith of Starboard Value sent a letter to MeadWestvaco Corp. (NYSE:MWV)’s Chairman and Chief Executive, John Luke Jr., detailing his case –or initiatives- for considerably increasing the value of the company. “The aggressive activist investor, whose firm owns 5.6 percent of the stock, said he thinks the combined value of MeadWestvaco’s assets far exceeds its current share price, and that this value is undermined by excessive corporate overhead and its conglomerate structure” (Institutional Investor’s Alpha). Some of the proposed actions to ameliorate this situation are: a separation of the company’s non-core assets –details below, improvement of operating margins, and a better capital allocation strategy.

Jeff Smith

MeadWestvaco Corp. (NYSE:MWV) is a $7.4 billion market cap packaging company that provides packaging solutions to many of the world’s leading brands in the healthcare, personal and beauty care, food, beverage, tobacco, media and entertainment, and home and garden industries. Mr. Smith assures that now is “absolutely the right time” to spin off the company’s specialty chemical business. He thinks this business could be worth more than $3.5 billion, or roughly half of the combined company’s current market cap.

The spinoff could certainly drive margin expansion for the mother company, and this is a factor that the market has not yet priced. In addition, margin expansion should also derive from other initiatives like overhead reduction, which could be achieved “by consolidating regional headquarters, reducing duplicative administrative staff, and flattening the organization structure” (SEC).

This is why, although MeadWestvaco Corp. (NYSE:MWV)’s stock is already up 19%, year-to-date, its valuation, at 22.3 times the company’s earnings and 2.1 times its book-value, still looks attractive, especially when its growth potential is considered.

Mr. Smith believes that MeadWestvaco’s business is “extremely stable,” and remarked the importance of the company’s valuable asset base; in addition to exploring a separation of its specialty chemical business, there are opportunities to monetize real estate, Brazilian Timberland, pension assets, and to improve capital allocation –see more details in the letter.

While analysts  -in average- expect MeadWestvaco’s stock price to reach $46 per share, Mr. Smith estimates it will trade over $59 per share soon enough, up from its current price of $44 per share.

Disclosure: Javier Hasse holds no position in any stocks or funds mentioned

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Jobs that May Exist in the Future

The Absolute Best States to Shop in the US

5 Best States for Golf Adventures

Top 15 Places To Visit Before You Die

10 Most Expensive Smartphones in the World

10 States with Lowest Physician Density

10 Top Reasons For Getting Fired

The 3 Best States to Start an LLC

10 Jobs That Allow You to Travel

7 High-Paying Jobs You Can Do From Home

12 Best Cities to Shop in USA

10 Best States To Practice Medicine

The 10 Best States to Have a Business

The 12 Most Expensive Apple (AAPL) Apps in the Market

The 10 Richest Billionaires in the World

10 Biggest Kickstarter Failures

The 10 Best Places to Work At

The Top 10 of Google Inc (GOOGL)’s Most Expensive Acquisitions

13 Best Cities to Visit in South America

10 Most Expensive Works of Art of All Time

The 10 Richest Banks in the World

The 10 Best-Paying Jobs in America (2014)

7 Most Expensive Foods in the World

The World’s Top 10 Earning Authors

Five Wicked and Very Expensive Items (and Other “Stuff”) Sold on eBay

10 Biggest Celebrity Bankruptcies

The Top 10 Highest Paid CEOs in 2014

The 10 Most Expensive Real Estate Cities in America

10 Most Expensive States To Live In America

The 10 Best Airlines in the World

The 10 Best-Selling Cars in 2014

The 10 Best Industries to Invest In

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!