Mittleman Brothers is a New York-based hedge fund, which has a US equity portfolio worth $220 million as of the end of September. The fund managed around $450 million at the end of October including its foreign holdings. Mittleman employs a concentrated, long-term investment approach, typically holding between 10 and 20 positions. The fund is not constrained by the market capitalization of the stocks it invests in, though it prefers small-caps, believing that the greatest discrepancy between fair value and market pricing occurs in small-cap stocks. Mittleman also invests a substantial portion of its funds in international companies. While the fund’s long-term performance has been good, it has underperformed the S&P 500 index over the last 3 years. The Fund’s largest holding as of September 30, Carmike Cinemas (NYSE:CKEC), did perform well during the 3rd quarter of 2016.
In this article, we’ll discuss the Fund’s largest holdings, including Carmike, as well as see what Mittleman thinks about their future prospects.
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Carmike Cinemas, Inc (NASDAQ:CKEC), which owns and operates movie theaters in the U.S, was held by 18 funds tracked by Insider Monkey as of September 30, down by five over the quarter. Carmike Cinemas Inc (NASDAQ:CKEC) rose by 8.5% in the second quarter after AMC Entertainment Holdings Inc. (NYSE:AMC) raised its acquisition offer from $30 to $33. Mittleman is still opposed to the merger despite the increased price however, as it thinks that the minimum value for Carmike should be $40 per share. AMC Entertainment Holdings Inc. (NYSE:AMC) bought another theatre chain called Odeon-UCI in mid-July for which it paid 9x EBITDA. For CKEC, AMC is only paying 5.3x EBITDA, which is why Mittleman believes the offer is a weak one.
An FBR report recently estimated that AMC would be generating $682 million in value for a deal size of $1.2 billion, which is a huge amount of value creation that should be shared more equitably with CKEC shareholders. AMC is currently the 2nd-largest theater chain in the U.S, while CKEC is the 4th-largest. The fund thinks that AMC should pay a substantial premium, as the combined entity will become the top theater chain in the U.S. The fund intends to keep holding Carmike even if the merger is approved, as it believes that AMC’s stock is also worth $40 at fair value, which is much higher than its current price. About 2.2% of AMC Entertainment Holdings Inc. (NYSE:AMC)’s float was held by 16 hedge funds in our system on September 30.
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We’ll check out what the fund had to say about two other stocks on the next page.