Mr. Smith then moved on to WestRock Co (NYSE:WRK), a company which he says he has had a much more amiable and constructive relationship with. As of December 31, Starboard Value owned 4.52 million shares of the packaging company, worth over $206 million.
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Starboard initially took a position in MeadWestvaco (which would merge with Rock-Tenn to become WestRock in mid-2015) in 2014, believing that the company’s underlying value was being obstructed by its conglomerate structure and overhead. Mr. Smith sent a letter to MeadWestvaco’s Chairman and CEO in mid-2014 detailing some of the steps that he believed the company could take to improve its value, including a separation of the company’s non-core assets, and the improvement of its operating margins, both of which were achieved through its merger with Rock-Tenn according to Mr. Smith today.
Speaking of the company’s businesses, which includes making cereal boxes, beverage cartons, and plastic packaging such as pump sprayers, Mr. Smith said:
“Collectively, these are defensive businesses with ample room for growth. Over 90% of sales are from stable end-markets, which is food and beverage and consumer staples. In addition, WestRock has significant, non-core commercial and residential real estate holdings in Charleston, South Carolina; and they just spun off a valuable specialty chemical business called Ingevity.”
Mr. Smith cited the company’s dividend yield of 3.85% as being appealing and not only safe, but with the potential to actually increase over time. The company also trades at over 15% free cash flow yield, which is well below its peers. Mr. Smith stated that the undervaluation of the company would typically suggest that investors believe a company’s business is in secular decline, which he does not believe to be the case with WestRock Co (NYSE:WRK). He did add that containerboard prices have declined by 2% and that investors may be expecting them to decline further. However, Mr. Smith asserted that prices would have to decline by about another 16.5% to justify the current value of WestRock, which he believes would be unprecedented.
Mr. Smith closed by saying that once the spin-off of Ingevity is completed next week and fears over containerboard prices begin to subside, investors should begin to better appreciate the value of the company’s assets. He believes shares of WestRock could nearly double by the end of next year.
23 investors in our database were long Depomed on December 31, holding 14.5% of the company’s shares, while 35 funds had positions in WestRock totaling $971.18 million in value. Jim Simons‘ Renaissance Technologies owned 1.16 million shares of WestRock on December 31, but sold out of its position in Depomed during the fourth quarter, which had contained 104,146 shares on September 30.
Disclosure: None
