Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Corsair Capital Buying Up Globe Specialty Metals Inc (GSM) In Wake Of Latest Merger

Globe Specialty Metals Inc (NASDAQ:GSMis one of the silicon metal industry’s successful consolidators. The company has acquired numerous companies over the last decade, including Yonvey in 2008, Core Metals in 2010, and Siltech in 2013. The acquisitions have added to Globe Specialty Metals’ book value. According to management, Globe Specialty Metals has spent a net $109 million in acquisitions since 1992 and has realized an increase in total replacement cost of $1.48 billion, giving Globe Specialty Metals a 13.5x return on its investment.


Many mergers sound good on paper but end up being bad in practice. Managers promise synergy, cross selling, and cost cutting, but deliver results that fall short of expectations. Because results don’t meet expectations, many mergers destroy shareholder value rather than create it, decreasing employee morale, distracting management, and alienating customers. Bad mergers haven’t stopped companies from merging, however. If done correctly, mergers can unlock tremendous value by consolidating an industry and achieving scale. Scale lowers production costs and reduces cost of capital. It increases margins and profits. In commodity industries, scale can mean the difference between a 5-bagger and a flat stock.

In February, Globe Specialty Metals announced its largest merger yet, a $3.1 billion all stock merger with Europe’s Grupo FerroAtlantica. Grupo FerroAtlantica is a European producer of silicon metal, manganese, and ferrosilicon alloys. By merging with Grupo FerroAtlantica, the merger should yield up to $95 million in synergies, with $65 million in anticipated cost synergies and $30 million in anticipated financing synergies. The deal is expected to be accretive to EPS in the first year and will close in the fourth quarter of 2015.

If done correctly, the merger will increase EPS and EBITDA. Given that the combined company had an annual EBITDA of $325 million before the merger and that the merger could save $65 million in cost expenses and $30 million in interest expenses, the merger has the potential to increase combined EBITDA by 20% and EPS by almost 30%. Analysts are bullish because of the merger, expecting Globe Specialty Metals to earn $0.96 per share in 2016, up from 2015’s $0.82 per share. Analysts also have a target price of $25.67 on the stock, 35% above Globe Specialty Metal’s current share price.

A big hedge fund is also buying Globe Specialty Metals Inc (NASDAQ:GSM)’s stock. Steve Major‘s Corsair Capital recently filed a 13G, disclosing that it owns over 3.69 million shares, up from 1.73 million shares at the end of the first quarter. Corsair’s 3.69 million shares give the hedge fund a 5.01% stake in the company. Corsair Capital joins Clifton Robbins’ Blue Harbour Group and Chuck Royce’s Royce & Associates as major shareholders of the materials company. Blue Harbour Group owns 5.78 million shares, worth over $109 million,and Royce & Associates owns over 2.2 million shares, worth $42 million. Although Blue Harbour kept its position the same during the first quarter, the hedge fund could add if the merger outperforms.

Jay Petschek And Steven Major
Jay Petschek And Steven Major
Corsair Capital Management

Silicon metals and alloy demand will grow by more than 6% year-over-year in the coming decade as several mega-trends drive growth. Because solar panels use silicon as a primary ingredient, solar demand for silicon will increase. Because car manufacturers are substituting lighter weight aluminum and silicon for steel to make their vehicles lighter, aluminum demand for silicon will increase. Given that natural gas is cheap in the United States, the energy costs to produce silicon metals and alloys will stay low, increasing margins. All of these factors should help Globe Specialty Metals Inc (NASDAQ:GSM) do well in the coming decade. If management executes and the company realizes synergies of $95 million or more, Globe Specialty Metals should trade above $25 a share.

Following the small cap picks of hedge funds can generate alpha. Our research shows that the 15 most popular small-cap stocks among hedge funds have outperformed the market by nearly a percentage point per month between 1999 and 2012. We have been forward testing the performance of these stock picks since the end of August 2012 and they have returned more than 142% over the ensuing 2.5+ years, outperforming the S&P 500 Index by nearly 84 percentage points.

Disclosure: None

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.