GenCorp's Earthly Assets
Friday January 14, 4:16 pm ET
By Gene G. Marcial
GenCorp (NYSE:GY - News), whose aerojet unit's rocket hardware has flown on every U.S. mission to Mars, is catching the eye of investors for its valuable hidden assets: land. The company owns 12,680 acres of undeveloped property in Sacramento. In addition, several of its big shareholders, led by mutual-fund mogul Mario Gabelli, who owns 12.5%, and Steel Partners, with 7. 5%, are convinced that GenCorp is buyout bait. In fact, Steel Partners tried to purchase the company in November at 17 a share, where the stock stands now -- up from 11 in August. But the board rejected the bid. Gabelli figures GenCorp is worth even more -- in excess of 25 a share, based on its real estate and its business of making propulsion and electronic surveillance systems for the aerospace and defense industries. He expects that a new bidder with real estate interests could make a new buyout offer.
David Lorber of Pirate Capital, which owns 2.3%, says GenCorp is a "sum of the parts" asset play. It will continue to operate and expand its core space-propulsion business, which he says is worth $560 million, and develop and sell its land: It's the largest contiguous plot in Sacramento -- roughly the size of Manhattan. Now in the entitlement process are 5,800 acres, which, once approved for development, would be worth $1.15 billion, or $18.50 a share, says Lorber. The rest, expected to be entitled in the next 5 to 10 years, has a current value, he says, of $344 million, or $5.54 a share. Joseph Nadol of J.P. Morgan Securities (NYSE:JPM - News), who rates the stock "outperform," sees earnings of 10 cents a share in fiscal 2005, ended Nov. 30, and 26 cents in 2006 vs. a loss in 2004. GenCorp declined comment on whether it has received new offers.
Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking
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