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Non-Tech : SPIN-OFFS "secret hiding places of stock market profits" -- Ignore unavailable to you. Want to Upgrade?

To: valueminded who wrote (260)	7/25/1998 5:43:00 PM
From: tipol	Respond to of 1185

On July 10 Seth Klarman of the Baupost Group filed a 13G which shows he owns 12.4% of Navigant. He is a good value investor and much earlier in the thread, message #37, Linden Doerr mentions how he follows and reviews Klarman's positions. I have also been looking at the company and like what I see so far.

To: valueminded who wrote (260)	7/26/1998 3:05:00 AM
From: Stewart Whitman	Respond to of 1185

Chris, Regarding Navigant and other U.S. Office spin-offs, this Forbes article describes Ledecky's style: forbes.com I think it's important to understand how he grows the companies before considering any of the spin-offs. I think Ledecky is still going to be heavily involved in these companies (I think he owns options on 7.5% of stock for each company). These companies are going to aggressively consolidating - so far since the spin-off, SCHS has announced 2 deals ($9.9 million sales, all cash), FLYR 1 deal ($3 million sales, not disclosed), AZTC 1 deal ($35 million sale, on credit? for $54 million). Ledecky's past companies haven't done exceptionally well for shareholders over the longer term. If you look at OFIS, or BUYR, even though revenue has grown ridiculously, Wall Street has not necessarily responded with a higher stock price. Of course, when I say "long term" OFIS has only been public for three years - not exceptionally long term. Looking at the companies, I would say that SCHS and WORK should benefit the most from this style (it's relatively simple to work on the supply chain and get price benefits from suppliers) - like OFIS did. There is less of a benefit from this type of consolidation for FLYR and AZTC. In the prospecti? for these companies, they indicate that corporate customers are moving to IT and Travel firms with a national presence - while this seems somewhat logical, I don't really know how strong the trend is. FLYR's task also seems difficult since I think that the commissions are more or less fixed by the airlines and to really improve margins you have to look elsewhere (e.g. technologies, better/different/optimzed services). If you look at gross margins over time, you will see FLYR's declined from ~50+% to ~42%. After all this is said, WORK and FLYR seem cheap. I think you will probably do well with FLYR. I have mixed emotions on these stocks. As far as current spin-off situations, I am especially interested in ROK. Spinning-off the semiconductor operations leaves a really strong cash-flow operation (Avionics, Automation) and the smaller "EC" operations (actually just telesales type operations - $200 million sales, I think). The capital spending on the semiconductor business was about 2x the other businesses put together whereas its sales were about 1/4 of the total. I see the non-semiconductor operations being worth about $32 (~12x free cash flow for Avionics and Automation + $2 for EC). Target EPS growth ~15% for non-semiconductor operations and I suspect they will maintain the dividend on ROK of ~$1.00 (when they spun off MRA - auto-parts - they maintained a large dividend). I think there could be reasonable upside to this valuation. The semiconductor side is worth about $7 to $13 when valued at 1x to 2x sales. With the semiconductor operations - specializing in communications, wireless, imaging - there some good upside to this valuation, especially if semiconductor's recover. I'm still sitting on the side lines though, waiting for more downside on the stock price (which seems likely), but my target to start buying is ~$38 for the combined entity. ROK has a pretty good web site which provides a lot of information on the operations of the different segments. Stew