Jun 12, 2008
Eddie Lampert, Housing, and Failed Buyouts
The Wall Street Journal has a good article on Eddie Lampert that talks about him betting on a rebound in housing.
ESL acquired small stakes in U.S. home builders Centex Corp. and KB Home, according to its latest Securities and Exchange Commission filings. At recent prices, the stakes in the two home builders are valued at $10.4 million and $10.8 million, respectively.
ESL also is tip-toeing into mortgage origination and servicing, acquiring about four million shares of CIT Group Inc., a struggling subprime home and commercial lender, as well as 1.4 million shares of PHH Corp., a mortgage originator and mortgage-service company.
One thing that this article leaves out is that Lampert appears to be targeting companies that are involved in failed buyouts. Often, these companies will enact large share buyback programs or other value creating initiatives in order to please their investors. Also, keep in mind that many companies are taken private because they are undervalued, this means that almost any of these companies can be value investments. The trick is to figure out if the companies needed a buyout in the first place to unlock their value.
A company like The Tribune needed a buyout, because its savings were going to be derived through a tax friendly structure. In other companies, it might be the case that the market simply undervalued them or management didn’t take the correct steps — like at Friendly’s.
Here’s a list of Eddie Lampert investments that are failed buyouts: Acxiom (), SLM Corp (), PHH Corp. ()
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