Jeffrey Smith of Starboard Value presented a stock pick to the
Value Investing Congress audience based on his firm's practice of
improving companies' dynamics by replacing underperforming board
Wausau Paper (
- Former paper business from Wausau, Wisconsin
- Starboard owns 15% of the company
- Has become a towel and tissue product business in the last
couple years. Traditional paper is declining; with tissue
paper, there is no such threat. As Smith put it, "Last I
checked, we're going to be using toilet paper in the bathroom,
- Starboard replace several directors on the company's board
to help it become more of a pure-play tissue business.
Consequently, WPP sold the printing and writing portion of the
business. Eventually sold off their technical paper business -
which was losing money - for $100 million.
- Still an opportunity to dramatically improve company's cash
- In the last two years, under Starboard's tutelage, WPP's
margins have improved from 7.4% to 28.6%. Net debt has fallen
from $345 to $103.
- Four of the nine members of the company's board are true
paper and tissue industry experts and not merely "friends of
the former chair," Smith said.
- Business is now stable, with opportunity for growth,
capital improvement and cost improvement. One major cost the
company can shed is by closing its Wisconsin headquarters. Most
of its operations are in Kentucky. That will save more than $30
million for Wausau.
- Currently trading at 12 times cash flow, seven times
- Needs rebranding: "Why would you call yourself Wausau Paper
if you're no longer a paper company and no longer in Wausau?"
Smith asked. A name change could jumpstart interest in a
little-known, sleepy company.
- Could potentially buy back stock and implement a dividend
based on strong cash flows
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.