Shares of Hawaiian land and shipping company Alexander & Baldwin (ALEX) jumped 17% Friday on 8x normal average volume following the announcement that the company would separate into two publicly traded companies. This was good news for shareholders who have not had much to cheer about in the past several months.
It was just this past April 1 that shares got a 19% boost when it was announced that Bill Ackman of Pershing Square had disclosed a position in the company. Anytime Ackman throws his hat in the ring, it garners some attention.
But the novelty wore off, at least for short-term focused investors, as shares had given back 30% between the time Ackman's stake was announced and just prior to Friday's announcement.
The transaction, which should be completed sometime in the second half of 2012, will give shareholders one share in each new entity, Alexander & Baldwin and Matson Navigation. The new Alexander & Baldwin will consist of the current company's real estate and agriculture operations, while Matson will contain the ocean transportation business.
As a shareholder, the separation of these unique businesses makes sense. My initial position in the company was taken with the presumption that the real estate assets, which include 88,000 acres primarily in Hawaii, as well as 7.9 million square feet of commercial property, including retail, industrial and office properties primarily on the US mainland, but with about 900,000 square feet of that total in Hawaii, were not being properly recognized in the stock price. This transaction will force the market to value both the shipping and real estate businesses separately.
In terms of the numbers, the real estate segment generated $371 million in revenue during the trailing 12-month period ended September 30th, and $102 million in operating profit, while, the shipping business generated about $1.5 billion in revenue and $104 million in operating profit. While it is not clear exactly what the balance sheet of either new entity will look like following the separation, the company has stated that about 40% of the current debt load, which totaled $570 million ($67 million short-term and $503 million long-term debt) will be allocated to the real estate company (Alexander & Baldwin) and the balance to the shipping company (Matson).
There is also the matter of the dividend, which is currently $0.315 per quarter, which makes for a decent 2.8% yield. The company has stated that while the current dividend will continue until the transaction is complete it will be a different story thereafter. Matson is expected to pay a dividend of between $0.50 and $0.70 annually, while Alexander & Baldwin will not pay a dividend, at least initially. This is a curious aspect of this deal: It could be viewed as a dividend cut, but the markets did not seem to care during Friday's trading.
Ackman must be pleased that a deal has been done; it has his fingerprints all over it. It appears to be the best way to extract the full value of the company's assets. It will be interesting to see how the new companies price.