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Uncovering The Hidden Value in Real Estate and Equipment


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By:  Nick Howard  |  Date: June 2013  |  Contact the Author
Part 1 | Part 2

Capital markets were never designed for win-win scenarios even though many believe otherwise. Financial news from Manroland Sheetfed and H.J. Heinz offer age-old examples of this fact; when there are winners there will also be losers. Consider the investor’s Investor, Mr. Warren Buffett, and his mid-February 2013 alignment with Brazilian 3G Capital to buy H.J. Heinz for $23 billion. The consortium of Berkshire Hathaway and 3G paid top dollar in acquiring a blue chip, annuity-shedding business. The losers: Most probably all the folks who will be looking elsewhere for a paycheck, or those who had to tender their shares. The winners: Presumably Buffett and most any company aligned with him.

Yellow Media Ltd.’s mind blowing multi-million-dollar acquisition spree of virtually every Canadian phone book publisher came to a screeching halt recently with the former Income Fund’s management displacing Marc Tellier as their chief executive. It would seem no one opens up the yellow pages anymore. Yellow Media’s push for high dividends kept many shareholders in the game much longer than they should have. The Losers: Sellers of the original stock and anyone holding Yellow Media shares today. The winners: Bain Capital made out just fine and so did the sellers of all those former phone book companies.

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Enter Mr. Tony Langley, Chairman and CEO of the Langley Holdings PLC industrial group, which purchased manroland’s sheetfed business in mid-2012 and moved it out of bankruptcy as the new manroland sheetfed GmbH. It has now been plastered all over the Internet that Langley paid roughly €80 million for the sheetfed business. Inclusive in this figure is a book gain of €25.2 million just from real estate holdings in Offenbach and the company’s Italian headquarters. Langley is a very smart businessman who moved when others hesitated. In fact, all of the Langley’s German holdings are said to be outperforming the German machinery producer’s index, called Verband Deutscher Maschinen und Anlagenbau e.V. (VDMA).

Just after Langley Holdings’ takeover of manroland sheetfed, and prior to Drupa 2012, Langley shrugged off an old printing machinery pretence that trade shows are omnipotent to success. Langley’s unfettered comments about his disdain for absorbing high costs of tradeshows have certainly been reflected in an exodus from IPEX 2014 bookings by some of the printing industry’s largest technology suppliers, including the likes of Agfa, Canon, Komori, Kodak, Heidelberg, HP and Xerox. It may have been a historic mistake for IPEX to move its show from Birmingham to the highly expensive confines of downtown London.

Langley also wasted little time in dumping a trove of stuffy management at the old manroland and taking the controls himself. The losers: A mixture of the ownership of Manroland A.G. (M.A.N. & Allianz), as well as company bankers, small shareholders and the workers dismissed. The winners: Langley Holdings and manroland sheetfed printers.

Real estate was the major immediate win for Langley putting up cash when no one else would. Besides Langley’s brilliant moves and penchant for ignoring the establishment in German printing machine circles, there is a story of how every business has hidden value. And this value is often determined by how small, medium and large businesses leverage their real estate holdings.

Running with real estate value
I’m still amazed quite honestly at the rhetoric of larger companies putting forth their notion that factories are something not held but expensed. The predictable rationale behind this statement is that companies make money on what they produce or offer for sale; the costs of such sales – machinery, labour, facilities and overhead – are seen as destined for the expense side of the ledger. Publicly held businesses in particular do not want any liabilities not directly involved in the making a product, to be seen as a drag on the financial statement.

I beg to differ: Take a quick look around you and find propan asset that declines in value (on the balance sheet) while at the same time increases (in value) when sold. Certainly the key ingredients of production printing, presses, binders, software, etcetera, will not fit the above scenario. Property is probably the only asset that remains just that, an asset. With interest rates at near record lows and investment debentures, bonds or cash deposits the same, what could be better security than owning the facility where you are manufacturing?

The Canadian grocer giant, Loblaw Companies Ltd., plans to spin off 35 million square feet (from a total holding of 47 million) into a Real Estate Investment Trust (REIT), which would create a $7 billion holding. That’s a pretty big number almost currently hidden and buried somewhere in the accounting statements. Like most publicly traded companies, Loblaw is keen to push for a return on shareholder value. One can only speculate the extent of the huge gain that will take place as some of the properties have been held for decades, maybe even longer. However, I disagree with selling these low book value assets?

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