Manitowoc (MTW) Unlikely to Thaw Debt

Manitowoc (MTW) is selling its ice making equipment divisions responsible for the brands Scotsman, Ice-O-Matic, Simag, Barline among others. Manitowoc will receive $160 million in exchange for the business from Braveheart Acquisitions a subsidiary of private equity giant Warburg Pincus. Manitowoc stock has been under significant pressure, down nearly 90% since a year ago and more than 45% just since the start of 2009. A major reason for the sale of the business is related to antitrust regulations after the purchase of British cooking supplier Enodis PLC last October. The purchase price of $160 million is far less than MTW had hoped to receive. The company had valued the ice maker division at $400 million in October, but more recently analysts had considered $200-$250 million a more accurate price given credit conditions.

ManitowocThe capital raised in exchange for the ice maker business will surely help the company, which does have some significant debt concerns. The company had more than $2.5 billion in debt as of the last reporting, much of which coming from the $2.7 billion it spent to acquire Enodis. However, this $160 million deal is a small cry from the company’s stated goal of reducing debt by a total of $1 billion in the year. That was an aggressive target and particularly difficult given that the crane business (accounting for 85% of Manitowoc’s revenue) has declined so sharply in the last few quarters. The crane backlog has dropped some 34% in the last year, and there is a forecast for another 20% decline for the rest of 2009. In light of this weakness in their core business, the company sold its marine division–the company’s original business back in 1902– last quarter for $120 million to pay down debt.

There are some real problems with Manitowoc as the debt burden has forced them to take less money than they would have liked. If they were not concerned about cash flow, then they would not have sold the business for 20% less than the low range of analysts estimates. However, if no one is interested in buying, then the company is left with few options. It appears that MTW, simply overpaid for their acquisition of Enodis and is now baring the brunt of the debt that has shackled them. As Jim Cramer said on Mad Money from 2/2/2009 when a value seeking caller asked him whether Manitowoc would see any benefit from the stimulus package, “No, no, no, they overpaid. We’ve been having to sell that forever and I’m reiterating. I’m double selling.” The stock has fallen another 5% since then, after recovering from a significant drop when the market was reaching new lows in early March. Selling off assets at such distressed levels will not be able to turn the company around on its own, especially after overpaying for their own acquisition. They need to continue trying to refinance their debt and hope that building activity will rebound.

Manitowoc Sells Ice Division: Unlikely to Thaw Debt

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

Be the first to comment

Leave a Reply

Your email address will not be published.


*