(Adds MeadWestvaco and analyst comments; updates shares)
By Sagarika Jaisinghani
June 2 Activist investor Starboard Value LP
reported a 5.6 percent stake in MeadWestvaco Corp and
said the packaging materials maker's stock was "deeply
MeadWestvaco's shares rose as much as 6.5 percent after
Starboard, in a letter to the company, also said its management
should take steps to improve operating margins and capital
allocation and consider separating non-core assets. (r.reuters.com/nep79v)
"(We) will consider Starboard's suggestions as we would if
received from any other shareholder," MeadWestvaco said in a
statement on Monday.
Starboard said that improving MeadWestvaco's cost structure
and capital allocation could boost its share price to $52-$69
from about $43 now.
"Starboard is being a bit aggressive in its numbers,"
Vertical Research Partners analyst Chip Dillon said. "But there
are possible actions that management can take to better the
Dillon said he had a 12-month price target of $43 on
MeadWestvaco's stock, which could be raised to $50 if the
company was broken up or sold.
MeadWestvaco has an intrinsic value of $36.85, as measured
by Thomson Reuters StarMine. The model is a measure of how much
a stock should be worth currently when considering expected
growth rates over the next 15 years.
MeadWestvaco has the highest ratio of selling, general and
administrative expenses to sales in the industry due to
excessive corporate expenses and higher-than-average operating
costs, Starboard said.
About 12 percent of the company's revenue went into selling,
general and administrative expenses in 2013 compared with about
9 percent for rivals Packaging Corp of America and
Graphic Packaging Holding Co.
MeadWestvaco, which makes packaging materials for the
healthcare, personal care, food and beverage, and agricultural
industries, has a market value of about $7 billion.
MeadWestvaco said in January that it would cut costs and
target savings of $100 million to $125 million by the end of
The company could slash costs further by "consolidating
regional headquarters, reducing duplicative administrative
staff, and flattening the organization structure," Starboard
It should also consider selling or spinning off its
specialty chemicals business, the hedge fund said.
The business, which makes chemicals derived from sawdust and
other byproducts of the papermaking process, accounts for about
a fifth of MeadWestvaco's total revenue.
"There's nothing strategic about the specialty chemicals
business being tied into the other parts of MeadWestvaco,"
Dillon told Reuters.
MeadWestvaco's stock, which trades at 20.9 times the
company's 12-month forward estimated earnings, is expensive
compared with shares of International Paper Co, Packaging
Corp, Graphic Packaging and Clearwater Paper Corp, which
trade at an average 14.3 times, according to StarMine.
Richmond, Virginia-based MeadWestvaco's shares were up 5.6
percent at $42.84 in afternoon trading on the New York Stock
Exchange. The stock has risen about 26 percent in the past year.
(Editing by Kirti Pandey)