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Bonds Are a 'Safe' Investment: A Big Lie Gets Even BiggerAccording to chairman and CEO Kenneth Jastrow, this transformation plan "will unlock shareholder value in a very tax efficient manner and provide our shareholders ownership in three outstanding businesses." Mr. Jastrow went on to highlight the success of Temple-Inland over the last several years. First, the fact that the company has, over the last five years, "generated total shareholder return of 107%, compared with 39% for the S&P 500 and a negative 5% for our peer group median." In addition, he highlighted the company's proven ability to return cash to shareholders ($710 million over the last two years due to dividends/buybacks).
After the plan is completed, the original company (Temple-Inland) will be a " low-cost, highly efficient manufacturing company focused on corrugated packaging and building products." This business has an excellent future, considering the corrugated packaging business has improved operating income by more than 1000% since 2003, according to the press release. In addition, the financial services business has a very bright future as it is "ideally positioned to continue to serve its targeted customers and has a solid foundation for growth and continued strong financial performance," according to the chairman and CEO. Lastly, the company's real estate business appears to have an interesting future with over 236,000 acres (85 projects). The real estate company's focus is value creation and, according to Jastrow, is in a very good position because they "have currently identified over 215,000 acres of high-value land located in growth corridors, thus providing the opportunity to create value through entitlement and real estate development."
These actions were made, at least partially, as a reaction to Carl Icahn's activist involvement in the company, as he has been pushing for strategic value creation at the company since his first 13D filed January 22nd. He attributed the undervaluation of the shares at that time to the company's "conglomerate structure...in which various disparate and non-complementary businesses are combined under one corporate umbrella." He went on to say that the company's operating structure "obfuscates the true value of the Issuer's assets." And pointed out that "various analysts have issued sum-of-the-parts analyses that imply a value for the Shares that is significantly higher than their current market price." Because the company has decided to make these strategic changes, Icahn no longer intends to nominate representatives to the company's board of directors according to Marketwatch. It is interesting to note that Icahn purchased shares in the $39-$47 range and Temple-Inland closed trading today around $63 per share.
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