Breaking up may be hard to do, but when it comes to a play like MeadWestvaco it can also be lucrative.
“So far, 2011 has felt like the year of the breakup,” said “Mad Money” host Jim Cramer on Tuesday. “And practically every single time one of these spin-offs happens, the shareholders end up making oodles of money.”
Recent company splits have seen healthy increases in share value.
- Marathon Oil rallied 21 percent in January upon announcing it would spin off its refining business.
- ITT, too, popped 16 percent the day the breakup made headlines.
- McGraw-Hill gained 12.2 percent since its split was announced in September.
- Kraft, which Cramer recently highlighted, also received positive guidance on its breakup plans.
Last week, packaging company MeadWestvaco announced it would split its office and school supplies business and merge it with ACCO Brands in a two-step reorganization.
“Yet what has the stock done? Bupkis,” Cramer said.
It was $27.87 the day before the announcement, and it closed Tuesday at $28.23.
“From looking at the price action in MeadWestvaco, you could be forgiven for thinking that nothing major had happened here at all,” Cramer said. “I think the stock would be up a lot more if it weren’t for the nonstop shellacking our market gets every single day from our frienemies in Europe.”
As it stands now, the company has three parts: The low-margin office supply segment, a packaging business and a smaller specialty chemical division. Valued individually and added back up, the stock would be $34 in a sum-of-the-parts valuation — “20 percent higher than where the stock is right now.”
“That’s where MeadWestvaco should be right now, and I bet it’s where the stock is headed,” he said.
Also, the $860 million merger with ACCO will bring the company $460 million in cash and a 50.5 percent stake in the new spin-off. MWV shareholders would receive one shore for every three shares in the pre-breakup company.
“To me, that means the stock is real bargain,” Cramer said. “I’d buy some here and then buy even more if it gets dragged down along with the rest of the market by European woes.”
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