My Plans for the SEB and Sterihealth Offers

Seaboard Corp is offering to repurchase $100 M USD in common stock through a dutch auction. The offer gives shareholders the opportunity to tender their shares at a price between $2500 and $2950. The company will pick the lowest price that allows it to buy $100 M worth of shares. Anyone who tenders at or below the chosen price will be selling their shares at the chosen price. The stock was at  $2350 before the announcment. The news caused the stock to pop, and it is now at $2615

This means the market thinks the chosen price will be above $2615. No one will tender his shares below $2615 because when he can sell it today. On the other hand, buyers are hoping to buy below the chosen price, and then tender. Those buyers must expect a large enough premium for their risk exposure. Say it is $100. Then, the market expects the chosen price to be $2715.  Considering their mediocre results last few quarters, I will tender some shares at $2700, $2800 and $2900.

Sterihealth's largest shareholder Dan Daniels recently offered to take the company private at $1.75. The vote is on June. Today it is trading at $1.73. This means that the market believes the transaction will happen. If the transaction happens, the shareholders will get their payment on June 26. This means that today's buyers expect to make a $0.02 gain within a little over a month. I am selling my shares today at $1.73 and I will forgo the $0.02 because I believe I can return greater than that by investing the capital.

The above is my understanding of two transactions. It may have errors or omissions. Please read the disclaimer on the right.

McRae Reports Lackluster Q2, Sterihealth Gets Takeover Offer

Sterihealth at Buyout
Buyout Price	AU $ 1.75
Market Cap	AU $ 34.20 M ($ 31 M USD)
P/E TTM	8.9 x
Div yield	4.0 %
LT Debt/TBV	3.96
EV/EBITDA	5.35

McRea Industries reported Q2 revenue was up 3% but income was down 20% yoy. However Q1 was a great quarter. So H1 revenue was still up 14% and income was up 20% yoy. Profit margin was still a decent 8% in H1.

The company blamed the worse Q2 numbers primarily on 1) higher consumer sales in Q1 offsetting the Q2 consumer sales and 2) lower margins due to higher import shipping costs and consumers shifting away from premium boots, among other factors.

The stock went as high as $36 before the earnings report. Now it is $31 due to the lackluster Q2 results. I believe the Q2 numbers are more likely the norm than the exception. McRae has had a great recent run of improving sales and earnings. It's time for them to stop growing and maybe even fall back a bit. The boot business is not high tech. One reason I first bought the stock was the balance sheet. The company has no debt. With returns on equity around 15%, the company is simply growing book by 15%. The price to book ratio is currently at about 1.25. I am hoping the stock goes back to the $36 level before I contemplate selling.

In other news, the Steriheath board has accepted a $1.75 AU per share buyout offer from Dan Daniels. Dan Daniels currently owns almost 50% of the shares. After buying the stock three months ago at $1.30, I'll gladly take my money and run!

Seaboard Reports 2013 Results

SEB
Price	$ 2620
Market Cap	$ 3127.18 M
P/E TTM	15.2 x
Div yield	0.0 %
P/BV	1.26
ROE	8.3 %
LT Debt/Equity	0.13

Seaboard Corp (SEB) reported that Q4 was the best quarterly result in 2013, but for the year income was lower than 2012. Revenue for 2011 2012 and 2013 were 5746M 6189M and 6670M, respectively. Income for 2011 2012 and 2013 were 346M 282M and 205M, respectively This appears to indicate that margins are dropping. SEB has many businesses segments, all of which are cyclical commodities. So I wouldn't read too much into the drop.

The pork segment is Seaboard's largest at 1/4 of total sales. This segment made up 3/4 of the company's profit however. The marine segment turned in a loss, though it was profitable last year. Shipping is suffering from a glut of ships and rates don't appear to be improving much. Seaboard is committed to shipping however and it is investing in several new ships. I believe Seaboard wants to stay in shipping to be a vertically integrated food company.

Overall I feel the company's management has a very long term view. They allocate capital prudently with little debt. And this shows in their consistent revenue growth. The last year's numbers came in a bit lower than I would like but in my eye this is a company that is trading at 10 times forward earnings.

In other news from my portfolio, Sterihealth (ASX:STP) resported H1 earnings were $0.10 AUD, which is the same as a year ago. However, sales were up 9%. This indicates some margin pressure. Still the company trades at 6.5x earnings.

Tachibana Eletech (TSE:8159) recently announced the company will expand into Indonesia. But at the same time, Tachibana Eletech will sell ¥ 1 B (about $10 M USD) new and treasury shares! They say the purpose is for buying office buildings which would save on leases. What the heck?? What is that about?? This company has ¥ 13 B in investments, of which ¥ 8 B is marketable equities and ¥ 2 B is bonds. And yet they are issuing shares to raise a relatively small amount. Several possibilities come to my mind. Maybe it is patriotism; the company wants to keep its government bonds. Maybe management management feels the stock price is overvalued; but the company is very profitable. Maybe the company is allocating the shares to favoured shareholders. But I can't find a very plausible reason really. I am baffled. What do you think?

On the other hand, the company seems to be doing great. Sales are up, exports are up. The company just raised guidance for the year to ¥ 179 which means the company trades at 7.2x earnings. The company also raised the dividend payout for the year from ¥ 20 to ¥ 22.