Nacco wins settlement, perceived for break-up

News Story
- 17 Feb 2011 ( #501 ) - Cleveland, OH, United States
2 min read
Nacco Industries Inc says it prevailed in litigation filed in Delaware Chancery Court on 13 November 2006.

"The (14 February) settlement agreement provides for, among other things, the payment of USD60 million to the company and dismissal of the lawsuit with prejudice," Nacco says in a 15 February regulatory disclosure signed by Charles A Bittenbender, Nacco vice president, general counsel and secretary.

Nacco sued Applica Inc and individuals and entities affiliated with Applica shareholder Harbinger Capital Partners Master Fund I Ltd alleging a number of contract tort claims relating to a failed transaction with Applica.

On 24 July 2006, Nacco and Applica entered into complex definitive agreements involving a spin off and merger. On 19 October 2006, Applica claimed to exercise a right to terminate the arrangements and pay a USD6 million termination fee to Nacco.

Meanwhile, a financial securities analyst suggests that Nacco consider separating its three business groups into publicly traded companies to unlock their value potential.

Nacco owns and operates the Hyster and Yale forklift brands through Nacco Materials Handling Group; consumer housewares through distributors Hamilton Beach/Proctor-Silex, Inc. and Kitchen Collection Inc; and coal mines through subsidiary North American Coal Co.

An investor relations consultant for Cleveland-based Nacco declined to evaluate the idea, noting, "As is our policy, we do not comment on analyst estimates or notes."

The industrial machinery analyst, C Schon Williams, reports that "peer company analysis indicates that the break-up valuation of (Nacco) could be between USD147-USD174 a share or 36%-61% potential upside." The stock closed at USD107.85 on 14 February and USD110.06 on 15 February. Williams, vice president in the Richmond office of BB&T Capital Markets, made the comments in a 14 February note to several hundred clients.

"Nacco should warrant a discounted multiple versus its peers because of the corporate structure, liquidity risk and weaker earnings profile, but we argue the current discount is grossly overdone," Williams says. "Management has made significant strikes during the downturn to restructure the company. . . . In order for investors to ever realize full value for this company, a split is required."

Williams notes that insiders including executives, directors and the Taplin and Rankin families control 58% of the share vote. Nacco "should be a private company," Williams says. Nacco reported a profit of USD40.9 million on sales of USD1.82 billion for the three quarters ended 30 September. Nacco plans to release its fourth quarter and year-end results on 2 March.

Alfred M Rankin Jr, Nacco chairman, president and chief executive officer, has been a Nacco director since 1972. According to a Nacco security filing, Rankin is also a director of Goodrich Corp and The Vanguard Group and the deputy chairman and a director of the Federal Reserve Bank of Cleveland.

BB&T Capital Markets is a division of publicly traded Scott & Stringfellow Inc, a registered broker/dealer and wholly-owned non-bank subsidiary of Branch Banking &Trust Co of Winston-Salem, North Carolina.
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