I have a few daily routines that I tend to each day before I begin my work. One of them is to check the 52-week-low list, and another is to check the biggest percentage losers each morning. The motivation here is as transparent as it seems: I'm looking for good businesses at temporarily depressed prices.
It's a strategy that requires sorting through a lot of junk that is cheap for a reason to find the few that are being temporarily misunderstood. This morning, as I was running through my regular checks, OfficeMax
However, that doesn't mean that its shares and the 2.2% dividend yield that come along with them are yet worth an investor's money. To be sure, the shares are trading right around the company's unadjusted book value, which is a fairly cheap valuation. Furthermore, the company hired a new CEO in the past year, and, combined with the low valuation, this makes the company worth paying attention to.
However, that's about where the positives end for OfficeMax, because while the company appears cheap and has a new CEO in place, there aren't yet any signs that management is moving toward unlocking the shares' unrecognized value. After reading the two recent letters from Boston-based hedge fund K Capital to OfficeMax management (available here and here), it does appear that OfficeMax may contain some inherent value not currently reflected in its share price.
K Capital, which owns 8.4% of OfficeMax's outstanding shares, has asked management to come up with a strategic plan to unlock the value in the company's shares; de-stagger its board of directors and require each member to run for election at the 2007 annual meeting; form a separate committee consisting only of independent directors to assess the strategic value of the company; and hire a financial advisor to work with these independent directors and provide guidance on unlocking the company's value. K Capital appears to believe that the best way to unlock this value is by selling all or part of the company. However, K Capital stated on Tuesday in an SEC filing that it doesn't plan to conduct a proxy battle with management aimed at electing its own slate of directors to the board in hopes of pushing these efforts forward. This lack of follow-through disappointed investors, causing the stock price to drop almost 11%.
Despite the apparent inaction of OfficeMax's management -- and K Capital's backpedaling -- I think it makes sense to continue to monitor developments at the company. Most importantly, I think investors should watch for the company's proxy statement to see what corporate governance changes may or may not be on tap. In addition, investors should also watch for any announcement of a value-enhancing restructuring plan and how the plan will be executed. OfficeMax certainly isn't the prettiest investment opportunity in the market, but a well-executed turnaround would be extremely rewarding for investors.
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