New York Times: An Investment Fit to Sell

Ironwood SMID Cap Value Strategy portfolio is off to a disappointing start in 2014. For the month of January the strategy declined 4.1%. The strategy’s energy, financial services and producer durables stocks underperformed on a relative basis. This weakness was partially offset by relative outperformance in our healthcare, materials and technology stocks.

We bought a position in Platform Specialty Products (PAH) in January. Platform Specialty is the new name for the formerly known MacDermid, specialty chemical company that went private in 2007.

Martin Franklin, chairman of Jarden (JAH), bought MacDermid in October 2013 and renamed it Platform Specialty. The CEO and CFO of MacDermid took no cash in the deal, instead stayed on in their positions and rolled their equity into the new entity.

Platform Specialty starts off with the #1 or #2 position in its markets including metals and plastic finishing, electronics, oil production and drilling, and graphic arts. We believe Franklin’s proven deal making ability will allow Platform Specialty to transform itself over the next 3 years into an industry leader, achieve higher earnings and cash flow, and a higher valuation. We purchased the stock in January.

We sold our position in the New York Times Company (NYT), which we had owned since our January 1, 2013 inception date. We believed that the new CEO, appointed in August 2012, would successfully transition the company to the digital age while retaining print revenues, by cutting costs and divesting non-core assets.

Over the next twelve months, management executed their transition strategy relatively quickly, including by selling the Boston Globe and launching an attractive video business. As a result the stock approached our 2016 price target and we sold in January.

We purchased Mallinckrodt PLC (MNK) in June 2013, when it was spun off from Covidien (COV). Mallinckrodt was a collection of somewhat related businesses with a sizeable opportunity to improve revenue growth and margins on existing product lines.

The new management’s broader strategy was to transition the company to a more cohesive, faster-growth and higher-margin business. Management quickly executed on their transition to a fully-independent company and the stock approached our 2015 price target. We sold the stock in January.

ADT Corporation (ADT) was spun out as a public company from Tyco in 2012. ADT has a strong franchise, underutilized balance sheet, and was trading at a substantial discount to our target valuation.

Subsequent to our purchase Corvex, an activist firm, got involved. They wanted the company to boost stock repurchases by borrowing off a significantly underleveraged balance sheet. Unfortunately management fell short on execution on several fronts.

They did a poor job of handling the transition to a public company. They failed to fully realize the value from the strong ADT franchise, as management was not prepared for new competition that adversely affected costs and revenues. And they did a poor job in their dealings with Corvex. As a result we believed the transition had become impaired and we sold.

DISCLAIMER: The investments discussed are held in client accounts as of February 28, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.

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