Inside Wall Street
WALTER'S FIRM NEW FOUNDATION
Homebuilder Walter Industries (WLTR), the former Jim Walter Corp., could be a dream stock for investors scouting for companies that have just emerged from bankruptcy. Not only have Walter's big shareholders held on, but outside investors have also piled in recently.
Walter shares have seesawed between 11 and 14 since January, 1996, when the company went public once again--under new management. Old and new shareholders both believe that the stock, trading at 13 7/8 on Dec. 30, is way undervalued. They reckon it's worth between 18 and 23.
"We have become more positive on Walter due to the improving prospects of its operating segments," says Robert Goodman of Credit Research & Trading in Greenwich, Conn. He notes that the bankruptcy and several special charges over the past three years "have masked the steady performance of the company's array of businesses." Apart from building houses and financing mortgages, Walter makes ductile-iron pressure pipes for water transmission, coke for furnaces and foundries, specialty chemicals, and aluminum sheets and foil.
When leveraged buyouts were very much the rage in the 1980s, Jim Walter was among the many companies that LBO experts Kohlberg Kravis Roberts acquired. KKR borrowed $3.3 billion to swing the deal in August, 1987. The weak housing market, heavy debt load, and lawsuits filed against Walter's Celotex unit over asbestos liabilities forced the company to file for Chapter 11 two years later. Jim Walter became one of KKR's few big LBO losers.
Walter Industries--as it became when KKR took it private--emerged from bankruptcy on Mar. 17, 1995, with creditors getting 87.5% of the equity created by an initial public offering. The old shareholders, including KKR, retained 12.5%, which they have since increased to 26% through stock buys. Lehman Brothers also owns 7.9%
The lawsuits were resolved in April, 1994--helped by court rulings favoring Walter. The plaintiffs agreed to settle through a reorganization plan. The Celotex Settlement Fund, which includes the asbestos claimants, now owns 10.9% of the stock.
Investors are betting that the company will soon be in the black. Indeed, according to Goodman, after its big losses in 1995 and 1996, the company should earn 60 cents a share in 1997, driven by the strong pace of homebuilding.BY GENE G. MARCIALReturn to top
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