Unlocking Value At Magnetek

By Nick Ghattas:

Magnetek (MAG) Investment Thesis

MAG shares offer big-time upside potential. The company is a cash flow machine: between January 2007 and December 2012, unrestricted cash balances grew from $ 7m to $ 29m even after contributing $ 50m to the company’s pension plan and operating through terrible economic conditions. Shares are super cheap at 7x EPS and 8x EBITDA on a TTM basis. Investors have left the company for dead given its gigantic unfunded pension, which sits at $ 98m and comprises a daunting 82% of the company’s enterprise value.

How did this happen? MAG used to be a $ 1b industrial electro-mechanical company, but was forced to retain the pension liability as its business units were divested in the late 1990s and early 2000s. The plan was frozen in 2003, but the obligation has increased by $ 60m over the past five years despite $ 50m of contributions.

Simply put, MAG has fallen victim to


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