On CNBC's Stop Trading segement today Cramer was talking about a couple of stocks that are sexy because of their hidden value. He picked UNP because he sees a great breakup value, because he said it is the biggest landowner in the nation.
I never looked at it this way, but a private equity firm might. We shall see.
Forget about UNP being the biggest landholder. IF someone were to attempt to buy it to break it up, there is a law that states a railroad that has ceased operations can not be broken up and sold for 5 years.
Union Pacific Resources was an oil company that they owned. It had nothing to do with all the land they own. It seems there are a lot of posts lately trying to dispute that UP has a lot of valuable land. Besides Cramer pointing out that they are the biggest land owner in the US, UP's 10Q shows they have over $35 billion in road properties. This $35 billion value is a very conservative figure from what the true value is. Obviously they don't want to pay any more taxes than they have to. Not even counting buildings and vacant land, I know of many large yards in major cities that is prime real estate, that could be sold and new yards built on the out skirts of town.
I am not advocating that an LBO be done. I am just concurring with Cramer that it is a distinct possibility that a private equity firm would be interested in unlocking the true value of the company. To ignore this possibility, whether you are long or short, would not be wise. If a LBO happens at one of the major railroads, all the the railroad stocks will go up.
All the transports sold off today on fears of the economy slowing some more. UP has already stated that they will make earnings this quarter, and expects a better second half for the company. That is why I am still bullish on the stock.
Re: "The biggest land owner in California used to be Southern Pacific."
Re: "What ever land was left over after the merger, UP now owns."
Back in the '70's or early '80's SP put virtually all of its developable land holdings into Catellus Corp, a separate, publicly traded real estate company that was merged into "ProLogis" REIT in 2005. Catellus had the "tiara" properties like the old rail yard and Mission Bay Roundhouse acreage south of Market Street in San Francisco that has become the roughly two-square mile "Mission Bay Development" - - with University of San Francisco, Biotechs, and other headline occupants.
SP also owned large swaths of (mostly logged, and therefore of limited value) timberland in a checkerboard pattern along its right of way through the Sierra. I don't know whether any of that timberland remained by the time UP took over. But the wealth of SP's land holdings was largely gone by the time of the merger with UP, I believe.
I can't believe how naive Cramer is re UP as a landholder.
UP sold off the surplus land they previously used to develop industrial parks about 15 years ago. Most of that land was turned into business, commercial, retail, or office parks which don't generate any rail business for UP. This land was sold off just prior to the real estate boom which also shows how short sighted Davidson and his BOD were.
UP's real estate is now basically their rr yards and rights of way which they could never sell and continue to operate as a rr. Most of their surplus or lightly used rail properties were also sold off over the last 10 to 15 years which, incidentally, enabled UP to meet quarterly revenue targets and, incidentally, enabled senior management to "earn" their bonuses.
If you are looking for a real estate play then you should look at some of the timber companies who own vast acreages of land that once logged could be developed, LP, GP, Weyerhauser,and Boise Cascade.
Another analyst reducing his Q1 estimate for the rails.
"Another analyst reducing his Q1 estimate for the rails."
Don't forget that UP is the only railroad that has come out and said they will meet their quarterly estimates for this quarter. That is why you see no mention of UP by the analysts.
You are only partially right. What you are referring to that UP sold off many years ago was their realty subsidiary, I believe it was called UPLAND corp. This was their real estate company that managed their vast land holdings. It's job was to sell or lease property next to UP's rail lines to companies that wanted to do rail business with UP. From what I remember UP wanted to concentrate solely on the railroad business. This does not mean they sold off all their properties. Looking at UP's 10Q it says they have over $35 billion in road properties. Most of this is ROW and rail yards but not all of it. You are wrong in saying that "they could never sell and continue to operate as a rr". Some of their yards are in prime locations within cities that could fetch a lot of money. Some cities are more than willing to approve a sale of this prime real estate to a developer and make it easy for the railroad to build a new yard on the outskirts of town. This relieves congestion at rail crossing in the cities and makes it easier for the railroad to have faster access to the new yard.
Unfortunately, the value of this real estate is handicapped by its dimension. Most railroad ROW's are only 66'wide. The "highest and best use" (as defined in most Planning Commisions nationwide)is for railroads or bike paths. When railroads are abandoned (which most railroad companies do when they no longer want to maintain unused track routes), the property is donated by the railroads. So does UNP own a lot of reals estate? Yes What is the value of it? Hard to say, but it is much less than a regular piece of real estate. You can not build on it. Most building code setbacks are at least 15 to 35 feet. Which does not leave much room for any sort of building. Once, a building is in place, the rest of it becomes land locked, until the next intersection.
For someone who is the biggest spammer on the internet of KSU, you don't know a lot about railroads. The real estate that Cramer is talking about is not the right of way where track is laid. The ROW does have value and has been sold at a premium where the ROW went trough a big city and the city wanted the real estate. They would move the ROW to the outskirts of the city and build new track and yards. The real estate that has the most value is the big parcels of land that UP owns in these big cities. Over the last 100 years the cities have grown around these big parcels. In some cases these might be the largest pieces of property in the cities.
I never believe a word Cramer says. AS matter of fact I do the opposite. The opposite is alsways profitable. He is a former hedge fund manager who confessed that he lied and spread vicious rumors to drive a stock down or up. He said all hedge fund managers do the same. Here he is doing it again hyping a rail road company because it own land in wilderness. What a stupid idea. I invest in UNP as a successful rail road company moving freight which hopefully will double with booming economy. I do not invest in UNP as land owner. Will be useless.
that opened my eyes as well. forget about complicated merger and integration with another operator. LBO it, keeping running the rail ops, but break it up. Something that won't happen tomorrow or the next day, but who knows.
Until Cramer spelled it out, I really didn't think a LBO was probabble at UP. Now, I actualy think that a private equity firm might make bid for them. That is the only way you could unlock the true "hidden" value of the company. A merger would certainly not unlock that value. If nothing else a LBO bid would shine a lot of light on that hidden value that UP has. I may have to buy some out of the money call options Monday if this has legs.