Tecumseh: Share Class Slugfest

• ByJonathan Heller, RealMoney Contributor
• On 2:59 pm EDT, Monday August 24, 2009

Tecumseh shareholders anxiously wait for the results of the vote from a rather bitter proxy contest that climaxed at the Aug. 14 shareholder meeting.

The major issues being decided were whether to recapitalize the company, essentially eliminating the dual-share class structure by converting the Class B shares into common shares with equal voting rights, as well as the election of the board of directors. Currently, only the Class B shares have voting rights, so this move would wrestle voting power away from the Herrick family, which through foundations and trusts own about 33% of the voting shares.

The Herrick Foundation and the company each offered their slate of nominees for the board, but this battle will certainly prove to be the tougher of the two for the company to win as only Class B shareholders are eligible to vote for the board. Currently, there are two Herrick-supported directors on the board: Kent Herrick, a former Tecumseh executive and son of former CEO Todd Herrick, and Steven Lebowski.

The Herricks also sought to add two additional names to the board, a move that if successful would give them four of the seven seats. Stay tuned -- although the shareholder meeting took place more than one week ago, results are not expected to be announced until the end of the month.

Tecumseh shareholders have certainly endured a wild ride in the recent past as shares have traded in an extremely wide range over the past 52 weeks, from an intraday high of $28.45 last September to a low of just $3.00 in early March. While I believe there is still a great deal of value in these shares, recent results have not been good, strongly affected by an extremely challenging economic environment.

Second-quarter sales fell 41% to $161.2 million and the company lost $24.9 million, vs. net income of $9 million for the same period last year. This quarter's loss did include -$1.6 million from discontinued operations while income from last year included $15.6 million from discontinued operations. While the balance sheet still looks fairly solid with $74.8 million or about $4 per share in cash, this has dropped considerably from year-end's $113.1 million.

While cash is a wonderful thing, it is not nearly as meaningful if it is being burned at a rapid rate. Assuming a pick-up in economic activity, I'd expect some stabilization here. In terms of debt, Tecumseh closed the second quarter with $37.3 million in short-term debt, and just $300,000 in long-term.

The company still trades at a substantial discount to book value per share, which is currently $26.42 (the price-to-book ratio is just 0.39) perhaps not surprising for this company given the lack of visibility. As economic activity begins to pick up, I expect better days ahead for Tecumseh. Of course, if we end up double-dipping as some of the pundits believe we will, the losses may continue to mount.

In any event, the near term in this stock should be interesting as we await the results of the vote. While I expect the recapitalization plan to pass, I can't imagine that the company was able to muster enough Class B votes to elect its entire slate of directors. We'll see.

Buzz up!