Bring On the Takeovers

In addition to Barington, Goldman Sachs (GS - commentary - Cramer's Take) has a large stake in the company and two directors on Griffon's board. Even if this company is not taken over next year, its operating divisions will do very well in an economic recovery.

Another Barington holding I have written about before has not fared so well. Shares of Pep Boys (PBY - commentary - Cramer's Take) have been crushed this year as revenues and earnings continue to fall. The company has been closing unprofitable locations and selling property as well as arranging sale leaseback transactions on many other properties to raise cash and realize the value of large real estate holdings.

While the consumer is weak and will be into the first half of the new year, tires and auto repairs can only be delayed for so long. The real estate alone is worth far more than the stock price, and at less than half of book value, Pep Boys is worth considering for long-term investors. Both insiders and directors have been buyers of stock in the open market this month.

Barington has a large position in A. Shulman (SHLM - commentary - Cramer's Take) as well. The manufacturer of plastic resins has already turned down one takeover offer this year, but has retained banker UBS (UBS - commentary - Cramer's Take) to continue shopping for a buyer.

The weak economy and substantial exposure to the automotive industry have hurt the company and are reflected in the stock price. Shulman recently announced that it would reduce capacity by idling lines at its U.S. facilities. In addition to Barington, activist investor Ramius Capital is also involved in the stock and recently reached an agreement with management on new shareholder elections. I predict this company gets sold at prices much higher than the current quotation.

Barington has also joined with fellow activist firm Clinton Group to push for changes at Dillard's (DDS - commentary - Cramer's Take) and has been a buyer of former growth-stock darling Hansen Natural (HANS - commentary - Cramer's Take).

Checking the activity of successful activist investors can be one of the best methods for identifying companies likely to benefit from the merger boom that eventually will emerge next year.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.