M&F Worldwide: Don't Let a Sleeping Giant Lie

This column was originally published on RealMoney on June 5 at 6:59 a.m. EDT. It's being republished as a bonus for TheStreet.com readers. For more information about subscribing to RealMoney, please click here.

What do you do when you know you have a good idea but you can't really buy it in size? I believe you write it up here and hope that individual investors and small funds can do the work and, perhaps, buy it if they agree.

The stock is M&F Worldwide (MFW Quote), the Ron Perelman "vehicle," meaning he owns 38.6% of the company. That's neither here nor there. He hasn't done a good job at Revlon(REV Quote), which is a brutal situation. But he has done a very good job shepherding this maker of licorice for tobacco, a key ingredient for tobacco. The stuff also goes into snuff.

In December it bought checkmaker JH Harland for $1.7 billion to go with Clarke-American, which it bought a year before, from Honeywell(HON Quote).

Now, given that there is only one other maker of checks, Deluxe, you have a benign duopoly, something that can produce higher prices even in a declining market. We love duopolies because they can rein in dangerous competition that hurts margins.

Perelman clearly recognizes this duopoly. He bought $12 million in stock at $60. The stock's up a little since then, but arguably not enough, even though it is up 169% since the beginning of the year. That's because there are only 12 million shares and about 1.5 million are short.

Have you missed it? I would have thought so until I saw the Perelman buy. Now I am thinking this one could be worth a lot more given the duopoly and the short position.

I debated doing this one for "Mad Money" but the amount of trading is so little each day that I thought it was fraught with danger to highlight it. The darned stock could be up way too much even after I suggested limit orders and all sorts of other caveats.

To me the stock could run into $100 after this amazing merger. But buying more than a couple hundred shares almost seems out of the question.

It is rare that I would recommend a stock that has moved this much. But a transformative merger of a sleepy company just may be worth much more than anyone thinks.

I'd buy it here.