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Relational's Manitowoc Stake Has the Badger State in Play

Manitowoc's Response

Manitowoc said on Friday it has hired Goldman Sachs as a financial advisor and will continue to "consider and review" Relational's suggestions. "We have great confidence in the strength of our business and our ability to manage the company in any market environment," Glen E. Tellock, Manitowoc's chairman and CEO, said in a statement.

"The Board of Directors and management team remain committed to building value for all shareholders through the continued execution of our strategy, including margin expansion initiatives which are already delivering results, and the continued evaluation of our capital allocation policy following our substantial deleveraging since the Enodis transaction," Tellock added.

Analysts Lukewarm on Relational's Play

Analysts covering Manitowoc generally gave a muted response to Relational's emergence as an activist investor in the company. William Blair analyst Lawrence De Maria noted that Manitowoc's competitors in the food service business such Middleby (MIDD) trade at far higher multiples. While Manitowoc's food service business trades at just 11 times forecast 2014 earnings before interest, taxes, depreciation and amortization, Middleby trades at 16x 2014 EBITDA, according to De Maria.

However the analyst sees a host of issues for Relational, including the cyclicality of Manitowoc's crane business, provisions in the company's outstanding debt that may make a spin-off costly, and the prospect investors are unwilling to invest in a Manitowoc's crane business as a standalone entity.

"[W]e believe the process may be long and drawn-out before a conclusion is reached. We have no reason to believe that the activist is not "dug in" to push this forward," De Maria concludes.

BMO Capital Markets noted that after a surge in the price of Manitowoc's stock to $32.19 a share on Friday, the company may be approaching its sum-of-the-parts value of $34, providing limited upside for investors.

Jefferies analysts said Relational's emergence as an activist may put a floor value on Manitowoc's shares and could support the company's stock until the business cycle for crane orders improves.

"While there is no change in our fundamental thesis that cranes are a late cycle opportunity we believe that the entry of an activist places a floor on the shares," Jefferies concludes.

Relational didn't immediately respond to an email seeking comment. Manitowoc didn't immediately respond to a voicemail seeking additional comment.

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