Barnwell Industries, Inc. (AMEX:BRN) is under pressure from 16.3% holder Mercury Real Estate Advisors to sell off its Energy Division and institute a share buyback program. In the 13D filing with the SEC, Mercury attached a letter outlining their demands:

"As a significant shareholder of the Company for approximately the past two years, we have witnessed the Company’s preliminary success in unlocking the significant value in its desirable real estate holdings on the western coast of the main island of Hawaii and the improvement in profitability of its oil and natural gas business in Canada. Although there remains substantial unrealized value in these assets, we believe the Company’s current corporate structure, egregious executive compensation and disparate business divisions are fundamentally flawed. We further believe that strategic alternatives, including the sale of its energy division, must be evaluated to fully maximize the value of the Company for all shareholders. Finally, a substantial share buyback program should be put into effect immediately.

Based on our analysis, we believe the value of Barnwell’s real estate interests alone translates into a per share value in excess of $11 ... Looking at recent energy transactions in Alberta, we currently believe that the value of Barnwell’s proven BoEs (barrels of oil equivalent) translates on a standalone basis into a per share value of approximately $18 ... With the combined value of its real estate and energy divisions implying a $29 per share price at a minimum, Barnwell is a dramatically undervalued company.

However, its unnecessarily complex corporate structure, which includes independent businesses with no synergies, obfuscates its intrinsic value. Further, an executive management team at Barnwell characterized by nepotism in the Chief Executive Officer and President positions continues to reap million dollar-plus salaries, in part driving general and administrative expenses to an astronomical 21% of total revenues for the nine months ended June 30, 2006.

As the largest shareholder of the Company, we demand that the Board hire an investment bank to evaluate strategic alternatives, including a sale of the energy division and a share buyback program using proceeds received from lot sales in Increment I and II ... We believe that the Board should be committed to maximizing value for all shareholders, not paying excessive compensation to a complacent management team lacking in transparency." (Read the rest of the letter)

The stock is currently trading at around $21 per share. According to Mercury, if the company were to be valued at purely asset/breakup value, it would entail a 38% premium to the current market price. If the company is able to restructure and reduce expenses, this number could go substancially higher. The stock is undervalued with a catalyst - and therefore, definitely one worth keeping an eye on!

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