Consolidated-Tomoka Land Company
(AMEX: CTO) board members may soon be forced to fight for their jobs
after Wintergreen Advisors LLC disclosed a 9.87% stake (and 25%+
economic stake) in the company and nominated three of its own
candidates to the board of directors. Shares in the company have slid
from their 52-week high of $80.50 to $42.50 before recovering
marginally to their current level of $51.29 amid a decline in the U.S.
real estate market. Shareholders are hoping that Wintergreen will be
able to step in and help turn around the troubled company - and new
blood could be just the trick.
Consolidated Tomoka began as a timber company and was perhaps
Florida’s largest landowner with over 2 Million acres in the early 20th
century. After dropping initially do to increased liquidity, CTO began
a steady march upward. Today, CTO continues to own nearly thousands of
acres in Florida, including 10,600 in the City of Daytona Beach. In
addition, the company owns the equivalent of 284,000 acres of oil, gas,
and mineral subsurface interests with 2 producing oil wells on the
company’s interests. Management undertook a new strategy in 2000
designed to use the tax-deferred proceeds of land sales to purchase
commercial property with long term triple-net leases dispersed over a
larger area. Unfortunately, the market collapsed soon after it started
paying off…
Investors are now stuck in a limbo after the director of the board
declared his retirement and the company failed to offer any meaningful
updates on its strategy or direction. Wintergreen is seeking to change
that with a set of new directors and a series of proposals. The
activist hedge fund urged the board to increase the number of directors
in order to ensure that changes are put in place and amend their bylaws
to eliminate the need for the board to make proposed changes only with
a shareholder vote.
Wintergreen recommended the following actions in their letter to the board:
- Align management compensation to the success of the company in
achieving its stated goals rather than having the bonus and
compensation structure revolve around selling properties out of
inventory.
- Review the growth and level of company operating costs in order to explore areas of reduction.
- Hire outside advisors to develop a strategy to better address the long-term goals of the company.
- Hire forensic accountants to review past years’ activities to
verify that all proper processes and procedures are in place to avoid
conflicts of interests between directors, officers and employees.
- Improve public disclosure to clarify what actions have been taken and are being taken to improve long-term shareholder value.
- Review company activities to determine whether or not the
appropriate authority and responsibility resides in the company
officers and the board of directors.
In the end, these proposals would help Consolidated-Tomoka identify
the best strategy going forward and make sure that management and
shareholder interests are fully aligned. It will be interesting to see
if shareholders will support the new proposed directors and how the
changes will affect the company going forward. Combined, these factors
make CTO a stock worth watching!
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