BW Online | October 1, 2001 | A Spin-Off at Titan?

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OCTOBER 1, 2001

INSIDE WALL STREET

A Spin-Off at Titan?

Gene Marcial

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INSIDE WALL STREET

A Spin-Off at Titan?

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Big Board-listed Titan (TTN ), a conglomerate operating in five businesses, was among the handful of stocks that bucked the tumble on Sept. 17--the day the market reopened. The reason: One of its units, Titan Systems, provides information technology for defense, intelligence, and other federal agencies.

The stock bumped up 2.33, to 18.58 that day, but other pure-play defense stocks did much better, rising by 20% to 50%. Money manager Michael Lauer of hedge fund Lancer Group, which owns a nearly 5% stake, thinks the company deserves a higher price--because it's more than just a defense play. Titan, he says, may be poised to spin off and take public its defense operations, which are expected to account for 78% of 2001's estimated revenues of $1.16 billion. Lauer figures the defense business alone is worth 30 a share. So on a sum-of-the-parts basis, Titan is worth 48, argues Lauer. Titan's defense operation would--as a separate company--get a higher valuation because of its profitability and growth potential. He says management is under pressure to do the spin-off, lest Titan become takeover prey.

Here's how he values Titan's other operations: Its SureBeam unit, which makes pasteurization systems, is worth 7 a share; Emerging Technologies, an incubator of new tech systems for commercial uses, 6; Titan Wireless, a telecom infrastructure provider to developing nations, 3; and Cayenta, which tailors software applications for specific Web requirements, 2. Phua Young of Merrill Lynch, who rates Titan a buy, sees earnings of 32 cents a share in 2001 and 83 cents in 2002.

By Gene G. Marcial

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