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GenCorp's Earthly Assets


GenCorp (GY), whose aerojet unit's rocket hardware has flown on every U.S. mission to Mars, is catching the eye of investors for its valuable hidden assets: land. The company owns 12,680 acres of undeveloped property in Sacramento. In addition, several of its big shareholders, led by mutual-fund mogul Mario Gabelli, who owns 12.5%, and Steel Partners, with 7. 5%, are convinced that GenCorp is buyout bait. In fact, Steel Partners tried to purchase the company in November at 17 a share, where the stock stands now -- up from 11 in August. But the board rejected the bid. Gabelli figures GenCorp is worth even more -- in excess of 25 a share, based on its real estate and its business of making propulsion and electronic surveillance systems for the aerospace and defense industries. He expects that a new bidder with real estate interests could make a new buyout offer.

David Lorber of Pirate Capital, which owns 2.3%, says GenCorp is a "sum of the parts" asset play. It will continue to operate and expand its core space-propulsion business, which he says is worth $560 million, and develop and sell its land: It's the largest contiguous plot in Sacramento -- roughly the size of Manhattan. Now in the entitlement process are 5,800 acres, which, once approved for development, would be worth $1.15 billion, or $18.50 a share, says Lorber. The rest, expected to be entitled in the next 5 to 10 years, has a current value, he says, of $344 million, or $5.54 a share. Joseph Nadol of J.P. Morgan Securities (JPM), who rates the stock "outperform," sees earnings of 10 cents a share in fiscal 2005, ended Nov. 30, and 26 cents in 2006 vs. a loss in 2004. GenCorp declined comment on whether it has received new offers.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial


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