Data storage company, Iron Mountain Inc. (IRM) exercised its Stockholder Rights Plan, often referred to as “Poison Pill,” to fend off a hostile takeover of the company, or gaining of controlling interest in the company by any person or group of persons to the detriment of the company or its shareholders. By virtue of the Stockholder Rights Plan, Iron Mountain declared a dividend of one right share for each outstanding share of its common stock.
Earlier in the month, Elliot Management Corp., a private investment firm holding approximately 5% of Iron Mountain’s common stock, issued a letter to the board of directors of Iron Mountain suggesting the infusion of four independent nominees on the present board to assess the company’s capital allotment and operational efficiency. The letter also included a proposal for the conversion of Iron Mountain into a real estate investment trust (REIT).
The Wall Street Journal reported that Elliot’s proposal was welcomed by Davis Advisors, the largest stake holder in Iron Mountain with over 20% ownership.
Elliot Management has been in talks with Iron Mountain to convert the company into an REIT since June 2010, as the conversion would enable the company to lower its tax liability. Iron Mountain resisted the proposal because it would necessitate the distribution of approximately 90% of the profits among the share holders.
The Stockholders Rights Plan empowers Iron Mountain to issue new shares from its authorized share capital if the ownership stake of a shareholder grows to more than or equal to 15%. The new shares will neither affect the financial condition nor the trading of its current common stock.
IronMountain’s adoption of the poison pill is, however, subject to shareholder approval, which can only be obtained at the 2012 annual general meeting. It is hard to tell whether share holders will support Iron Mountain, given the prospect of profit distribution in the event of a conversion to an REIT.
However, shareholders would also consider Iron Mountain’s promising product portfolio, substantial recurring revenues, international expansion that have cemented its market share, as well as recent pricing gains, operating efficiency gains, focused execution and impressive free cash flow that drive the value proposition in the long term.
Therefore, despite currency fluctuations and sluggish macroeconomic conditions (especially in Europe) and continued pressure on the Digital business from Cardtronics Inc. (CATM) and Cintas Corp. (CTAS), we think the decision could go either way. Shareholders could very well go with the board decision instead of milking the company for cash.
We reiterate our long term Neutral rating.
Currently, Iron Mountain holds a Zacks #3 Rank, which implies a short-term Hold rating (for the next 1–3 months).
CARDTRONICS INC (CATM): Free Stock Analysis Report
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