USG, Finally Back to Business...But With a Rights Plan (BAIT SHOP)

USG (USG-NYSE) issued a press release today stating that the company has made its final payment of $3.05 BILLION as part of the settlement for reorganization into that United States Gypsum Asbestos Personal Injury Settlement Trust.  USG shares had been down roughly 2% on teh day, but shares are now down about 0.6% at $54.50 (around 2:40PM).

This means that USG can finally operate out from under any asbestos issues now and can finally be analyzed and evaluated on a real corporate basis instead of a company reorganizing and under a perpetual asbestos cloud.  This has been known for some time that this day was coming, but you have no idea how as an analyst just how nice it is to FINALLY be able to evaluate this company with a quantifiable business.  The total trust payments came to a $3.95 Billion, and now this finally completed.  Sorry for using "finally" in every sentence, but this has been an issue in trying to evaluate USG for a decade.

The only issue about the company here is the shareholder rights plan.  The old rights plan had a 5% trigger, but the new one has a 15% trigger.  Berkshire Hathaway (BRK/A) currently owns a huge portion of the company and actually holds the right to purchase roughly 40% of the company without triggering the rights issue.  Rights plans are deemed as one of several anti-takeover provisions that companies can implement to avoid being gobbled up.  Since we run a BAIT SHOP of takeover candidates, we don’t like seeing rights plans, poison pills, loaded stock classes, nor other corporate trickery that could prevent a buyer from being able to step in.

USG is often thought of as a potential takeover candidate, and it is a "half-position" in the BAIT SHOP since the stock endured a meltdown in the summer and since Warren Buffett has been acquiring shares from that recent offering.  We believe that with a forward P/E of roughly 11 to 12 for DEC07 that Warren Buffett and company could pay up to $70.00 per share before getting into price-sensitivity.  The only reason at all that this was a "half position" instead of a full position or a double position is because the payments were still pending and because of this shareholder rights trigger being so low. 

We are now putting it under evaluation for potentially being a Full Position in the BAIT SHOP, but that determination won’t be made until after the new year.

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Jon C. Ogg
December 21, 2006

Jon Ogg can be reached at [email protected]; he does not own securities in any of the companies he covers.  All data contained herein is based on information from sources deemed reliable and accurate, but no assurances and no guarantees can be made to the accuracy of any claims or figures.  This is meant for informational purposes only and should not in any way be deemed as investment advice nor should it be interpreted as a recommendation to buy or sell securities.  Neither the author nor any partners in 24/7 Wall St., LLC have been compensated to portray this or any other company in any biased or particular manner.