A corporate conglomerate is truly a wonderful thing. Growth through acquisitions often leaves these companies quite bloated and operating in unexpected areas though. Sometimes this is done on purpose in order to diversify exposure by investing in unrelated areas. These ancillary businesses surrounding the ‘core’ can be quite surprising and make you go ‘Really?’ – and often they would benefit from a more dedicated management team or one more in tune with their industry. This seems to be the case with the IDT Corporation’s (IDT) plans to spin off its Genie Energy division. Yes, apparently IDT, better known for its telecommunications businesses, is also heavily exposed to energy.
The spinoff will include:
- IDT Energy, an energy services company operating in New York, New Jersey and Pennsylvania;
- American Shale Oil Corporation (AMSO), which holds IDT’s interest in the a joint oil shale venture with Total, SA operating in Western Colorado;
- Israel Energy Initiatives (IEI), which holds a majority interest in an oil shale venture in Israel, and;
- Certain related smaller initiatives, and the cash resources necessary to execute on those projects.
Upon further reflection though, the company is run by the author of On a Roll: Or How a Kid from the Bronx Started with Hot Dogs and Wound Up Making a Fortune (CEO Howard Jonas) – if he can do hot dogs, why not energy? Not surprisingly, the reason mentioned by Mr. Jonas was that a spinoff allows “both Genie and IDT Telecom to focus on their respective growth strategies and more effectively meet their long term capital requirements while providing investors with industry focused investment vehicles.” With two very different businesses, this makes sense. Along those lines, Genie is already focusing on improving its leadership when on November 15th, they announced that Lord Jacob Rothschild and Rupert Murdoch (CEO of News Corp) had purchased equity stakes in Genie Energy. This is in addition to an already stacked strategic advisory board including Dick Cheney (yes, that Dick Cheney), Michael Steinhardt and Eugene Renna (former COO of Mobil). The presence of such high profile names should lend credibility to the business and help by adding their expertise and personal network to the company.
The company is still in the process of a long restructuring period and the company recently announced its first annual profit in years (literally) along with continued EBITDA growth – helped by cuts in SG&A. That said, the company is still witnessing declining revenues across the board YOY in every one of their business segments.
The end result will be two very different businesses which should appeal to different types of investors, suggesting there might well be some technical selling. However, the share structure of IDT is a bit bizarre, with multiple classes (A,B & C – though they are pursuing a share swap which might eliminate one class). Mr. Jonas controls a massive amount of Class A shares (I believe 70+% of the company) and is in firm control of the company. Not exactly great corporate governance and there are questions as to whether or not the company will delist from the NYSE. There are some mutual funds listed in the Top 10 holders which might sell, but the list also includes several hedge funds (Renaissance) which might not.
It is still early in the process and a more thorough understanding of the businesses (& financials), leadership and ownership (especially share structure) is required. We will update as more news is released.
Related articles
- The Big Money Says to Buy IDT (fool.com)
- IDT plans spinoff, declares initial dividend (marketwatch.com)
- Rupert Murdoch Invests In Oil Company With Ties To Dick Cheney; Conspiracy Theorists Lick Their Lips (mediaite.com)
Disclosure: Author has no position in any company mentioned.