Hedge fund buys Duratek shares

Tontine controls 1.92 million shares

December 29, 2005|By MEREDITH COHN | MEREDITH COHN,SUN REPORTER

A Connecticut-based hedge fund has bought up a major stake in Columbia-based Duratek Inc., becoming the largest shareholder in the radioactive and hazardous waste management company, according to recent financial filings with the Securities and Exchange Commission.

Tontine Capital Partners LP controls 1.92 million shares out of 14.86 million outstanding, or almost 13 percent, with 342,500 shares purchased in a little over a month.

The fund paid between $14.99 and $16.13 a share for its most recent purchases. The closing price yesterday on the Nasdaq stock market was $15, up 87 cents. Tontine has more than doubled its holdings in Duratek since March, when it held about 900,000 shares, or about 6 percent of the outstanding shares.

Tontine began to substantially increase its stake in mid-November, about three weeks after Duratek released an unexpectedly poor third-quarter earnings report that caused its stock to drop nearly 30 percent in a day. Earnings for the quarter ending Sept. 30 dropped by nearly a third to $2.8 million, or 18 cents a diluted share, with the company blaming losses on federal contracts and a lack of new commercial contracts.

The fund has not explained its interest in Duratek, and officials there didn't return calls yesterday.

In a filing in March, when it disclosed a significant stake in Duratek, it said it was buying the shares for investment. But, as one online financial advisory service noted, Tontine has bought up blocks of other companies' stock and then pressured them to repurchase shares whether or not they had the cash.

FindProfit.com wrote in October that Tontine had increased its stake in Beazer Homes to about 10 percent and then called on the homebuilder to repurchase stock to close a "valuation gap" between it and its peers.

It also noted that Tontine similarly pressured another company, Cleveland-Cliffs. Companies often repurchase their stock because it reduces shares outstanding and increases earnings per share.

Al Kaschalk, an analyst with Wedbush Morgan, said Tontine is a long-term investor and likes to support management. But it also is looking for value to be created and plowed back into the business, or if it's not plowed back, returned to shareholders, he said.

"They feel strongly about the market in which Duratek operates and thinks longer term they'll be successful," Kaschalk said.

"If the company's management is not being active in achieving return for shareholders, history shows someone like Tontine will let its opinions be known," he said.

But will Duratek be able to perform? Kaschalk recently changed its rating of Duratek from "buy" to "hold." Duratek's stock has fallen about 40 percent this year.

Long term, the business should do well, he said, but winning Department of Energy contracts - which is a large portion of Duratek's business - can be tough and time consuming.

Diane Brown, a Duratek spokeswoman, agreed that long-term prospects were strong despite a tough year.

"There have been some delays in contract awards in federal and commercial marketplaces, but our core business, our base business, has had a good year and long-term opportunities, are still in front of us," she said.

meredith.cohn@baltsun.com

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