In Northlake’s yearend letter, we stated “Admittedly, we have been too patient with ClubCorp. However, with oil prices rebounding and golf rounds played rising for the first time in several years, we feel if the stock is going to work it should do so as we approach the 2017 golf season.” Lo and behold, it appears that the Board of Directors and management of ClubCorp (MYCC) lost patience. This week the company announced it was exploring strategic alternatives to enhance shareholder value. The stock moved up from $15 to over $17. Northlake sold all positions at around $17.24.
We think that private equity is the most likely buyer of MYCC if the company is sold. Perhaps an Asian buyer emerges given the popularity of golf across the Pacific and a desire by many companies and investors in those areas to put money into U.S. dollars and U.S. dollar investments. There is also the possibility that MYCC again explores turnings into a REIT with operating company/property company structure. This is a complex undertaking for MYCC given the nature of its revenue streams (high food and beverage revenue).
In a sale or REIT conversion, Northlake believes that MYCC could reach either wide of $20. However, a sale or REIT conversion is not guaranteed at $20 or at any price. At $20, upside is 16%, a good but not great return. We think we can reallocate the capital into a better idea, consistent with our yearend letter to find something consistent with the “Trump Trade” based on reflation and value.
In the end, MYCC was a disappointing investment for Northlake’s clients. We did get a nice pop to start 2017 and now have added liquidity and flexibility in client portfolios as we navigate the major changes underway in Washington.
Disclosure: Northlake Capital Management, LLC and Steven Birenberg’s personal accounts no longer have any positions in MYCC. Entermedia Growth Partners, LP and Entermedia Tax-Exempt Partners, LP, long/short equity hedge funds managed by Steve Birenberg in a separate investment management company maintain a small long position in MYCC.