In a note to investors today, Morningstar Research’s analyst, who covers Iron Mountain, opines that Iron Mountain will ultimately dispose of its digital document management services business. Read on…..
Iron Mountain (NYSE: IRM) announced Tuesday (April 19, 2011) that it has come to an agreement with Elliott Associates (one of its largest shareholders) in which it will appoint two new directors of Elliott's choosing and explore alternative business structures and models in order to enhance shareholder value. These alternatives include returning $2.2 billion in cash to shareholders by the end of 2013, with $1.2 billion being paid out over the next 12 months. In addition, the firm will form one new board committee to explore converting its current business structure into a real estate investment trust and convert its current finance committee into a strategic planning and capital allocation committee. The converted finance committee will review all capital-allocation decisions, which include all capital investments and disposals. Iron Mountain will also look at strategic alternatives for its various digital document management services, which we believe will ultimately be the disposition of this business. The firm said these actions should allow it to achieve returns on invested capital of 11% by 2013. We applaud Iron Mountain and Elliott for their efforts to enhance shareholder value and increase ROICs. We believe these actions are prudent, as we downgraded the firm’s moat rating from wide to narrow earlier last year on concerns about its ability to produce outsize ROICs for an extended period on par with other wide-moat firms. The firm will hold a conference call Wednesday to walk investors and analysts through these latest developments. We are placing Iron Mountain under review while we reassess all of our long-term assumptions, given what will most likely be a vastly different operating structure for the firm moving forward. Vishnu Lekraj (Morningstar Research)