We originally wrote about Monarch Services on September 4, 2009 because they had a plan to liquidate the company and appeared to be trading at a discount to the estimated amount of cash that would ultimately be distributed to shareholders. On November 5, Monarch confirmed the sale of their remaining asset, the Girl's Life Plantation Parcel (GLPP) to Baltimore County. Cash proceeds received were the full $624000 agreed upon. Net of fees this worked out to roughly $548000.
We had previously taken a 75% discount to the agreed sale price of $624000 in our estimate of cash proceeds, due to the impaired real estate market and to remain conservative. In light of this favourable development we have revised our estimate of liquidation cash proceeds upwards to $1253000 from $1173000.
Current Market Cap: $971772
Estimated Liquidation Proceeds: $1253000
Return Profile: 28.9%
Disclosure: I own shares in MAHI
SG
Showing posts with label Liquidations. Show all posts
Showing posts with label Liquidations. Show all posts
Sunday, November 8, 2009
Friday, September 4, 2009
Monarch Services – Undervalued Liquidation Play (OTC: MAHI)
Monarch Services is an undervalued asset play with a plan to liquidate and distribute remaining assets to shareholders. The company used to be in the publishing business producing a magazine called “Girl’s Life”, the rights to which have now been sold in exchange for a promissory note of $600000. Other assets included a restaurant business, “Peerce’s Plantation”, which has now been sold, and real estate adjoining the restaurant property. The company has not kept up to date with its regulatory filings due to the fact that it anticipates legal and accounting fees of up to $250,000 to accomplish this task.
In April 2008, the company published an 8-k report stating future business plans and containing pro forma financial statements for the year ended April 2008.
8-K
Analysis of these exhibits reveals cash balance of $698000 and remaining liabilities of $36000. There are also $941000 worth of assets held for sale, which consist of the housing (referred to as “GLPM”) and land real estate (referred to as “GLPP”) connected to the restaurant property. The company spent $479000 in administrative expenses between April 2007 and 2008.
Since April 2008 there have been several developments; namely the sale of the GLPM property for cash value of $560000 less $38000 closing expenses. Also, the company is in discussions with Baltimore County over the sale of the GLPP property for $624000 and is expecting closure in November 2009. The sale price could be substantially less than this value.
Also, the promissory note received in exchange for the sale of Girl’s Life magazine has substantially been written down to 0, implying the expectation of complete default. There is still the probability of receiving some denomination on this note although the value is probably negligible.
The $698000 cash balance was increased by $522000 due to the sale of GLPM, giving a pro forma balance of $1220000. Adjusting for a possible discount in the sale price of the GLPP property, 75% of the offer price is $468000. Assuming payment in cash, the balance increases to $1688000. Expenses in the year are likely to be less then the 2007-2008 period when the company spent $479000 in administrative expenses. However, in order to err on the conservative side, assuming there is no decrease in expenses the cash balance will be reduced to $1209000. Subtracting the $36000 in liabilities, the estimated cash available to the equity holder will be $1173000, calculated conservatively.
The current market value of Monarch Services: $891791.
Estimated cash available for distribution: $1173000.
This implies a substantial discount from realizable value. The possible gain is 32% in a few months, with no correlation to the overall market, if the November 2009 closing date is correct.
In April 2008, the company published an 8-k report stating future business plans and containing pro forma financial statements for the year ended April 2008.
8-K
Analysis of these exhibits reveals cash balance of $698000 and remaining liabilities of $36000. There are also $941000 worth of assets held for sale, which consist of the housing (referred to as “GLPM”) and land real estate (referred to as “GLPP”) connected to the restaurant property. The company spent $479000 in administrative expenses between April 2007 and 2008.
Since April 2008 there have been several developments; namely the sale of the GLPM property for cash value of $560000 less $38000 closing expenses. Also, the company is in discussions with Baltimore County over the sale of the GLPP property for $624000 and is expecting closure in November 2009. The sale price could be substantially less than this value.
Also, the promissory note received in exchange for the sale of Girl’s Life magazine has substantially been written down to 0, implying the expectation of complete default. There is still the probability of receiving some denomination on this note although the value is probably negligible.
The $698000 cash balance was increased by $522000 due to the sale of GLPM, giving a pro forma balance of $1220000. Adjusting for a possible discount in the sale price of the GLPP property, 75% of the offer price is $468000. Assuming payment in cash, the balance increases to $1688000. Expenses in the year are likely to be less then the 2007-2008 period when the company spent $479000 in administrative expenses. However, in order to err on the conservative side, assuming there is no decrease in expenses the cash balance will be reduced to $1209000. Subtracting the $36000 in liabilities, the estimated cash available to the equity holder will be $1173000, calculated conservatively.
The current market value of Monarch Services: $891791.
Estimated cash available for distribution: $1173000.
This implies a substantial discount from realizable value. The possible gain is 32% in a few months, with no correlation to the overall market, if the November 2009 closing date is correct.
Friday, June 5, 2009
Being right for the wrong reasons -- XTENT Inc. (XTNT)
On May 15 XTENT Inc filed a preliminary proxy form stating the company's intention to liquidate and distribute all remaining assets to shareholders. The estimated liquidating distribution was 0.11 to 0.40, quite a wide margin. I bought this stock on May 17 for 0.30.
A look at the table stating how these numbers were estimated showed that the only major divergence was in a category called "Total estimated liabilites and reserves". A footnote stated that this category "Includes (i) approximately $0.7 million and $0.9 million in the high and low estimates, respectively, in accounts payable and accrued liabilities, (ii) approximately $0.5 million and $5.3 million in the high and low estimates, respectively, reserved in connection with resolution of pending and potential litigation, claims, assessments and related obligations and liabilities." Reading this I proceeded to attempt to find what the 5.3M liabilities consisted of in order to weigh the probability of these 2 estimates. The balance sheet showed only 1.76M total liability, plus a reference to commitments and contingencies.
A look at commitments and contingencies showed that most of the liabilities were based on payments that XTENT would have to make IF CERTAIN MILESTONES WERE MET. Since the company was liquidating these milestones were not likely to be met. There were also license agreements for minimum royalty payments, none of which added up to 5.3M. I could not find a scenario under which the company would be required to pay out that much in liabilities. Therefore, I thought the distributions were likely to come in at the higher end of the range, and I purchased the stock.
The estimated distributions did not include sale of any intellectual property rights, which I thought was also a highly likely scenario because they had recently received CE Mark approval for a system in March 2009. I figured that I was paying absolutely nothing for this option, since the normal distributions were likely to come in higher then 0.30.
On June 4th the company announced that it had received FDA approval for its stent system and the stock jumped up to 1.60 and then to 2.10. I averaged somewhere in between for a total return of 490%
In this instance I was right but for the wrong reasons. I'll gladly take the earnings.... but it is unlikely to be repeated.
SG
A look at the table stating how these numbers were estimated showed that the only major divergence was in a category called "Total estimated liabilites and reserves". A footnote stated that this category "Includes (i) approximately $0.7 million and $0.9 million in the high and low estimates, respectively, in accounts payable and accrued liabilities, (ii) approximately $0.5 million and $5.3 million in the high and low estimates, respectively, reserved in connection with resolution of pending and potential litigation, claims, assessments and related obligations and liabilities." Reading this I proceeded to attempt to find what the 5.3M liabilities consisted of in order to weigh the probability of these 2 estimates. The balance sheet showed only 1.76M total liability, plus a reference to commitments and contingencies.
A look at commitments and contingencies showed that most of the liabilities were based on payments that XTENT would have to make IF CERTAIN MILESTONES WERE MET. Since the company was liquidating these milestones were not likely to be met. There were also license agreements for minimum royalty payments, none of which added up to 5.3M. I could not find a scenario under which the company would be required to pay out that much in liabilities. Therefore, I thought the distributions were likely to come in at the higher end of the range, and I purchased the stock.
The estimated distributions did not include sale of any intellectual property rights, which I thought was also a highly likely scenario because they had recently received CE Mark approval for a system in March 2009. I figured that I was paying absolutely nothing for this option, since the normal distributions were likely to come in higher then 0.30.
On June 4th the company announced that it had received FDA approval for its stent system and the stock jumped up to 1.60 and then to 2.10. I averaged somewhere in between for a total return of 490%
In this instance I was right but for the wrong reasons. I'll gladly take the earnings.... but it is unlikely to be repeated.
SG
Wednesday, April 8, 2009
Neose Technologies (NASDAQ:NTEC) Liquidation
I took a position earlier this year in Neose Technologies after they had announced their intention liquidate. They were a development stage biotech company that had not been profitable since inception. I took the position after they announced that they had been able to find buyers for their 2 patents. I essentially thought this situation was a low-risk scenario, ie. heads I win a lot, tails I don't lose much. In their filing for the asset sale they described their intention to distribute proceeds of the sales to shareholders of record. Their was a table showing management's estimates of what the payoff would be. Essentially, the payoffs ranged from $0.36 a share to $0.52 a share. The stock was trading at $0.35.
An analysis of the estimated distribution table showed that the only thing the amount of the final payoff depended on was the company's ability to either renegotiate their office lease, or sublet the lease. I thought either of these situations were highly likely, and therefore the expected payoff could be closer to $0.52 rather then $0.36.
On March 24th NTEC announced their initial distribution of $0.33 a share. Shareholder's on the last date of record will have received this amount plus the remainder when all liability claims are settled. Management's estimate is still between $0.36 and $0.52 a share. Even if the payout comes in at the lower end of the range my position will still be profitable.
UPDATE
I sold my shares after the stock transfer books closed on the OTC market for .12 a share. I received in total .33 + .12 = .45 on a .35 investment. My return was 29%.
These opportunities are great because they have no correlation to market activity and can help lift a portfolio in a bear market.
SG
An analysis of the estimated distribution table showed that the only thing the amount of the final payoff depended on was the company's ability to either renegotiate their office lease, or sublet the lease. I thought either of these situations were highly likely, and therefore the expected payoff could be closer to $0.52 rather then $0.36.
On March 24th NTEC announced their initial distribution of $0.33 a share. Shareholder's on the last date of record will have received this amount plus the remainder when all liability claims are settled. Management's estimate is still between $0.36 and $0.52 a share. Even if the payout comes in at the lower end of the range my position will still be profitable.
UPDATE
I sold my shares after the stock transfer books closed on the OTC market for .12 a share. I received in total .33 + .12 = .45 on a .35 investment. My return was 29%.
These opportunities are great because they have no correlation to market activity and can help lift a portfolio in a bear market.
SG
Monday, February 23, 2009
Vanda Pharmaceuticals Possible Liquidation
Vanda Pharmaceuticals (NASDAQ: VNDA), an early-stage biotech company, has been urged by one of it's largest shareholders (approx. 14%) to liquidate and distribute the proceeds to shareholders.
Vanda Pharmaceuticals recently received notice from the FDA that their schizophrenia drug iloperodone was not approved for production and distribution. This drug has been the company's main focus over the course of the last 8 years. The company has still not earned a dollar of drug sales since its inception. Instead, like most development stage pharmaceutical companies it has been bleeding away shareholders dollars on RND and other expenses. Needless to say, the picture painted is quite bleak. There is no sustainable revenue stream in sight. Because of this, the liquidation request is quite likely to succeed.
The company is currently trading in the market for about $20 M. It has $51 M in cash and marketable securities, and only $4.5 M total liabilities. Therefore, net working capital is $46.5 M. This leaves about a 50% margin of safety under the estimated liquidation value, if an investor were to buy shares today. A forced liquidation will fully realize the value of this cash. Therefore, a position in this company is a WIN-WIN.
The hedge fund (Tang Capital Partners) involved in this liquidation has recently taken part in a similar event in the liquidation of Northstar Neurosciences (NASDAQ: NSTR). That event turned out successfully.
Coat-tailing these type of events can be extraordinarily profitable. An investor should buy shares in VNDA and hold until the result of the shareholder vote on the liquidation is concluded.
FOR MORE INFORMATION:
Communication from Tang Capital Partners to Vanda Pharma:
Shareholder Communication
Vanda Pharm Recent Quarterly Report:
Quarterly Report
UPDATE Feb. 23 2009
The board of Vanda Pharmaceuticals has responded to Tang Capital Partners request to liquidate. The board will fight the proposal and does not believe this type of action is necessary. I still believe that this event will occur, however, because the board in aggregate owns only about 5% of outstanding shares, while Tang Capital owns 14%. Not to mention there are other majority owners who will vote in favour of Tang should a proxy battle be necessary. Therefore, I am currently maintaining my position.
Disclosure: I own shares of VNDA.
SG
Vanda Pharmaceuticals recently received notice from the FDA that their schizophrenia drug iloperodone was not approved for production and distribution. This drug has been the company's main focus over the course of the last 8 years. The company has still not earned a dollar of drug sales since its inception. Instead, like most development stage pharmaceutical companies it has been bleeding away shareholders dollars on RND and other expenses. Needless to say, the picture painted is quite bleak. There is no sustainable revenue stream in sight. Because of this, the liquidation request is quite likely to succeed.
The company is currently trading in the market for about $20 M. It has $51 M in cash and marketable securities, and only $4.5 M total liabilities. Therefore, net working capital is $46.5 M. This leaves about a 50% margin of safety under the estimated liquidation value, if an investor were to buy shares today. A forced liquidation will fully realize the value of this cash. Therefore, a position in this company is a WIN-WIN.
The hedge fund (Tang Capital Partners) involved in this liquidation has recently taken part in a similar event in the liquidation of Northstar Neurosciences (NASDAQ: NSTR). That event turned out successfully.
Coat-tailing these type of events can be extraordinarily profitable. An investor should buy shares in VNDA and hold until the result of the shareholder vote on the liquidation is concluded.
FOR MORE INFORMATION:
Communication from Tang Capital Partners to Vanda Pharma:
Shareholder Communication
Vanda Pharm Recent Quarterly Report:
Quarterly Report
UPDATE Feb. 23 2009
The board of Vanda Pharmaceuticals has responded to Tang Capital Partners request to liquidate. The board will fight the proposal and does not believe this type of action is necessary. I still believe that this event will occur, however, because the board in aggregate owns only about 5% of outstanding shares, while Tang Capital owns 14%. Not to mention there are other majority owners who will vote in favour of Tang should a proxy battle be necessary. Therefore, I am currently maintaining my position.
Disclosure: I own shares of VNDA.
SG
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