special situations investing

Tuesday, August 30, 2011

Primero Mining: Motivated Sellers Trashing the Stock

When Primero Mining (NYSE: PPP; P.TO) and Northgate Minerals (AMEX: NXG; NGX.TO) announced in early July 2011 a deal to combine the mining operations to form a mid-tier gold miner, the market seemed all excited in the short term about those prospects.

This was expressed in a rising share price of NXG and also rising share price of PPP, at the time traded only in Toronto. Within 4 days of deal announcement, investors had a sudden change of heart as rumors started to circulate that counter-bidders were circling around the acquirer NXG. The shares of PPP seemed to imply with a large probability that the deal would be off.

Since August 29, these market rumors got confirmed. On that date, Aurico (NYSE: AUQ) and Northgate announced a definite agreement and a superior offer that apparently Northgate directors could not reject. Primero Mining is now left with the break-up fee as a consolation prize.

Aurico shareholders did not get too excited about the prospect of combining operations with Northgate and the stock took a beating in yesterday's trading. Not so Northgate stock, which benefited nicely from the superior offer.

Primero Mining as the spurnt bride, though, took a serious shellacking. Volumes traded on day 1 of deal termination reached 6 million on both Canadian and US listings. And the stock plunged intraday by about 20% before recovering some territory during the day.

This seems to be a classical case of motivated sellers dumping the shares of Primero Mining for reasons other than operational or strategic ones.

Admittedly, Primero Mining is not a household name in the North American stock markets. In fact, its NYSE listing of shares only occurred on August 15, 2011 and whatever investors since then felt attracted to purchase PPP shares on the NYSE now must have some second thoughts about this exposure sought over the past 2 weeks. The investors who on Monday dumped PPP shares in droves hardly can be considered the committed long term investors that Primero Mining was eager to attract with its listing on the NYSE. It has to be assumed that the motivated sellers of Primero Mining shares are arbitrageurs not looking beyond the current event driven transaction, which they are well aware got terminated officially.

When a deal breaks apart for whatever reasons, the motivated sellers rarely ask questions and they should. The rush to the exit gate generally means that the baby occasionally gets tossed out with the bathwater. This appears to be the case here.

The 6 million shares trading volume of Primero Mining on Monday has no fundamental underpinning, but is a strictly fear driven, technical sell off and gut reaction by Mr. Market. The words knee-jerk come to mind. This is a best illustration of herding instincts at work.

This presents a strong buying opportunity for those investors willing to look beyond the negative short-term event. UBS, who has been providing a fairness opinion to Northgate came out with an upgrade on Primero and a $5.50 price target. Since UBS has been on the inside all along on both Northgate transaction proposals, and have had an information advantage over all other unprepared sell side analysts, the upgrade is perhaps a leading indicator of what is in store for Primero shares going forward. Granted, UBS is just acting as a banker and they are probably vying for a piece of future Primero investment banking business. I wouldn’t call them ultra-contrarian but would be surprised if their trading desk is not snapping up lots of shares from desperate, motivated sellers. They may not have that prop trading desk any more but sure are not devoid of customers that can play an occasional contrarian move. In a way, it can be argued that following the money trail here can be a possible strategy. I would reckon that UBS knows a lot more about Primero than the average run of the mill event-driven investor.

So, fundamentally speaking what is this Primero Mining story all about? Is it worth even looking at? Is that UBS informed price target even worth bothering about?

At the time when the Primero deal was announced, I happened to be a committed Northgate shareholder having acquired NXG shares during the last junior mining downturn with some mixed performance results. Not everything at NXG was all the rage operationally. Kemess and Australian mines gave rise to occasional troubles. Young-Davidson was as of yet not operational. The deal as originally announced was greeted by all shareholder factions alike as a good move. Of course, nobody will discard a superior offer just because it happens.

However, when looking back at why NXG shareholders like myself were originally excited about the Primero deal, it quickly comes to mind that Primero is lead by a world class mining CEO, Joe Conway, who had been instrumental in shaping Iamgold (IAG) and predecessors into world class mining organizations over a period of 15 years. When Joe Conway left Iamgold in January 2010, this was a surprise move to most everyone in the industry as Iamgold continued to perform well an the reasons for leaving just did not seem obvious. Today, Iamgold has $1 billion in cash on its books and it may still not seem obvious why Mr. Conway left. Is it all explained by entrepreneurial drive to excel at the next junior mining opportunity? Possibly.

Investors took some notice when Joe Conway signed on in August 2010 with little known Primero Mining, which was created as a mining spin-off from Goldcorp (NYSE: GG). Goldcorp is still a 35% shareholder in Primero and they have the right to increase share ownership to 50%. As a Goldcorp backed spinoff, Primero Mining does not have the worst corporate DNA. I have not yet met anyone so far who has dissed the accomplishments of Joe Conway. I am, thus, assuming that the managerial DNA at Primero is impeccable and worth taking some notice, particularly since it is only 12 months since Primero's San Dimas mining operations were spun off. All kinds of positive PR has circulated what the game plan at Primero was going to be. This game plan includes some occasional M&A activity. Within the context of this game plan, the original Northgate deal was probably an illustration of pretty confident dealmaking by a premier mining CEO. In its design, it would have been a pretty gutsy transaction if successfully concluded. Such are the hallmarks of visionary CEOs.

The July 2011 deal proposed between Primero and Northgate created some excitement with investors and various bloggers as Joe Conway would effectively become the CEO of the combined Northgate/Primero operations. In essence, the original deal had almost the character of a reverse merger. This didn’t sit too well with some Northgate shareholders or sell side analysts who were fretting over lost business opportunities. To use an analogy of Greek mythology, Primero was attempting to be the proverbial Icarus flying too near to the sun. Whenever the humans are full of hybris, the resenting Greek Gods are typically swift in their punishing response. Some of this is applicable to Primero and some lessons will be learnt from this no doubt. This could have gone down in history as a gutsy, transformative deal but it didn’t. It was nevertheless worth the try, as in “Nothing ventured, nothing gained.”

With the Primero fast-track M&A hopes for now puffed up in smoke, the crash to reality has been relatively benign. Primero is the proverbial spurnt bride left at the wedding altar. Not good for Primero Mining stock in the short term but over the long term it will likely be perceived as a drop of water on a hot stone. A non-event operationally speaking. Strategically speaking, it could have been a transformative event and put them on the map of more mid-tier investors.

Primero Mining will most likely recover from the insult suffered from being spurnt at the altar. Not a big deal when you also get $25 million in break up fee, and when you just turned in a nice profitable Q2 2011 quarter at the beginning of August.

On the other hand, Northgate had a losing quarter in Q2 2011 and they are already down the termination fee to Primero. Ouch. No wonder that Aurico shareholders are less than thrilled about the prospects of combining operations with a less than glamorous Northgate. After all, how bad do operations have to be managed for Q2 2011 results to be money losing, even with an unhedged book of business. This might explain why the Northgate long time CEO resigned in conjunction with the announcement of the Primero transaction. (Actually, 2 days before announcing it.) Northgate is far from a well managed organization and the ascendance of Joe Conway to become CEO of Northgate was generally viewed positively.

This will not happen now. Instead, Joe Conway will simply run the affairs of Primero capably. By all practical means from which I can judge the situation, Primero Mining is now better off than it used to be before. Its cash position has been strengthened since original deal announcement. The Q3 2011 quarter should be an unhedged blast. A literal cash flow bonanza will await shareholders. And yet, those motivated sellers cannot figure out in a lifetime what is going on at their little spurnt spinoff company.

Come on!!!

This small research note on Primero is aimed to add a few perspectives on this underfollowed Goldcorp divestiture. Something to put Primero on the radar screen of serious investors, who might disagree with me and chime in on what they know. When Goldcorp spun off this mining asset via reverse merger into an existing shellco, Primero was a $5.25 stock. After initial enthusiasm and reaching a $7 share price, Primero has lost 50% of its market value. Concurrently, the price of gold has risen by 50% during the same time period. Without going into any valuation details too deeply, this overall constellation makes for a potentially intriguing producing gold investment target. The consternation that has been settling in with Primero shareholders is not unusual in the initial seasoning period of any newly listed spin-off company. The market simply doesn’t have the benefit of a long operational history, the assets suffer from certain lack of past investments and expectations have a tendency to get frustrated along the way. Rightly or wrongly so. This offers secondary investment opportunities to astute investors.

To Recap:

Primero is a Goldcorp spin-off (12 months out of the gate)

Primero shares reflect certain frustrated expectations
Primero is lead by a top notch and gutsy CEO (Joe Conway)
Primero is improving its operations (through exploration and milling capex)
Primero has an improving balance sheet
Primero plans to improve San Dimas gold output from 100,000 oz to 200,000 oz
Primero trades at less than 1x book value and less than 3x ttm sales (2x E2011)

I can see lots of things to be liked about Primero as a long term gold allocation with a opportunistic, borderline contrarian bias.

The Negatives:
Hedge Book that is not well understood or liked but so far not proving to be problematic as Primero has delivered in the first half of the year all forward silver obligations for the entire fiscal year. Thus the second half of 2011 will be unhedged, and – ceteris paribus – a cash flow bonanza. At this point it merely looks like Primero is a company that like any spin-off is dealing with some legacy aspects in its business. The hedge contracts are a contractual obligation to be dealt with and so far they are being dealt with not to the detriment of shareholders. If anything, and painting the worst picture of future distress, these hedge obligations remain an off-balance sheet hard obligation of Goldcorp. Time will tell how Primero handles its affairs in this respect. During the last conference call, Joe Conway addressed some of the questions relating to hedge book highlighting that one possibility to address hedge book is to simply produce more volumes. This is why Primero spends some 20-25 MM per annum on exploration activities on the San Dimas property. For those who have followed Mr. Conway at Iamgold and predecessors, he is probably as close to a straight shooter as it gets and I do believe his word counts still for something in this industry. He may not be right in every corporate move he makes but it may be a bit too early to tell if targeted production volume are achievable or not. Buying Primero shares in this respect is like betting on the underdog team. The market has taken an absurd stance of expecting Primero to deliver all forward sold silver now, and right now. This is merely an illustration of the market’s bearishness on the shares. As a contrarian, I respectfully disagree with Mr. Market.

There is also a tax question that Primero hopes to resolve over the course of the current fiscal year. The market is possibly assuming that this tax question cannot be resolved in favor of the company. Time will tell. Mr. Conway is certainly a smart dealmaker and even as a spurnt bride, Primero walked away with some cash.

The next 6 months should clarify many issues. In the short term the PPP investors who have picked up shares over the past 2-6 weeks are voting with their feet. They obviously do not care about the bigger picture of this story and what makes Primero interesting to begin with.

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Saturday, May 21, 2011

DVL Inc 2010 Annual Report & Website Info & Other Updates

Any follower of DVL Inc (Pink Sheets: DVLN) will be aware of the recent 1 for 7500 reverse stock
split that was approved by shareholders in late January 2011 and implemented in mid February.

Shareholders of fractional shares have been cashed out around March.

This brief blog entry purports to update on a few disclosures that have been made since by the company to keep its shareholder base informed of financial progress at their company.

In the events leading up the the reverse split and deregistration with SEC, DVL Inc. made a commitment to its shareholdrers to put up a website and to keep them informed annually about the financial results at their company.

As a third party investigator of DVL Inc. I was at first sight a bit skeptical. Having witnessed before many small companies that deregistred with SEC via reverse split and never communicated again with their shareholders.

I am relieved to inform fellow DVL Inc shareholders that DVL Inc managers have upheld their commitment without any special reminders.

On April 7, 2011, DVL uploaded a website informing in very succinct terms about its business purpose, contact details and providing a link to the most recently completed fiscal year, which is fiscal 2010, which had not previously been published to shareholders.

Thus, without any further ado and interpretations, I provide here the website link for further perusal.

DVL Inc website is (drum rolls, please): www.dvlninc.com

This website uploading has not been specially communicated to shareholder via press release, but there it is.. what we have all been waiting for and the best kept secret of 2011.

The Annual Report 2010 in PDF format is very informative to begin with.

I encourage shareholders to read through it carefully. It provides a few new data points.

Such as:
More detailed info on the 11 first lien mortgages ( 9 to Wal-Mart properties) a some info on the 6 wrap-around mortgages. Apparently, the properties leased to Wal-Mart have terms ranging from 2011 to 2017. This is news to me and great clarification and confirmation that certain cash flow bonanza from mortgages will continue for a couple of years.

There is also updated info on how much money was borrowed to undertake share buybacks.. Give and take around 500,000 dollars. at interest rate of 5%. all of which was borrowed from an unaffiliated bank. No money was borrowed from Pemmil. The annual report will inform on how many shares were bought back through reverse split and how many shares were bought back in board authorized share buybacks from third party investors who wanted to get out at 14 cents.

All in all some 3.5 millions shares (more or less) were bought back. Of this amoung. 1.1 million shares was from an unaffiliated shareholder who wanted to part with his holding.. (goodbye sissy... - and thanks to DVL boad members for buying them out at good price, thereby creating more value to the remaining shareholders).

All in all, after the reverse split, there are now 5100 shares outstanding.

JG Wentworth had a warrants package entitling to purchase of 3 million shares at 20 cents.
of these warrants, 2 million became exercisable in Feb 2011 and JG Wentworth did not exercise.
they still have 1 millino warrants (before giving effect to reverse split) that can be exercised in
August 2011. I am kind of surprised that JG Wentworth did not exercise them. It is a rational decision though to buy them in the open market on the cheap, if volume allows. at 20 cents pre-split price, JG Wentworth could for the longest of time buy the shares cheaper on open market. I am skeptical though that they engaged in this trade. Evidently, JG Wentworth is not exactly a long term investor but originator and securitizer of papers. And they changed ownership so many times that I bet you that nobody is stickign out their necks to suggest any DVL equity investment on behalf of corporate treasury. This means, no dillution for DVL shareholders. and if the other 1 million warrants go unexercised in August 2011, the share count will drop to around 4900 and change.

At current share count I calculate the fully adjusted Book Value per share at 5078 dollars, giving full effect to the share buyback and how it impacted the equity position.

Lastly the annual report also provided news on the fiscal year and on the Q4 2010 quarter. there was no management discussion of financial results but in my own research I found out that DVL took advantage to take a 1.2 million writedown of mortgage assets in Q4 2010. They stepped up the loan loss/impairment reserve. Without giving much detail on why and where. There was no foreclosure happening in Q4.

Free cash Flow for 2010 was excellent and they managed to further pay down liabilities. Primarily mortgage payables and notes payables.

the Notes Payables are not due till 2020-2021 according to the annual report. But it appears that if they continue at the pace they paid down in 2010, the notes payable could be paid off in 4 years (give and take 2014-2015)

There is no progress to report from Kearny, NJ.

IN fact they are still working on eminent domain issues in Kearny and it appears that town of Kearny is working with them. It appears that the local leaseholders are not parting from those leases in easy ways.

Enclosed is a link that I found relating to Kearny that is new info not further discussed in DVL 2010 annual report. It merely goes to illustrate how it is not that easy to secure all the parcels of land they need for this redevelopment.

I would say that time is on their side making diamonds of coal. In a way, shareholders can be happy with any temporary delays, as this will further improve the company's balance sheet before any Kearny development plans can take shape in earnest.

The passage of time could clarify the economic prospects of a Kearny redevelopment. And whether to do it and when.





Well, DVL Shareholders, that was it for an update on this little puppy.

At least the waiting was worth it and there are lot of things to report on.

I will in the future simply post any DVL related updates on this special situations blog
that I plan to update more frequently in the future.

Looking forward for your feedback and involvement to keep this DVL thread informative
in the future. As indicated in this post, I have not had any contact with DVL managers and board
members since December 2010 when I had a conference call with Mr. Casnoff.

The way I see things, I plan to be around for the next 2 decades on this name. So far, the last 4-5 years have been very interesting to say the least.

Good luck on your on your investments and feel free to spread the joy of this blog with whoever you feel it could be useful to.

Chris AKA GB

Monday, October 05, 2009

Athris Holding AG - Sept 21 & 22 Email Inquiry & Response

Tue, 22 Sep 2009 14:43:26 +0200 [09/22/2009 08:43:26 AM EDT]
From: Raymund Scheffrahn Switzerland
To: chris@steinwaycapital.com
Cc: Raymund Scheffrahn
Subject: RE: Composition of Athris Holding Board of Directors
Headers: Show All Headers
Dear Mr. Schulz,
We confirm receipt of your e-mail containing various questions related
to public and non-public information. Please use the usual public
sources such as the ATHRIS website, media or the public commercial
register to satisfy your requirements of publicly available information.
Obviously, ATHRIS cannot share non-public information at any time, but
even less so at this or any other stage of the takeover process. The
ATHRIS media release dated 18 September 2009 summarizes the position of
ATHRIS until further notice.

Dr. Raymund Scheffrahn
Managing Director

Dr. Raymund Scheffrahn
Managing Director

O +41 41 560 1110
F +41 41 560 1119

-----Original Message-----
From: chris@steinwaycapital.com [mailto:chris@steinwaycapital.com]
Sent: Montag, 21. September 2009 18:20
To: Raymund Scheffrahn
Subject: Composition of Athris Holding Board of Directors

Dear Mr. Scheffrahn,

I am writing to you in my capacity as a private Swiss investor with an
investment stake in Athris Holding AG. You are aware that I have in my
capacity as independent financial analyst and principal of Steinway
Capital Inc. advised hedge funds of an investment in your company. I
do not know to what degree Athris Holding AG represents a credible
stake with any of my past and present clients.

Just to clarify. The Athris Board of Directors is presently composed
of 3 members, Messieurs Von Opel, Dennler and Joos.

Messieurs Von Opel and Joos are Directors of Pelham.

Please clarify that I have my facts here straight.

I am still surprised that Athris explicitly states in the Half-Year
that it will not do any further share-buybacks, but at the same time
the Chairman of the company buys all the shares he can. Isn't the Half
Year report undersigned by the Chairman himself? How can he preach one
thing on behalf of fellow shareholders, and do something entirely
different for himself?

As a shareholder of Athris, I am requesting a roster of shareholders
plus the final version of statutes and bylaws of the company so we can
clarify any Obligationenrechtliche aspects to any proposed transaction.

Has an independent committee been formed to evaluate this offer?
I will provide you soon with my own independent view of value and
provide this analysis to any decision making bodies of competence with
an interest in the situation.

Has the company been shopped around to the highest bidder and are
there competing offers for the company that have been evaluated. Has
an investment bank been hired to shop the company around to the
highest bidder?

I think I have a potentially interested party that has the capacity to
purchase all the shares of Athris at a better price than the proposed
CHF 1050, subject to certain conditions.

Please provide me with a mailing address for each of the 3 board members
receive separate, registered mailings informing them of certain
procedural steps to be taken to increase shareholder value for all

Respectfully Yours,

Christopher Schulz
Steinway Capital Inc.

Athris Holding AG - Takeover Offer - QUICK TAKE

Athris Holding AG (ATRI SW) was the Mystery Company briefly highlighted at the bottom
of my July 2009 Reinet Update blog posting.

Athris Holding was described only as a recent spinoff. It was implied but not
mentioned that it traded on the swiss market. It has a controlling investor
of noble lineage and blue blooded by my own description. The investor has been
very interested to gain full control over the entity.

This very cash rich holding company traded for the longest of times since the March 30 2009
spinoff from Jelmoli Holding AG at a whopping 40% discount to NAV and a good 20-25% discount
to embedded cash. Given the liquidity and high tangible nature of underlying assets, substantially unencumbered by leverage, the size of this discount is huge.

The discount is as much as it is because of the undemocratic behaviour of the controlling shareholder, Georg von Opel. Over the past 10-11 years he has had an extensive track record of
going after closed end funds and if not liquidating them, so at least take them over 100%. In some cases he has also sold his investments to others or split up his target companies. He is by most standards a successful and shrewd investor. Unfortunately like in some many cases he is looking out mostly for his own greater good. It is not the first time that he tries to take over a closed end fund or investment company at deep discount to NAV.

In the past he has successfully closed in on MC Bohemia and liquidated it. He has successfully taken control of OLD ENR Russia Invest SA and caused the Nov 2007 spinoff of New ENR Russia Invest SA (RUS SW). He subsequently took control of the much larger OLD ENR Russia Invest SA (the parent co of RUS SW) in a series of takeover and minority squeeze out steps that ended July 1, 2009. OLD ENR came to be known as Growth Value Opportunities SA (GRO SW) and was taken over by von Opel 100% controlled entity Paramount Finanz AG. GRO SW was renamed into GVO Asset Management. GRO SW was taken over for roughly 16-18% discount to NAV, or 206 CHF per share. To the best of my knowledge no shareholders resisted to the final squeeze out proceedings in commercial court in Geneva. Von Opel family office Hansa AG also took control from 2000-2003 and following years of a closed end fund called Sopafin, later on turned into Pelham Investments AG. Sopafin owned as principal asset Registered shares of Jelmoli. Through control of Sopafin and subsequent purchase of Registered shares of Jelmoli from Walter Fust (in 2002-2003), Georg von Opel gained his 52% voting control over Jelmoli.
Under his auspices, Jelmoli was shaken up or at least restructured. The Fust electro-domestic appliance chain was sold to Coop for close to 1 billion CHF in 2006. Georg von Opel subsequently tried to sell the entire swiss based real estate portfolio of Jelmoli to an Israeli Investor Group. This deal fell apart towards then end of 2007. The overall von Opel plan had been to turn Jelmoli after successful restructuring into an investment company. Given withdrawal of the Israeli investor group, Jelmoli subsequently pursued under the executive management of Gustav Stenboldt and later Michael Mueller the separation of Jelmoli into a real estate firm and an publicly listed investment firm by the original name of Jelmoli Beteiligungen and later renamed into Athris Holding AG. Athris Holding as such was incorporated in 2006, even though the revised statutes bear a newer Feb. 23, 2009 date. The spinoff of Athris out of Jelmoli happened on March 30 and was followed by a massive and convoluted share buyback program via tradable put options that were distributed to Jelmoli shareholders. The spinoff of Athris was accompanied by controversy, due to the fact that the parties had disagreement about the spinoff in the first place, and disagreements about creating an investment company run by Georg von Opel. As part of this investment company setup, GvO would charge a management fee and incentive fee which on the surface of things did not appear excessive. Old-Time shareholders still did not like the idea of a spinoff. Along with the idea of the spinoff came the creation of a single share capital structure at Jelmoli, the real estate focused parent company of Athris. In the reorganization of the capital structure of Jelmoli, Georg von Opel asked for an excessive 18% premium for ceding control in Jelmoli. This was eventually granted to him and he received 250,000 additional JELN SW shares of the unified share class kind. The fact that Georg von Opel was paid an 18% exit premium while Walter Fust received no premium for his registered Jelmoli shares created animosity. Animosity was also created in relation to bearer shareholders who also did not feel treated equitably in this series of restructuring transactions. The past two years prior to the spinoff of Athris had been extremely turbulent and saddled by accusations of excessive executive compensation and the like. Jelmoli board and executive management was made up of Georg von Opel appointees and loyalists. It has to be mentioned that these people were capable executives and enterprising individuals with each their own successful careers prior to joining Von Opel at his Jelmoli venture. We do not want to chime in on the overall controlversy caused in the years 2003 to 2009.

We very much deem the Jelmoli executives and directors capable and smart individuals in their own right. We have no differences whatsoever on their intellectual and business manager and strategic planning capabilities.

We realize that part of the reason why the 2003-2009 period was so turbulent at Jelmoli is that the new controlling shareholders really took the opportunity to shake the existing Jelmoli business structure up by selling Dipl Ing. Fust chain to cool and trying to sell the venerable swiss retail properties to an foreign investor. Recently and after the spinoff of Athris, Georg von Opel has engineered a deal with Swiss Prime site, whereby he has sold his 30% JELN SW holding to SPSN SW for total consideration of 250 MM CHF cash and 4.4 million SPSN SW shares. SPSN SW subsequently made an offer to JELN SW shareholders to acquire all outstanding shares for 7.7 SPSN SW shares per 1 JELN SW share. The offer was announced June 2 and almost immediately rejected by JELN board of directors because of lack of internal agreement on fairness of deal consideration. The offer was within 9 days bumped to 8.1 shares and was rubberstamped by the board of directors as being fair. Subsequently dissent to the deal emerged around the shareholder groups Wecken and Fust and the offer was bumped again to 8.2 shares which now appears to be the final deal value. It is very likely that JELN SW will be absorbed into the SPSN SW holdings structure in due course. We are not currently aware what the acceptance level is in that deal but the deal has been declared unconditional. The industrial logic is to fully merge JELN SW and SPSN SW real estate portfolios. We have no disagreements on that logic. We had our own reservations about the price and the very high quality of JELN assets, the reservations consisting in JELN selling out too cheap. JELN brings valuable cash flow into SPSN while SPSN brings a decent portfolio of development properties in need of cash. JELN was clearly a less risky proposition but not less of a growth oriented company given sizable new property developments of the retail shopping kind in the past 2-3 years. The JELN assets had exceptionally strong tenants and low occupancy.

This goes to describe a little bit the controlversy that surrounds Georg von Opel as an investor and dealmaker. He likes to do deal and take control of companies and shape them around in the way that he sees fit and he has done well for himself. Investors who invested in any of his target companies have by and large also made profits but not in the same magnitude as von Opel himself.

IN principle, one could see how the investment approach of G. von Opel could find its followers and aficionados amid the investor crowd. Putting him in charge of an investment holding company with 1.1 billion CHF in assets was not necessarily the worst of ideas. However it must be said that his non-conventional ways of shaking up swiss investment companies created a great degree of dissent, resentment and distrust. His aristocratic allures in the peasant republic of Helvetia may also not have helped his cause although he may enjoy a decent support base in the Geldadel of Zuerich and Zug. It is clearly not the case that the guy is press shy. I think he enjoys giving a good interview here and there and clearly his words do not always speak for his actions. G. von Opel has been known not to show up at annual meeting and he happens to be aristocratically reclusive, if not floating on a high cloud. That is my impression not knowing the guy and not having him met a single time but having spoken to others who made his acquaintance and describe him as shrewd dealmaker.

Unlike investors like Jim Rogers, Marc Faber or George Soros, G.v. Opel has the benefit that he likes to disclose within some limitations his big picture holdings and track record as an investor. He claims to have done well for himself with a 1996-2007 track record of 22% per annum and we can readily see how this return has been achieved through the 4-6 investments that we have due-diligenced.

We note however that in 2008 he lost some of his luster, which is quite logical and only human not to be always right. It would be hard to find any analyst who is right on his investments 100% of the time and suffers no portfolio fluctuations and volatility over time. So clearly. G. v. Opel took somewhat of a portfolio beating in late 2007 and 2008 as a a result of Jelmoli real estate sale to Israeli investor group falling apart and as a result of small exposure to Russian investments going sour.

Through Athris, G.v. Opel had made some limited Russian investment of the total magnitude of perhaps 70-80 million USD. The experience has been very humbling and today these assets have been written off to USD 15 million. There is clearly and justifiably animosity between Georg von Opel and Valartis/Gustav Stenbolt whose firm manages several Russian investmetns at ENR Russia Invest SA and Eastern Properties Holdings, two swiss listed closed end funds. The degree of bad blood is such that G.v. Opel resigned in 2007 from the VAlartis board and Hansa AG director (the family office of Gv.Opel) Christoph Loew also resigned as board member at ENR Russia Invest. Gustav Stenboldt was replaced in 2007 as CEO of Jelmoli and also replaced as director to the best of my knowledge (whether he still serves as Jelmoli director escapes my mind right now). There is some degree of bad blood between the parties and recently, this has caused G.von Opel controlled entities to file an Antrag auf Sonderpruefung in the relevant commercial court in Geneva. G.v. Opel controlled entities own 33-34% of RUS SW and the allegation made related to business practices and accounting treatment of portfolio holdings and compensation matters. We do not really know if the dispute here between the parties is real and what the motivations are behind it.

For all practical purposes we saw in Valartis until recently a party allied with G. von Opel. The bad blood between the two camps really has to do with investment losses in Russia. G.v.Opel has recently accused Valartis of staying throughout the rally in cash. And missing the Russian equity rally. Well, we pretty much could accuse Athris of having missed the rally substantially.

Having introduced the very controversial but successful investor Georg von Opel, we now like to turn our attention to the investment company he created, Athris Holding AG, which is traded on the SIX/SWX with ATRI SW and ATRN SW share classes.

We leave the exact tabulations of thing to potentially interested parties.

The relevant fact have been predisclosed in the Reinet posting. in July. The Holding company was dirt cheap. We knew that something was going to happen here. We hoped that the seasoning period of this investment would be longer prior to its discovery.

What has happened since the time of the spinoff is that Mr. von Opel after a 3 month abstention from the market has bought as many shares as he could get a hand on. in the open market and in privately negotiated transactions.

How he bought the shares for a total value of CHF 100 MM in open and private transactions is not know and a matter of public record. There is something very curious about the story and share accumulation pattern that would warrant regulators to look much closer at what is going on. But, it is my firm belief that by now, regulators in Switzerland are fully asleep and lulling and not caring what G. von Opel does in the capital markets.

We will not enter the discussion but my prior posting and email I sent to Mr. Scheffrahn clearly alluded to a June 30, 2009 share purchase where the underlying broker was Berenberg Bank but the ultimate counterparty remained undisclosed, unless it was Berenberg Bank itself who crossed over that position to Pelham Investments and Georg von Opel.

The bottom line is that shortly after disclsoing half year results on September 14, Pelham Investments made an offer to Athris Board to buy out all shares in the public float. This intention was disclose to the board on September 16, and publicly preannounced with Takeover Commission (UEK) on September 18..

Relevant info is found on www. athris.ch
and www.takeover.ch

The offer being made to all share in the public float is for CHF 1050 per ATRI SW share and in my not so humble and borderline arrogant opinion is totally inadequate and an insult to any cash computing and value oriente shareholder, owing to the very simple facts that ATRI SW sits on a good CHF 1150 per share cash and like cash and securities portfolio that can be liquidated within the next 12 months at very advantageous prices. .

The NAV itself is at CHF 1500.. and the offer discount to NAV is a whopping 30%.

It is clear that Pelham/G.v. Opel are successful horse traders and strategists and why start the bidding high, if you can start it low.

Since the offer was preannounced, G. v. Opel bought a total of more than 15,000 ATRI shares at price of CHF 1050 per share through his broker Credit Suisse.

There are currently only about 115,000 ATRI equivalent share oustandnign (plus minus) meaning, that G.v. Opel is already one step closer to gaining control of the entity, before even having launched the offer.

The offer will be published on October 14 and be subject to a 15 day standstill period.

My position is that the offer is totally inadequate and an insult to every value investor alive. The good thing is that value investors by their nature are not known as combative spirits. They rather like to decry an insider bid or shrewd executive team as being crooks rather than do somethign about the undesirable behavior and pursue them in court. Every director can be pursued for the right Reason under ART 717 of the OR and it is just a matter of getting your facts straight before spending the money on getting it all sorted out in court. If the counterparty is found guilty, they will even pay for court expenses. This is not to say that we are in any guilt zone yet, but we are closely watching, for the watching sake.

Fortunately we still have some gypsy and pirate blood in our veins and like to pick a good fight every now and then. Most historic investor of Athis and value investors do not believe a lot in minority shareholder rights in Switzerland. Somehow though we do. The fact that many of the governing statutes have never been tested to the core in precedent setting cases is an opportunity to create potential precedents and if not that, then at least create a major ambush and leave the controlling group of people with a few bloody noses and broken arms in the boardroom. After all where there are pirates there must be some exchange of fire and some occasional collateral damage.

Georg von Opel is not stranger to taking his fellow shareholders as prisoners and offloading them on a remote island in the pacific with a barrel of water and two boxes of dried raisin and in that sense, lets just test out for how long we can be a pain in the ass and with what net-net-net result.
The current offer proposal is so outrageously inadequate that I do not even know why the guy is just not continuing to buy shares in the open market without preannouncement.

I guess, we all need our share of publicity. Myself I post occasionally on this blog. Mr. von Opel makes pre-announcement and takeover offer. Bottom line of it all is that we may enjoy the adrenaline of a good fight too much. Hearing a barrage of dissenting opinions and shareholder Radau just gives some investors the confirmation that they still havent gotten forgotten. However it is far from enjoying an investment following of any kind.

Certain transaction structures being contemplated and proposed are just way out of touch with the good corporate citizenship. Unfortuntely, G. v. Opel is going down the road of a corporate raider and not a value investor. His increasing hybris and disdain for concerns of minority shareholder is typically the type of arrogant behaviour the precedes someone's fall and makes observers particularly gleeful.

The aristocratic allures and combative spirit of G.v.Opel has been known for some time and with the 2006/2007 shakeup of Jelmoli he created sufficient enemies in some camp of the swiss establishment but not in the other. I think the bankers are very loyal to him and I think he gives a fair share of business to Credit Suisse, Berenberg, PWC, KPMG an others in the professional advising and transaction industries. However, I would still claim that his style and future plans created enough adverse reactions and animosity for certain observers to be very gleeful when he had certain setback in late 2007 and 2008. To some observers, it would have been most fun to see that this guy did not get what he wanted.

His investment actions have most often been divisive, for whatever historical reasons. Most likely he is a very ambitous young man and has success at it and part of a group of so call hedge fund or professional investor types that are little understood by the general populace who likes to read the daily news.

Bottom line is I pretty much do not care about any of these animosities but have invested in this because of high quality asset base in Athris and pristine balance sheet and operating assets that have very decent cash flow and this is all that matters to the value investment case. when 1150 CHF in cash, securities and equivalents are out there, this logically begs the question:


I approached in my unconventional enemy combatant style the company to ask them the very obvious questions that any party would want to do while conducting due diligence. My questions were directed to the only managing director at Athris to which I have access and who feels not yet tired to respond. My next post will show what I asked and what he responded.

So stay tuned on this one as the battle for corporate control heats up. We are readying the MS Pirateship with some dirty bombs and corporate sabotage acts. Minority shareholder activism at its finest. In the old days greenmail would work but we are not interested, we just want to create one or more regulatory interventions to reach the goal of higher deal value for all shareholders.

In principle we have no issues with G.v.O. running an investment firm for the benefit of all shareholders but can we trust him that he will represent our interests? Of will he seek another control premium in the future.

Some aspects of the events leading to the Athris spinoff listing and current proposed takeover offer are very disturbing. And we shall really go here to the heart of the matter if everything that is going on is happening for the right reasons.

Email Inquiry to Athris Management - Aug 18, 2009

Invitation to connect on LinkedIn

Christopher Schulz
August 18, 2009

Raymund Scheffrahn... see more


Dear Raymund,

Since our brief telephone conversation and email a while ago,
lots of things seem to have happened at Athris. Principally
at the level of share repurchases by controlling shareholder.

At least you believe in this wonderful group of assets you own.

I am pretty sure market participants have been lulled deep into
sleep. Why should they see value where others see? When
things are too obvious, market participants typically ignore
where they could be making money.

Conceptually I am wondering, why is it that Athris itself is not
doing any of these value enhancing share buybacks, thereby increasing
NAV per share to all shareholders. Would this not be an easy way to
redeploy assets and create value. Evidently this would take cash out of
your corporate treasury, which is not the same thing as GvO buying
in the open market for his own account and keeping asset pool together.

Wonder of any of my subscribers ever got to invest in your
company. From general lack of response to my investment recommendation
alerts, I would think they are secretly accumulating.

This is the way it always works in this industry. Smart people say they
have no interest, and then they buy it anyway. Its always good
to buy for yourself when you believe in something.

One thing I never quite understood, the 59,000 and change shares bought by GvO on June 30, 2009, should the seller of these assets not previously have reported a 3% ownership level. 59,000 shares at all times were 3% of votes.

In other respects, you seem to be doing a fine job in increasing the value of net assets responsibly. Too bad that others could not be encouraged of that vision.

Athris idea has not brought me so far any new clients but I guess it counts already as a decent idea. Who knows if some of the recent shareholders come out of the woodwork and tell me about their investments. Its not that easy to run a credible indep. research firm.

Good luck on investments.


Wednesday, July 08, 2009

Reinet Update - Touchdown

Its July 8, 2009 and Reinet officially sits now at Euro 9,54, having
even topped out this week at 10 Euros.

This is desired special situations abolute return territory, having appreciated
a good Euro 3 from the time this was first officially documented in Dec 12, 2008
at then Euro 6.85.

This represents a period return of about 40% achieved over 7 months on a
concentrated position.

This is really why the performance chart on the affiliated corporate website
slopes up the way it does. Focus on very few punchcard investments that
are well researched and allocate assets substantially to those names when
you have the confidence to invest and you should do just fine over time.

At this point the situation represents a 5-10% discount to NAV situation.

I still believe in the long term investment strategy and track record of
Mr. Rupert and his hand-picked appointees.

Unfortunately, there are are not a lot of long term investors that I have met
who would consider REIN LX as a viable ultra-deep value, contrarian long-term

Investec recently put out a HOLD note on the name. They even put out crazy
earnings targets for 2010 and 2011, something I would not bother about doing.

Lets give them the credit that these analysts in South Africa who analyze this holding company and the underlying BATS assets know what they are doing.

I personally would not stick out my neck on earnings targets and I will care to update here on the accuracy of their forecasts once we reach the end of 2010 and 2011. Chances are nobody will
truly remember what they said by then.

Importantly, this Reinet trade was set up in October at effective cost of Euro 2.50 by going long Reinet and shorting out BATS LN ahead of the mandatory exchange offer and ahead of receipt of the rights offer/warrants that allowed to buy additional REIN LX at substantially dillutive terms, by contributing additional BATS LN into REINET. Few folks understood what this trade was all about adn the mandatory ex offers and the capital contributions etc.. it all created big time confusion in the market and this was the stuff that we like to zoom in onto.

When blood is on the streets, we are very likely to have a very gleeful smile on our faces. A contrarian grin. Ear to ear, baby.

Most clients dont really understand what the logic behind such ultracomplicated corporate restructurings is and most analysts dont read the listing documents accurately and miss out on important terms of important parts of such corporate restructurings.

As Gordon Gecko says, analysts, they dont know the difference between Preferred Stock and Livestock. I would subscribe to that notion.

In any event, Reinet was an extremely convoluted restructuring and one where apparently the pótential for triple digit returns existed, if you were an early and capacitated investor.

We were grateful to implement this strategy for a group of advised hedge funds. We have really stopped advising third parties or managed account assets, which is why the performance chart on affiliated website has not extended for some time.

This blog however continues from time to time just to provide occasional snippets of interesting happenings on the capital markets front.

Reinet was best in class special situations investing and I am still looking out for investors who understand and participated in what went on in this series of transactions. I am sure there are other folks out there who have followed that name. Maybe I hear from them, maybe not. This blog has not been exactly rich in feedback.

The Reinet Update portion of course should not just be about a portfolio and trading update, which so far has brought us into triple digit return territory on the name overall and into 40% period territory since posted to the public on this blog. It should have been obvious that as a proprietary research firm we cannot post the ideas to the general public in real time. That would simply not be good business policy given our rather exclusive and reclusive advisory relationships.

There is a real operational and investment update that could be made about Reinet. They have made one small investment thus far. This investment came at a price tag of so far 10 million dollars and requires over the next 3-5 years additional capital commitments of about 230 million. Measured in relation to current cash hoard, recently collected BATS LN dividend, and future expected BATS LN dividends over the next 3-5 years, this investment commits about 20-25% of 3-5 year investable cash assets, leaving REINET with every share of BATS LN in the existing portfolio.

Reinet did a marvellous deal in an auction sale of the Lehman Bankruptcy estate. They purchased a 49% interest in a largely uninvested Lehman Merchant Banking Fund. The fund in which they have a GP interest of 49% and LP interests will have overall investable assets of $3.3 billion and it will be managed by Trilantic Capital Partners. Reinet owns 49% of the GP with the Trilantic partners and managers owning the other 51%. Essentially Reinet backed a managemetn buyout from the bankruptcy estate and they agreed to buy out the capital commitments from other limited partners into the fund. In exchange for this and the consideration they paid into the bankruptcy estate, they were allowed to appoint 1 member to the investment committee of Trilantic and they were allowed to invest alongside Trilantic in promising Private Equity investments on the same terms (pari passu). All in all this was a very opportunistic and successful first investment.. Investors have digested the news that started to flow into the market in April and became fully confirmed and closed in May 2009.

While uncertainty about investment strategy and lack of news prevailed in first 6 months of Reinet trading, the past 2-3 months have instilled the market now with more confidence. One could say almost overconfidence, give the lack of actual investment returns achieved thus far within the Reinet investing portfolio ex-BATS LN. Investors have just caught up with reality that perhaps the company is not so badly run as the rather blind Swiss investors have largely assumed by dumping en masse their spinoff shares.

Swiss investors are pretty blind when it comes to discerning spinoff value. I do not think this company, which was spun off from a Swiss listed luxury goods company, is widely followed and invested by any Swiss investors. Really odd how assets are appraised and valued in the Helvetic Republic. People down there pride themselves on their private banking skills or know how and the trillions in assets they manage under the veils of banking secrecy, but sometimes it would seem better they kept tending after their livestock.

Surprisingly, some of the best special situations investments over the past 3 years have had a swiss angle to them. It appears that the capital markets there are very loosely regulated there and anything that is correctly worded and fair from transactional standpoint seems to fly with regulators. Even losely worded right offering pricing terms as in case of Reinet warrants cause no objections with the local regulators. Anything goes in other words. The recent Hammer Retex spinoff from Industrieholding Cham also came with an anything goes structure. In that spinoff deal the spinoff was taken private by a Goehner Stiftung backed entity before the spinoff was even listed and distributed to shareholders. Whether the fairness opinion in the case of Hammer Retex was fair, or even read by anyone we shall ignore. I am sure the Hammer Retex investors will over time make out like bandits. The structure certainly gave the impression that investors had no much choice as to what to do with their investment. Recently I drove by some of those Hammer Retex properties in and around canton of Zug and they are nice properties. lots of development potential for those who care about long term investments like the Goehner Stiftung.

I would say well done by them for putting their commitment behind those unwanted assets.

Back to Reinet. This there is not much to report on at this point. There are plenty of asset classes that are still cheap. I dont know right now of any recent Trilantic investments having beein undertaken. BATS LN certainly has announced a few deals here and there, but it would be hasty to report on the impact of those here. Generally, BATS LN is in good shape, and for anyone comfortable with global tobacco holdings, BATS LN is a great exposure to that sector with high dividend yield. The bigger firms are getting bigger. Reinet will most likely retain the time proven tobacco exposure and slowly diversify through investments like the GP stake in Trilantic and associated LP investments. As a long term investment we would put it on autopilot.

The accumulate phase on this investment was in December. I would just leave it on Autopilot.
and pretty much forget about it until say in 10 years from now.

Until then, I will though continue to care to provide updates.

I would at this point have a tight NAV discount policy on additional portfolio additions. Buy on the dips. At this point, this would mean buy on weaknesses which at current NAV level would mean to add in the 9-9,30 NAV territory.. this would still represent a significant discoutn to current NAV per share which sits a little bit North of Euro 10.50. A 12-15% discount to NAV
on a blue-chippish, contrarian-managed portfolio company would be decent as a long-long-long term investment.

It is not an opportunistic special situations research investment that is worth paying a research fee at this poing. Opportunistic is only if you had the opportunity to buy it at Euro 2.50 or at 6.85.

At this point the situation has to be deemed fully discovered. In other words a fully seasoned spinoff. Under the efficient market theory, all available public information has been factored into the share price. Not so efficient, it took 8-9 months for the market to reflect all this information into the share price. This is why we ultimately do not believe in portfolio theory, asset allocation and diversification principles and all those theories commonly espoused in financial textbooks.

There is a situation just like Reinet that became available in the capital markets this year. Also trading at a significant discount. We share report in future newsletters on the progress of that undisclosed special situations investment. It looks like another position that could yield a triple digit return over time and we are careful not to reveal its name at current juncture. We shall only reveal that it is another interesting holding company with tons of cash with noble lineage.
Investors in this latest special situations investment have given the controlling shareholder the boot, or at least pointed with the thumbs down, to such degree that the stock now trades well below cash and equivalents. it is too juicy a situation to pass on and we add it to our European special situations model portfolio for 2009. It is very likely to outperform the markets by a wide margin no matter what the capital markets environment in 2009 will be. Its an investment good for all seasons, for those who can discern its value.

Unfortunately, not many folks these days are interested in special situations. Everyone got their wifes lavish expenses to pay and private schools for kids and what not. The loan on the demolished ferrari also has to be paid and the equity on the summer home in the hamptons is well under water. we know how it works. This is why investors like Rupert, Goehner, et al. are scooping up on fine assets like there is no tomorrow. Evidently to every buying trade there must be a willing seller. These smart investors and foundations aren't putting a gun to anyone's head but merely picking up assets undiscerned by other, otherwise intelligent investors.

my next post will reveal a little bit more about this mystery holding company with blue blood corporate control.

Friday, December 12, 2008

Reinet Investments (REIN LX)

Reinet Investments is a publicly traded family office of the Rupert family of South Africa.

This investment vehicle was spun out of swiss based Compagnie Financiere Richemont in a
complicated, multi step corporate restructuring.

Reinet was endowed with cash and with shares of British American Tobacco (BATS LN).

Today, there are about 196 million REIN LX shares outstanding (or about 1960 million REI SJ depositary receipts traded in South Africa).

The assets that Reinet today holds are 406 million Euro of Cash and Investments, and 83.5 million shares of BATS LN.

The 406 million in cash and investments is comprised of approximately 350 million euros in cash and the rest in solar and optical technology companies. The venture capital allocation is fairly minimal overall. Therefore for simplicity, lets just say that 406 million Euro in cash sits within this holding company. This equates to about Euro 2.07 per outstanding REIN LX share.

The principal asset of Reinet is the BATS LN shareholding which currently amounts to 0.43 BATS LN per REIN LX. The price of BATS shares in Euro equivalents is about 18.25 Euros as of today's closing price.

Thus each REIN LX at present contains BATS share worth Euro 7.85.

There are no significant liabilities.

The cash and BATS holdings represents Net Asst Value.

NAV turns aout to be Euro 9.92 per REIN LX shares.

At present REIN LX trades at Euro 6.85, or 69% of NAV.

In other words this holding or investment company trades at 31% discount to NAV.

Reinet Investments was set up 2 months ago as an investment firm managing assets under a closed end, 1%/10% fee structure.

The company currently has about Euro 1.93 billion under management.

Today the Rupert family is a major shareholder in the entity and through an optional share placing, they will subscribe to additional shares at parity to NAV. This optional placing will be concluded on December 19 or shortly thereafter.

After this share placing, it is believed that the assets within Reinet Investments and the Reinet Fund will be approximately Euro 2.1 billion.

Why would anyone at this point consider an investment in Reinet?

1) The discount to NAV of 31% which might be deemed excessive given the quality of assets and given how recent the entity was set up. In a closed-end fund context, something has to be seriously impaired for a fund to trade at a 31% discount to NAV. There is no asset value impairment going on at Reinet, other than the Rupert family controlling their family office and owning currently about 25-30% of shares outstanding. After the option placing the Rupert family will come to own about 40% of shares outstanding.

2) The track record of the Rupert family is excellent by most standards. 2 Generations of Ruperts have shown quite exceptional business acumen turning them into billionaires (net worth estimated around 2-3 billion according to the usual wealth trackers). Sure enough there is hard work behind it all and typical financial journalists dont give proper attribution of how much of the results are due to industry and how much due to capital. We are not going at this point into details of trying to demystify the sources of Rupert family wealth. They are shrewd dealmakers. they are hard charging dealmakers. They are not known for giving away anything for free. Looking at their corporate constellations over time, the like to operate in tax-efficient jurisdictions while enjoying quality of life. So some people work hard, while others work smart.
Clearly, the Ruperts are smart, and they have not given up working hard. This assessment certainly applies to the family patriarch Johann Rupert.

Reinet Investments gives an opportunity to participate over time in this long term track record by the family. As a passive portfolio investor. We hope that at this point the portfolio of assets is sufficiently large to warrant the effort and that no additional capital structure modifications are needed to prove the family office concept.

At this point, no investments have been undertaken but 80% of assets is centered on BATS LN holding. The rest is cash. BATS LN pays a healthy dividend. And it is a defensive stock. A sin stock. So while Reinet is a bet on the track record of the Ruperts, it is also a defensive stock at this point.

At this point, REIN LX trades at a 13% discount to the value of its BATS holding alone.
This does not inclued the over 2 euros in cash per share that come as a freebie.

For any investor without tobacco scruples, this gamble is probably worth it.

If one does not like BATS LN, one can alway short out that exposure partially or in whole. and make it a call on the Rupert track record along, but such a trade would ignore that tobacco is part of what made the Ruperts so successful over time.

Enough said.

3) Reason number 3 to invest is their articulated strategy for investment.

At this point they have not allocated any money in this family office other than 55 million in venture like investment in solar and optical technologies.

Johann Rupert has expressed all along his scepticism about the current economic state of affairs. He has been critical about the growth in credit and has generally been making a bearish case about the business cycle. He has been bearish for years which has earned him the nick name of Rupert the Bear, which we find quite charming. We wholeheartedly go along with Mr. Ruperts sentiment, given that our own sentiment is defensive, conservative and capital preservation oriented. But growth oriented over long periods of time.

So, Mr. Rupert has laid out a case that there will be plenty of seizures in the financial markets over the next few years and this should create numerous investment opportunities. We generally agree with that. No indication has been given on the timing and size of future investments. We shall see if investment allocations occur in 10 MM tranches or 100 million tranches. and when. Reinet Fund is structured as a closed end fund and the organization is under no pressure to undertake any investments now. This is good.

There evidently is no rush to allocate any assets for as long as investors run up to the Treasury department and demand zero interest 4-week T-bills in 4 times oversubscribed auctions.

The current market environment is enough sickening and the flight to quality has eluded investors from the real systemic risks.

We find it very ironic that flight to quality is going to the US Dollar and to the Treasury at Zero interest rate.

Reinet at this point has an asset bias in Euros for its cash holdings and in various emerging market currencies since BATS LN essentially is an emerging market play in many jurisdictions.
It is probably a healthy diversification outside the G7 countries. At least conceptually.

Although there are some investment opportunities surfacing at this point, there are indications that asset valuations could go much lower after a snapback rally. Tobin's Q-Ratio seems to indicate so.

The current bear market isnt quite over yet.

Since no investments have been undertaken by Reinet at this point, we hold our breath on applauding any such moves.

For the record, Mr. Rupert wants to invest in opportunities created by the seizures in the financial market.

We shall see in the future what he means with that, and to the degree that such investments are disclosed to shareholders.

An investor in Reinet certainly would have to feel comfortable with that contrarian, anti-cyclical investment philosophy.

We surely are.

Thus for various above cited reasons, we recommend purchase of these heavily discounted securities as a long term investment. It would be an allocation to a closed end fund asset and a family office run by some shrewd, if not smart investors.

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Wednesday, September 19, 2007

SNFCA September 21 Shareholder Meeting

Special Meeting that is.

to approve too many shares of a capital structure already not well understood..

Wrong idea, wrong timing....... Vote all the way no for those who haven,t...

They musta be kidding to authorize so many new C Shares, when option stuff can be funded with share repurchases in the A shares.

What is the whole point of issuing new shares anyway at discount to book value, when you can buy in treasury operations at substantial discount to book value.
Makes you wonder what interests the BOD is serving. someone awake or even at home there?

I like the winds of generational change here and with it, an overhaul of the dusty board will be overdue.

Will we see this?

Generally these guys are OK, but they are way too enamored with their Class C shares that are not tradable and funky in their voting rights - economic rights distribution.

Generally, No Wall Street Commentator gets it, so why issue more of the darn C shares. seems a bit self desctructive.

And then the BOD and management wonder why this trades at 45% discount to book value.

Are they for REAL??????????????/

Vote NOOOOOOOOOOOO if you have a chance still. or change your vote if you still can. better late then never, if only to send a signal to them that this whole A and C increase doesn,t address the issues of a company trading at deep discount to Book Value and Net Asset Value.

Bowlin Travel (BWTL) : Q2 Results Out - NIIIICE as Borat woudl say.

continued progress at bowlin... next quarter should be a clean one in strong seasonal quarter. can they make 4 to 5 cents in earnigns per Q going forward?... way overcapitalized and now with the cash on balance sheet to do somethign about it.. more cash should wash up their shores, given the nature of the business..

Travel Centers of America (TA) serves as a useful comp and investing idea in its own right.. just a much bigger version of BWTL and less funky

Friday, September 14, 2007

Converium Story is Over: CHR minority interest still trades

on New York Stock Exchange.

Scor SA took them over and deal closed at end of August.

Hope you all got your deal consideration. or cashed out along the way.

Scor did evidently not extend the tender offer to US holders, but this did not lead to collapse in the deal value either.

My understanding is that over time this stub disappears.

It will trade somehow in relation to what Scor is doing in europe and so far earnings are looking bright. Converium's last reported earnings were also upbeat.

The deal here was a cash and stock deal. so most Converium holders in some fashion got exposure to Scor, and it might be worthwhile to continue to follow up on this consolidation story.

There are a few other reinsurance plays that are catching my attention these days and might be worth followup research. more on this later.

over and out, Z

ICO Inc. Depositary Shares: Conversion Features

Update on an name recommended a while ago. Ticker ICOCZ.

there are convertible preferred shares or depositary shares thereon.

Arrearage will be made up by September 21, 2007.. Investors get 6.33 in arrears plus regular dividend of 0.42. This only applies to ICOCZ (and not the common stock)

The ICOCZ shares convert each into 2.74 shares of ICOC common stock.

At current price of the common of aroung $14, the ICOCZ are worth around $38 on an as converted basis. Pluse the $6.75 per Depositary Share dividends to be collected by September 21.

So overall an aggregate value of almost $45.

If you own it, keep watching those conversion features that add to the value above the future liquidation preference of the depositary shares.

Of course ICOC has had a very substantial runup in the past 3, 4 weeks. from 10 to 14. this has caught many by surprise. But this makes it all the more likely that the capital structure will be cleaned up one step at a time. so I expect substantial conversion of the remainign 190,000 or so depositary shares outstanding.

I guess people are happy wiht this turnaround. judging from share price performance. who would have thought.

over and out. Z