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
investment.
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.
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
investment.
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.
posted by Christopher Schulz @ 10:05 AM
6 comments
