For those of you who like arbitrage opportunities and for those of you who don't think they exist I have one for you both.
Bexil (BXL) trades at a market cap of $27 million and has $37 million net cash ($40m cash less $3m in current liabilities) and that is the entire company. All they do is invest the cash and make the spread. I mean they are currently looking for a Private Equity deal, but there is 40% insider ownership and no off-balance sheet liabilities. This is an arbitrage opportunity at its finest. Beware though it trades light.
Ben
Ben
posted by Not Sure if Al Gore or Global Warming is a Bigger Joke at
7:15 PM
10 Comments:
Okay so it looks like they got all that cash when the sold its 50% interest in York Insurance in April 06'. Now they are seeking to invest either all or part of those proceeds in a privately held co. Okay so say they invest $30M of cash plus lever up with some debt, you lower your cash balance and put a investment in sub. on your balance sheet.Looks like BVPS is approx. $42 trading at $30. I'm a simple man please let me know what I'm missing. Sounds kind of interesting, albeit strange
Just a question here... doesn't "arbitrage" imply zero risk? Seems to me that this is only an "arbitrage" if you can accumulate enough shares to control what happens to their cash. Doing that assumes two things: 1.) that there is enough float to gain control and 2.) that you wouldn't move the price significantly doing so.
Seems to me that the market is betting against these guys being able to create value with their $37 mm.
Another question... is it really worth the costs of being public if you have a market cap of only $27 mm?
Doug you are right about the arbitrage in that you cant go long the assets and short a like asset. However, it is innappropriately priced given the lack of interest in the name. There is 40% insider ownership, I think a 25% discount is steep for a group that made money in its last deal, could lever up that cash to buy a $150 to $200 million company and really increase the earnings power of the company.
$27 million isn't that bad. There are lots of smaller stocks than this.
Anyways, buy it in your PA and wait for the returns to come. There is almost no risk here.
Ben - Is basically the real risk that they take the $30M plus in cash & lever up and do a "dumb" deal that detracts the value rather than simply looking at the liquidation of the company and saying today that liquidation is worth more than the share price, ie. buy buy buy
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Yeah, I mean you could say that, but what I would say better reflects reality is if you look at this thing when the deal went down it was valued up near $36 / $37 right at cash value. Then they have sat around and done nothing and have lost the interest of some investors so that when people sell into an illiquid market the price is materially affected. Thus, it is a name with no recognition, no interest, no real business as of now, but it trades at a discount to liquid assets. I mean i have heard of discount to book / tangible assets, which usually include illiquid assets like excess inventory, manufacturing plants, etc. but at a discount to liquid assets?
I think these fuckers are going to take that $40m in cash, $37m in equity and lever it up 4x to 5x to buy a company and produce ROE's that will be above 50%. This is a stock that we should all have standing limit orders in for buying.
Ben
who deleted their comment/
sweet... LBOing during the private equity bubble. Sign me up. I mean, I'm sure these guys can do it better than KKR, Texas Pacific, et al. What with their army of analysts and vast experience in running highly levered companies. I'm teasing, of course.
I realize that you probably already know this, but leverage is relative. 4.0x on a tech firm is overleveraged but 4.0x on a radio company is significantly underleveraged. If I were them, I would buy the highest, most stable cash flow business I could find and throw some leverage on top.
The only problem is, what is their exit strategy? We're talking microcap here and even with a ton of leverage they will still be microcap.
4x is nothing for an insurance company, a stable retail company, a staples company, a utility company, etc.
But I think that this thing is fairly valued now at $33 given that it now is basically trading at the after tax value if it was liquidated via a one time dividend. However, I wouldn't compare these guys to KKR, because there are lots of P/E firms out there doing very well that aren't brand name the way that those guys are today.
Anyways, at $26 this was very attractive. Now there isn't much upside left.
I agree with Ben that there is no reason why smaller PE firms relative to a KKR can not succeed, they have been doing it for years, don't discount these guys simply because of their size. At $26 there does seems to be some margin of saftey worth taking a flier on.
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