SDOI - Special Diversified Opportunities Fund

[Cunninghamew]

This will be quick, bc I really don't know what is going on.  I literally just saw a tweet from whalewisdom that Becker Drapkin filed a 13D on this company.  Quick background, Becker Drapkin is a Dallas based activist fund that I have a lot of respect for. They were instrumental in the Tuesday Morning turnaround, but that's the past.

 

So I looked up the company and it appears to be a liquidation play. All of the underlying businesses have been sold off.

 

The company has a market cap of $23.8mm. Cash as of (09/2013) of $25mm and Other current assets of $2mm. 

 

What perplexed me is that Becker Drapkin has materially increased its position. You can see the filing yourself here http://www.sec.gov/Archives/edgar/data/911649/000119312514037028/d671101dsc13da.htm

 

The amounts are small, but they have been actively buying at about $1.13. I also assume they have good information, because Steve Becker was on the board and is responsible for the company liquidating.

 

I just printed the last 10-Q and am reading it now, but I thought I would point it out in case anyone had some insights

 

Seems like a small spread to go after, but maybe something there

[Cunninghamew]

I should also add there are NOLs in addition to the cash.

 

From reading the filing I can't tell if they are looking to:

 

a) Liquidate and return cash

b) find some other transaction to do

 

I do like Steven Becker on the board and I haven't invested in a net-net for like 3 years, so maybe this will be the one

[slkiel]

Good find. This LinkedIn profile may provide your answer about what they intend to do: http://www.linkedin.com/pub/philip-blazek/12/125/a53

 

Philip Blazek

Actively reviewing private M&A candidates as President of a publicly traded company

[slkiel]

Anyone else notice how Wayne Yetter is involved in a lot of these deals? He is a board member at SDOI, and is chairman of PATH, which Jae Jun wrote up recently: http://www.oldschoolvalue.com/blog/special_situation/nupathe-path/

 

Yetter is also on the board of INFU.

[no_thanks]

Sorry to be off topic, but what is a good way to track these guys, like Wayne Yetter, for ideas.  Do you just use a google alert?

[slkiel]

Sorry to be off topic, but what is a good way to track these guys, like Wayne Yetter, for ideas.  Do you just use a google alert?

 

Yeah, you could do that. It would probably be worthwhile more for some of the activist funds. I just recognized Yetter because I'm in INFU  and had just read Jae's post yesterday.

 

You can also just look through the holdings for some of the interesting companies/funds. Take a look at Steel Excel's holdings. They have a lot of these cool little holdings with NOLs and other unique circumstances.

[no_thanks]

Sorry to be off topic, but what is a good way to track these guys, like Wayne Yetter, for ideas.  Do you just use a google alert?

 

Yeah, you could do that. It would probably be worthwhile more for some of the activist funds. I just recognized Yetter because I'm in INFU  and had just read Jae's post yesterday.

 

You can also just look through the holdings for some of the interesting companies/funds. Take a look at Steel Excel's holdings. They have a lot of these cool little holdings with NOLs and other unique circumstances.

 

 

Thanks a lot, I will do that. 

[writser]

At first glance they look to have quite some expenses for a 20m shell company.

 

Selling, general and administrative expenses were $427,000 for the three-month period ended September 30, 2013 and $506,000 for the three months ended September 30, 2012.  These costs reflect the levels of personnel and professional fees related to the minimal operations that the Company expects to continue following the consummation of the Asset Sale.

 

Are you so confident in this guy?

[Cunninghamew]

They are very high relative to the size of the company. Eroding $1.8mm of value per year will make this opportunity no bueno unless they were able to quickly find a company to acquire.

 

I do wonder if the $427k is overstated even though the filing says "company expects to continue following the consummation of the asset sale."

 

Compensation has to be the meat of that #... and Frank DiNuzzo (the old CEO) was there for part of that period. Also, in Oct they revised the boards compensation by cutting it in half.

 

In October 2013, the board revised the policies to reduce current cash compensation by 50%. Each member of the Board shall be entitled to receive the remaining 50% in cash only upon the sale of the Company for consideration of at least $2 per share or completion of a strategic transaction in which the valuation of the Company is at least $2 per share

 

I think that was after the fact...  Unfortunately, I don't have the amounts handy

 

Does not change my view of Becker, but does change my view of the opportunity (or lack thereof)

[Ham Hockers]

I should also add there are NOLs in addition to the cash.

 

From reading the filing I can't tell if they are looking to:

 

a) Liquidate and return cash

b) find some other transaction to do

 

I do like Steven Becker on the board and I haven't invested in a net-net for like 3 years, so maybe this will be the one

 

The NOLs are probably worth $3-4mm, at best, in present terms. Call it $3mm after acquisition search costs and expenses. That gives you adjusted book equity of a bit less than $29mm. So you're only talking about a 17%-ish discount to adjusted NAV.

 

So yeah, probably not that cheap unless you know something that isn't public yet.