AC- Associated Capital Group

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GAMCO Investors issued a note to AC with an initial face value of $250 million (the “GAMCO Note”) as part of AC’s spin-off in November 2015. At December 31, 2016, the principal outstanding was $100 million. As background, under GAAP, the principal balance of a note from a related party cannot be treated as an asset, but as a reduction in equity. During the first quarter of 2017, GAMCO paid $10 million of the GAMCO Note, resulting in principal outstanding of $90 million at March 31, 2017. This increased our GAAP book value, but had no impact on current earnings. On May 1, 2017, GAMCO prepaid an additional $10 million of the GAMCO Note, reducing the principal outstanding to $80 million.

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Q2 highlights

 

Our investment in 4.4 million shares of GAMCO Investors, Inc. (“GAMCO”) stock at June 30, 2017 was valued at $130 million on a mark-to-market basis, substantially on par with its value at March 31, 2017. The GAMCO stock is held as an available for sale security, any changes in value will not be reflected in net income unless they are “other than temporary.”

 

GAMCO issued a note to AC with an initial face value of $250 million (the “GAMCO Note”) as part of AC’s spin-off in November 2015. During the second quarter of 2017, GAMCO paid $10 million of the GAMCO Note, reducing the principal outstanding to $80 million. The payment increased our GAAP book value but had no impact on current earnings. Under GAAP, the principal balance of a note from a related party cannot be treated as an asset, but as a reduction in equity, until the note is paid.

 

During the quarter ended June 30, 2017, the Company repurchased 350,904 AC shares at an average price of $34.16 per share, for a total investment of $12 million. On August 3, 2017, the Board of Directors approved an increase in the share buyback plan of 1,000,000 shares. In addition to open market purchases, the Company will explore various other buyback mechanisms, including the use of a 10b5-1 program and a Dutch auction.

 

 

 

Reconciliation of Total Equity to Adjusted Economic Book Value

 

                                                Total Per Share

Total equity as reported $ 886,920 $ 37.11

Add: GAMCO Note         80,000 3.35

Adjusted Economic book value $ 966,920 $ 40.46.

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I just sold out today at $38.20

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Associated Capital (AC) said late Friday that it has appointed an interim CFO and that it is considering its investment in GAMCO Investors (GBL).

 

The company has appointed Francis Conroy as interim CFO, effective Nov. 7. He succeeds Patrick Dennis, who joined the company in November 2015.

 

Separately, the company said it is evaluating options for the 4.4 million share investment in GAMCO Investors, equating to 15% of the class A and class B shares outstanding.

 

The options being considered include an exchange offer of GAMCO shares for Associated Capital shares, issuance of a mandatory exchangeable note, a dividend of GAMCO shares to Associated Capital shareholders, or a sale of GAMCO stock.

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https://www.prnewswire.com/news-releases/associated-capital-group-inc-commences-offer-to-exchange-300591718.html

 

Even w/ the jump after the announcement, still seems to be ~7% discount to value of GBL shares

[chesko182]

Yeah and pretty juicy returns if you look on an annualized basis. Assuming it closes a month after the tender offer expires it's over 40%. Looks like a good special situation place especially for a cash alternative, and very little downside if you can hedge properly.

 

Has anyone been involved in this kind of arbitrage? How do you manage the hedge given that the exchange can be oversubscribed?

[Scunny Bunny]

Fascinating development at AC. New exchange offer of 1.9 Gamco (GBL) shares for every AC share for up to 1.8million AC shares. The split share set-up of AC 3.933m "A" and 19.057m "B" (virtually all the B's (10x voters) are owned by Mario Gabelli and are not quoted) makes this real interesting as Horizon Kinetic own 1.451m (37%) of the "A" shares.  If they didn't tender, and all of the exchange was taken up by others, then there would only be 682,000 shares left. If you didn't mind being in a very illiquid stock ($29m free float market cap or so) might be an intriguing play sat in the middle of Gabelli and HK. The exchange at last nights close of GBL ($22.75) is worth $43.22 against AC at $41.60. Lack of liquidity means it's hard for a pro to arbitrage. On my numbers, if all the 1.8m AC shares are exchanged, pro forma net assets on 30 June 18 balance sheet are $832m onto 21.2m reduced shares or $39.27 a share. FUM is about $1.6billion so you are paying goodwill of only ~$49m for the businesses themselves. Bear in mind this thing has been at a discount to NTA virtually since listing.  GBL has been a dog - halved since late 2014 - so will be interesting to see if any genuine value punters looking for a turn in Gabelli business. I am long AC but interested if anyone else there and their thoughts.

[samwise]

It's been falling fast over the last 3 days on no news that I can find. Big discount to book value again. Perhaps it's just an artifact of the reduced float unless there is news I've missed?

 

I bought some today.

 

Anyone have a view on the end game here? What does Mario want to do with this pile of cash?

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I haven't followed in over a year but was hoping someone knew the cause of the drop. What's the latest on AC—has GAM paid the note back in full?

[samwise]

Sold a couple of days ago, although I have already proved to be early. The stock might rise back to 45.

 

Amazing how the market can trade a stock that's mostly $42 of cash for 34-45 within 3 months.