KYCN.OB - Keystone Consolidated

[Guest JohnReuwer]

Long story short, I made an investment at a little under $5/share on the investment merits and an entity controlled by management (billionaire Harold Simmons) has made a cash tender of $6.50/share today (no financing needed.) The tender offer ends on Feb 31st.  Not coincidentally, the 10K comes out in mid-March.

 

Seeing as this almost a nanocap stock, the spreads and volume might be attractive to some of the non-institutional investors on this board.  If you have a smaller portfolio, it might be worth the tender arb.  5% in a month ain't so bad. 

 

As always, do your own DD.

 

 

[shalab]

Hi John - it seems the number of stocks being taken in is limited, so if everyone tenders, it likely is going to be pro-rated...

[ubuy2wron]

This is worth a lot more than 6.50 you are about to get hosed. The value here is in the overfunded pension ,one of the risks with a controlling shareholder is the going private transaction ,in Canada we have a process where minority shareholders can demand a court ajudicated valuation where you are being squeezed out at an unfair price. I have been in these type of situations before once my position was too small as was every one elses ,the bad guys won. On an other occasion there existed a largish institutional shareholder (Steven Jarislowski) who in effect told them to piss off and got all shareholders a better offer. The 3rd time I had a largish position and hired a lawyer and received a 50% bump in the payout for myself and clients (this was still 1/3 less than what I deemed to be fair but settled for the bird in the hand. The lessons to be learned is when investing in tightly held illiquid investments having a large enough position

to sue them if they screw ya is a must or alternatively to ensure that at least some of the minority shareholders are pit bulls

[Myth465]

This is worth a lot more than 6.50 you are about to get hosed. The value here is in the overfunded pension ,one of the risks with a controlling shareholder is the going private transaction ,in Canada we have a process where minority shareholders can demand a court ajudicated valuation where you are being squeezed out at an unfair price. I have been in these type of situations before once my position was too small as was every one elses ,the bad guys won. On an other occasion there existed a largish institutional shareholder (Steven Jarislowski) who in effect told them to piss off and got all shareholders a better offer. The 3rd time I had a largish position and hired a lawyer and received a 50% bump in the payout for myself and clients (this was still 1/3 less than what I deemed to be fair but settled for the bird in the hand. The lessons to be learned is when investing in tightly held illiquid investments having a large enough position

to sue them if they screw ya is a must or alternatively to ensure that at least some of the minority shareholders are pit bulls

 

Am I missing something.

 

http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NDAzNDg3fENoaWxkSUQ9NDExNzI0fFR5cGU9MQ==&t=1

 

We have a rising market in an election year +

 

$100 million in pension assets.

$50 million in pension liabilities.

As well as an extra $60 million in current assets over current liabilities.

 

Attached to that is a business which can earn $2 - $8 million a year vs. a market cap of $80 million?

 

ubuy2wron is there any reason I shouldnt be buying hand over fist?

 

 

[Myth465]

I see Management controls 61% and wants to go to 81%. I want to buy but what to do about a take under or it being dead money for years? Any ideas.

 

Good VIC write up and commentary.

 

Thus Far David has been right.

 

Ryan,

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/2844

 

I am not really interested in labels. Whether Simmons is a corporate raider or innovative businessman is a matter of which side of the transaction you are on. All we can do is judge him by his actions. He has created value, but for whom and at whose expense? Keystone filed bankruptcy in order to deal its retiree healthcare obligations. The workers and retirees took reduced benefits, the old shareholders got nothing, and Contran's ownership went from 75% to 51%, although the value has skyrocketed.

 

The problem with monetizing the overfunded pension is why would Simmons change the current arrangement? He has control of the assets in the pension fund as trustee, the pension fund has bullet-proof protection from lawsuits, creditors & bankruptcy, and the pension fund pays no taxes. Any attempt to monetize the overfunding will impact one of those three areas, making it unlikely to occur.

 

Yes, the pension assets are likely to keep growing in value but I think neither the workers nor the shareholders will derive any value from it. This is a classic value trap.

 

David

[ubuy2wron]

I think Myth has got it pretty much right. He is creating value but for whom. I was in this name a few years back but when Icahn bailed I realized that without the pit bull I was never going to get a large enough position to fight a take-under and no-ones coat tails I could ride on. Most companies are not run by Warren Buffets and Prem Watsas who are champions of shareholders large and small.

[Myth465]

I think Myth has got it pretty much right. He is creating value but for whom. I was in this name a few years back but when Icahn bailed I realized that without the pit bull I was never going to get a large enough position to fight a take-under and no-ones coat tails I could ride on. Most companies are not run by Warren Buffets and Prem Watsas who are champions of shareholders large and small.

 

The moral of the story is I need to acquire a company with a pension fund that is overvalued lol. Seems like a nice way to allocate capital.

 

I would buy up alot and tender but I think whatever doesnt go through will be dead money for a while. They want it consolidated, maybe they want to pay a dividend to the parent or something but either way it looks like dead money unless someone has insights into what Simmons big plan are. If Carl couldnt do much then I am not sure what I can do. His chip stack is a bit bigger than mine, and his bark is alot louder.

 

Thanks ubuy2wron. I was a bit excited this morning. Thought I found the holy grail, no risk and high reward.

[constructive]

KYCN is being acquired for $9 per share. A pretty unfair price at half of book value and 5x earnings. The comments above suggesting Simmons would take advantage of minority shareholders were accurate I think. (Something to keep in mind when climbing into bed with Icahn, Perelman, and others.)

 

http://www.marketwatch.com/story/contran-announces-intent-to-complete-short-form-merger-with-respect-to-keystone-consolidated-industries-2013-05-10

 

I made 57%, 19% annualized, beat the market slightly but it wasn't much fun.