CRD-A - Crawford & Company

[Hielko]

Crawford & Company has two share classes: Class A without voting rights and Class B with voting rights. Class A has the same economic rights (or better) since it can (and currently has) a higher dividend than the Class B shares.

 

Jesse C. Crawford owns 52% of the Class B stock so don't think voting rights are very valuable. Insiders get paid in Class A shares, and own as a group 50.2% of the class A shares so they have an incentive to see to Class A shares do well.

 

The gap between the two shares classes is quite big: the Class A is trading at $5.85 while the class B is 40% more expensive at $8.35. Possible idea is an arbitrage play to hope that market gets rational at some point in time. That could take a long time though since this spread has been in existence for years. But I think it might start to shrink now that the Class A has a 2.7% yield (0.04$ quarterly dividend) and the Class B has a 1.4% yield (0.03$ quarterly dividend). So a long/short trade makes sense imo.

 

But you could also consider going long the Class A shares as a way to buy economic interest at a discount. Would imply a 6x PE and 2.83x EV/EBITDA multiple. You do get a decent amount of debt and a sizable underfunded pension plan, and earnings are probably at a peak level know since this company does good business when disasters such as Sandy hit (they do claims management and other insurance related services).

 

Anyone here who knows more about the company and could provide some insight if the Class A shares could be a good deal?

[twacowfca]

Crawford & Company has two share classes: Class A without voting rights and Class B with voting rights. Class A has the same economic rights (or better) since it can (and currently has) a higher dividend than the Class B shares.

 

Jesse C. Crawford owns 52% of the Class B stock so don't think voting rights are very valuable. Insiders get paid in Class A shares, and own as a group 50.2% of the class A shares so they have an incentive to see to Class A shares do well.

 

The gap between the two shares classes is quite big: the Class A is trading at $5.85 while the class B is 40% more expensive at $8.35. Possible idea is an arbitrage play to hope that market gets rational at some point in time. That could take a long time though since this spread has been in existence for years. But I think it might start to shrink now that the Class A has a 2.7% yield (0.04$ quarterly dividend) and the Class B has a 1.4% yield (0.03$ quarterly dividend). So a long/short trade makes sense imo.

 

But you could also consider going long the Class A shares as a way to buy economic interest at a discount. Would imply a 6x PE and 2.83x EV/EBITDA multiple. You do get a decent amount of debt and a sizable underfunded pension plan, and earnings are probably at a peak level know since this company does good business when disasters such as Sandy hit (they do claims management and other insurance related services).

 

Anyone here who knows more about the company and could provide some insight if the Class A shares could be a good deal?

 

I took a close look at them a few years ago.  They looked like a bargain, but the economic returns over time looked like a value trap despite their good reputation.  My conclusion was that they were run for the benefit of their managers and not the outside shareholders, despite, or perhaps because of, a controlling shareholder.  The managers know the stock they receive is not a good investment, so they sell the shares and drive down the price of the A shares.

[Hielko]

Haven't looked at the whole history of insiders buy and sells, but seems to me that insiders continue to own a lot of A shares and I noticed insiders buying A-shares on the open market recently.

[twacowfca]

Haven't looked at the whole history of insiders buy and sells, but seems to me that insiders continue to own a lot of A shares and I noticed insiders buying A-shares on the open market recently.

 

That's possible now because of the extreme difference in the trading price.  However, there are far fewer A shares outstanding than B shares. Therefore, it would not be surprising to see a persistent liquidity discount of perhaps 20% to 30% for the A shares.  Nevertheless, it looks like a very low risk arbitrage trade, but it might be a lot more risky to go long the A shares unless there is a catalyst there now or on the horizon. 

 

Is there a catalyst?

[Hielko]

There are more Class A shares than Class B and insiders own ~50% of both classes. But weirdly enough the B Class does appear to be more liquid based on trading volumes. But I don't think the A Class should trade at any discount at all because while liquidity is worse you get 33% more in dividends per share! I'd say that's actually a good reason for a premium...

 

And unfortunately there is there is no catalyst, but just betting on the market getting the price right at some point in the future isn't the worst bet to make imo. I'm not a fan of the margin requirements for a long/short trade though...

[twacowfca]

Crawford & Company has two share classes: Class A without voting rights and Class B with voting rights. Class A has the same economic rights (or better) since it can (and currently has) a higher dividend than the Class B shares.

 

Jesse C. Crawford owns 52% of the Class B stock so don't think voting rights are very valuable. Insiders get paid in Class A shares, and own as a group 50.2% of the class A shares so they have an incentive to see to Class A shares do well.

 

The gap between the two shares classes is quite big: the Class A is trading at $5.85 while the class B is 40% more expensive at $8.35. Possible idea is an arbitrage play to hope that market gets rational at some point in time. That could take a long time though since this spread has been in existence for years. But I think it might start to shrink now that the Class A has a 2.7% yield (0.04$ quarterly dividend) and the Class B has a 1.4% yield (0.03$ quarterly dividend). So a long/short trade makes sense imo.

 

But you could also consider going long the Class A shares as a way to buy economic interest at a discount. Would imply a 6x PE and 2.83x EV/EBITDA multiple. You do get a decent amount of debt and a sizable underfunded pension plan, and earnings are probably at a peak level know since this company does good business when disasters such as Sandy hit (they do claims management and other insurance related services).

 

Anyone here who knows more about the company and could provide some insight if the Class A shares could be a good deal?

 

Please walk me through the count of both classes of shares, including the closely held shares.  I don't have that great an internet connection.  I saw something that I thought said there were about 10M A shares outstanding.  Thank you.

[Hielko]

From the latest proxy, so a little bit outdated:

 

As of March 7, 2012, there

were 29,557,554 shares of Class A Common Stock and 24,697,172 shares of Class B Common Stock outstanding.

 

Insiders own 52% of the Class B shares (that's all Jesse C. Crawford) and he owns 41.2% of the Class A shares while the other insiders own 9.0% of the Class A shares. They care about the A shares I think, otherwise they wouldn't pay a higher div on the Class A shares (A shares get at least same div as B, but management has the optionality to pay more).