Any guesses as to what the district court decision means to NPK stock value? (Assuming no appeal.)
I hold a couple of hundred shares of NPK, bought before Y2K as a hedge -- made sense to have stock in a company with lots of cash -- and I've simply held on to it, enjoying the dividend.
But what now? Seems to me that with the dividend tax cut expiring in roughly a year, a large, one-time dividend, would be a partial solution.
Maybe it spurs the company to make an acquisition that it has been watching but was not yet willing to pay for yet.
What other scenarios are out there? Any guesses?
I think NPK will likely just shift some of their money into money market funds. Management likes to hang on to the cash, so I don't see a special or extra dividend happening. And the stock is too pricy for management to consider buying it back (remember that management is very cheap in that regard).
That's a good catch. NPK is going to have to move out of VRDNs into government securities or legitimate cash items.
Or they could do a one-time dividend. It looks like they need to do something with somewhere between $10 and $11 a share. If it were me, sure, I'd do a $10/share dividend and move a little money into repos or institutional money market funds, but then, if it were me then the company wouldn't have so much cash anyway.
Well, if NPK's lawyers don't have the opinion yet, that would explain why they haven't put out a press release about it. But my guess is that they're still trying to decide what to do in response.
Actually registering as an investment company is an absolute nonstarter. (As it happens, I practice in this area and am very familiar with the 1940 Act's rather onerous requirements.) I see three possibilities:
1. A large one-time dividend. This would probably give a bit of a fillip to the stock price.
2. Moving holdings into government securities, thereby avoiding investment company status under the statute's percentage tests. This would reduce returns, probably hurting the stock price.
3. Appealing to the court of appeals (specifically, the Seventh Circuit). An appeal is something of a long shot, but if the company can get a stay of the judge's order, at least it will have more time.
I don't have a position in NPK. I thought about buying or selling short, since I was in the unusual position of having material information on which I could legitimately act and that had not yet been disseminated into the marketplace, but I couldn't figure out if the impact would be positive or negative.
You wrote: "I don't have a position in NPK. I thought about buying or selling short, since I was in the unusual position of having material information on which I could legitimately act and that had not yet been disseminated into the marketplace, but I couldn't figure out if the impact would be positive or negative."
It's too bad you couldn't determine the impact and invest accordingly (I agree with you, I could not determine the impact either). It's so rare that one obtains material information on which one can legitimately act. Oh well, perhaps next time...
Biblioguy - also in the Washington, DC, area
duke, with respect to the "government securities", it seems to me the portfolio is largely municipal bonds. At least it was for a long time.
But how does a portfolio of "government bonds" exempt a company from the investment-company status? There are plenty of investment companies offering mutual funds of government securities. They are unquestionably "investment companies".
That aside, a $10-a-share dividend would be dandy. But I think simpson may have a point that the company will take the appeal route to stave off the day of having to fork over a truck load of cash.
Meanwhile, given the earnings visibility of this company, it wouldn't surprise me if -- in the event of a $10 dividend -- the stock simply dropped $10.
However, insider ownership is close to 30%, so the family at the core of it all would enjoy a big wallop of cash if the dividend payment is forced upon NPK.
I think an appeal is most likely, at least as the initial gut reaction of the company and given its past reactions to the SEC law suit; and it would make sense to preserve the appeal if they wanted to negotiate with the SEC about the consequences of the finding. It will be interesting to see what the SEC proposes in the order the judge asked it to submit.
Looking at the five day chart, it looks like there may be some trading by some who are aware of the decision who think it is good for the stock price. Although the volume is typically low.
simpson, perhaps this development is the one that will push these stingy clowns to distribute the huge pile of cash on the balance sheet to the stockholders -- the owners of this asset.
The company has made no use of this cash for years and years. But I suppose it just makes managment feel good to know its there.
Based on the definition of an investment company, I suppose it wouldn't be too hard to estimate how much cash the company would be obliged to distribute to return itself to compliance with ordinary operating company guidelines.
No slappz wrote:
"Based on the definition of an investment company, I suppose it wouldn't be too hard to estimate how much cash the company would be obliged to distribute to return itself to compliance with ordinary operating company guidelines."
According to the opinion, its an inadvertent investment company if the value of its investment securities exceeds 40% of total assets. If I read it right, they don't count government securities as "investment securities". For the last year that the court discusses (2003), it indicates that the investment securites are about 67% of total assets. Assuming that percentage stayed the same, with net assets of about $255MM, it would have to distribute about $68 million. Coincidentally, there are 6.8 million shares outstanding. So a $10 dividend should do it.
(Assuming my math is right, and I've already disclosed that I'm a lawyer, so we know that is not a valid assumption!) ;-)