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AMCOL International Corporation Message Board

  • wd500 wd500 Dec 2, 1999 2:17 PM Flag

    Kind of strange?

    It seems that selling the largest profit maker in your company might warrant some investigation?

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    • BASF is one of the larger companies in the world,
      they are more than large enough to list over here.
      Even if they don't list, with all float this deal will
      create in BASF stock over here there are plenty of
      market makers who would trade it through the pink
      sheets.

      I used to own National Bank of Canada stock. It
      traded 5 or 6 digits of stocks a day through the pink
      sheets.

      The lack of a listing over here is not an impediment.
      Losing a potential 50% of my gain to the government IS
      gross negligence by management.

    • Different shareholders apparently have
      significantly different tax concerns. Reading the tax release
      from the company and only knowing the tax laws from
      what I read in the papers, AMCOL's corporate
      shareholders will report a larger share of the liquidating
      dividend as dividend income than individuals.
      This
      could lead corporate holders to opt for all capital
      gain and sell now - thus the selling pressure now.
      Depending on their basis, individuals may opt for that too.

      But who want to buy now? You pay $16 for a
      $14
      dividend in April and a stock that is difficult to really
      assess in the short term
      (the period shortly after
      the dividend record date). Many do not like stocks
      below $5. Others
      like only stocks under $5.Some were
      investing in a chemical company and have no interest in a
      minerals company. There may be significant selling after
      the liquidating dividend. Then, your $16 may get you
      8 shares instead of 2.
      Many (which has a
      strained definition for this stock since so few watch it
      at all) are waiting to buy it at that time.

    • <<the firm has said it will pay $200
      million in
      taxes or about $7 1/2 per
      share.>>

      It may be that much of the payout may be considered
      return of the capital and may be tax free for the
      individuals sharesholders.

    • The big mystery in my mind is why AMCOL's
      management would structure the deal in this way. In my
      opinion they could have done a much better job for their
      shareholders. ACO was a stock conservatively worth about
      $22/share without any buyout. It was growing at least 20%
      with forward earnings of $1.10. Historically it has
      traded with a 20 multiple under these conditions. Sure,
      the market did not recoginze that but then what small
      cap value firms has it recognized lately? History
      shows that conditions like this will exist from time to
      time but the value is always eventually recognized.


      The BASF deal, while certainly a good way to unlock
      the value here, was executed poorly. Instead of doing
      an asset sale where now both the company and the
      shareholders have to pay taxes on the gain, I don't understand
      why they did not do a stock deal -- giving
      shareholders a distribution of BASF shares instead of cash.
      With BASF paying around $650M for Chemdal alone and
      even after subtracting the $100M in debt the entire
      company had outstanding, this was worth about $20/share
      to ACO shareholders based on the 27 million shares
      of ACO outstanding -- and that is only for the
      Chemdal portion. For their investment bankers to say that
      this is a fair deal for shareholders is irresponsible
      and invites a lawsuit in my
      mind.

      Nevertheless, with ACO trading around $16/share today there is
      still value here. Given that Chemdal contributes about
      2/3 of the earnings and that ACO is expected to earn
      $1.20 over the next year, we should expect the
      remaining company to earn about 40 c/share in 2000. What is
      this remainder worth? Certainly the growth rate will
      be lower. I don't think we will see 20% again
      unless/until the nanocore business starts to take off, so if
      you look at S&P historical data before Chemdal
      existed it shows that ACOL traded with a PE of roughly
      10-29. Taking the worst case of 10, the rest of ACO is
      today conservatively worth $4/share based on earnings
      of .40/share. So since shareholders are going to get
      at least $14/share for Chemdal we really should be
      trading at $18/share. Why then $16? Well, there is a
      possibility the deal will not go through (which would be a
      good thing for shareholders in my opinion). But if you
      think the deal will go through it is probably better to
      wait for the distribution because ACO should be
      trading at around $4 after the event.

      The
      unfortunate outcome of this story is that shareholders really
      should have received a minimum of $24/share. If
      management would have had some patience and focused on
      growing the company instead of trying to cash out in this
      manner the market would eventually have recognized this
      and I think we all would have been a lot better off.

      • 1 Reply to BeyondBitchen
      • Your post is appreciated. I was starting to
        wonder if anyone was interested in this board - or for
        this company. They are down to one analyst following
        them.
        Some answers to your questions are found in the
        transcript of the conference call when they announced the
        deal. This transcript is posted on the company's
        corporate web page.
        They have said that the deal is
        worth doing because they are the only substantial SAP
        supplier without an in-house supply of acrylic,
        a major
        cost component, and they felt they could get squeezed.
        The structure of the deal
        was required to get the
        deal done, and BASF paid up substantially to do the
        deal this way.
        Accepting those statements, the
        company still could be purchased at a deal to your
        liking. There are $200 million going to the
        government
        out of the $656. Offering the same cash to the
        shareholders instead of the company would yield $22/share and
        give the buyer the whole company. If this is a deal,
        you would think that someone would make a bid, even
        in stock.
        If they don't, perhaps it is not so
        great a deal.
        I like your value analysis. Also note
        that the book value of the remaining business is
        expected to be around $4.75/share. If your numbers go way
        back, can you confirm that the company used to trade
        between 1 and 2 (or more)times book?
        I think people
        are not interested in paying $16 or $17 for a stock
        to get a $14 dividend in April and a stock worth $4.
        Why not wait until the X-div date and buy it at 2 or
        3 as some shareholders sell their stock. Many do
        not want a company this small.
        While I too would
        have preferred more, waiting for the market to respect
        what they are doing has certainly been exasperating.