You may be missing the forest for the tress. The much touted benefits of the spin-offs is to lower the discount on the BDC's but produce a premium on the asset management company, ACAM.
The market has been somewhat unkind to the BDC's but especially cruel to the asset manager concept. At this time today the market is up over 1% and the BDC's are up about the same. However, the comparable asset managers are down: FSAM and MDLY over 1% and ARES about 1/2 of 1%. These stocks are a preview as to where ACAM is heading. This is the problem and the market sees it.
Further, it now appears that the spin-offs will not occur until the third quarter of 2015. This means that while waiting for what may to be slim pickings you must endure the risk of a market correction (remember "sell in May and go away""0.
You are still assuming that the spin-offs is the right strategy. Yet based on comparisons to comparable companies today there appears to be little to no value added. Buying back at 14 per share against a 20 NAV makes 6 per share for a 43% gain.
My comparison to peer groups was not limited to BDC's but extended to to post spin off companies: including ACSF, FSAM, ARES, MDLY.
Interesting that many bullish posters have carefully analyzed every sale and CLo but have misjudged the larger picture. Many of these same posters continue to ignore the $1.95 per share dilution from exercising the in the money options and look the other way when the peer company prices are hitting new lows. I continue to be long but skeptical that the stock is worth more than 16 to 17 per share.
You need a tax adviser. The FMV of the new MDT will be determined at time of issuance. If the deal were today it would be about $75 or about $16 more than your example..
Is that the stock will continue to hover at current and lower levels for some time and then JF will make an offer to take the company private at about a 25% premium to the then share price, thereby taking the recovery upside away the shareholders. Clearly, it could be argued that the suspension of the dividend after a promise to continue it for a year was designed to crush the price of the stock. I believe my fear of a going private strategy is a factor in the current market price.
ACAS thinks its better than buying back ACAS stock at a 30% discount. This tells you what they think about the value of their stock. It also creates a market view,:"If they don't want to buy their stock why should I?"
Any distribution of ACI to the extent taxable will be a taxable as a Qualified Dividend distribution from a C Corporation. It will not be taxable as ordinary income.
True, ACAS is worth more than the current price. But with a single digit ROE it is worth less than NAV. It apoears to have earnings of about $1,25 and therefore a growth in NAV of about 6% to 7%. If it can achieve closer to NAV in the short term it is a good investment. However, if it takes longer term then an alternative investment fairly priced but growing at 15% or more is probably a better investment. If ACAS had $2.00 per share of earning power it would be selling for at least NAV.
That is correct. However, the main point is that with the stock apparently so cheap there are no company buybacks and no insider buys.
Add to your list that Mr. Market is subtracting a few dollars from NAV for dilution from stock options and deferred taxes for losses. For those who reject this possibility consider further that Mr. Markets doesn't like companies that loot the shareholders by granting stock options
equal to about 20% of the shares outstanding. This is at low stock prices created by prior management mistakes. Another reason Mr. Market doesn't like deferred taxes for NOL's is because it reminds him that they arise from bad investments. This appears to say that maybe this management is not only greedy but lacking in competence. Lastly, Mr. Market reasons why should I buy this stock when the company has suspended buybacks and management makes only open market sales not buys.
OF course Mr. Market can be wrong and I hope thjs is the case.
Therefore, if there were 1 billion options outstanding at an exercise price of 1 cent per share this would be of no concern to you. However,it, it would be of concern to the person to whom you would try to sell your shares. .
So you would value at present NAV a company with 1 million shares outstanding and 99 million options outstanding. The future is irrelevant, like an oncoming train in a tunnel. I gather you are not a Certified Financial Analyst.
Regarding the 54.1 million options the average exercise price is $9.15 per share and all but 1 million shares have an exercise price .of no more than $16.72 per share. The fact that some shares may be exercised in the future is not relevant , they are an overhang.
I hear what you say about deferred tax, yet clearly any value is discounted. They have not currently producing any income.
Lastly, 54 million option shares appears to smack of greed. Also, the market sees insider sales but no open market purchase by either the employees or the company. This fosters the reaction:" if they are not buying why should I?"
There are 264 million shares outstanding on $5.444 billion of equity for an NAV of $20.54. However, the market realistically sees that there are 54.1 million option shares that will be exercised at an average price of $9.15. This results in 318.1 million shares outstanding on $5.939 billion of equity for an NAV of $18.66. This results in a decline in NAV per share of $1.88. Next the market assigns little value to the $434 million of deferred taxes which equates to another $1.36 per share. This reduces NAV to $17.30 for a total decrease of $3.24 per share.
Last but not least the market questions whether it wants to invest in a company that granted options to employees equal to 20% of the shares outstanding before the options. This may be an omen into the future.
Yes, I am a long-term holder but no longer am looking at ACAS through rose colored glasses.
My cost basis in ACAS is about the same as yours (plus some profits from trading some shares). I have successfully beaten the S&P 500 over the years. I benchmark all my stocks against cost and also against the S&P 500. If I reach a stretch when I am unable to beat the S&P 500 I will quit stock picking and invest in the SPY or some other index fund.
Year to date, ACAS is down 3.4% but is down 13.8% against the S&P 500, which is up 10.4%. This is not good. I am fortunate to be ahead of the S&P 500 year to date thanks to other investments (thank you Richard Kinder, large blue chips and AGNC).
ACAS is beginning to remind me of the old Brooklyn Dodgers:"wait til next year".
You appear to be assuming that ACI and ACGI will be trading at a price of at least 90% of their combined NAV of $16 per share or about $14.40 per share. This would equate to a yield of 8.3% with $1.20 of dividend distributions. Yet ARCC, perhaps the best of breed, yields 9.3%, AINV 9.8%, GLAD 9.1% and PSEc 13.7%.. 8.3% yield assumption appears very low.
A sidebar comment on your returns to date on your cost basis. This is history. We are now focusing on the future. I get the sense that many posters are holding ACAS based on the past performance. Such investments are referred to as "applause stocks" held by investors based on their past performance. However, investing is about the future. ACAS doesn't know or care about your purchase price.
My concern is that with each of these sharp run ups followed by collapses investors/speculators get burned.
This increase the distrust of ACAS and sows the seeds for lower valuations in the future. The stock will get a reputation: sell all rallies. It's probably going to take a long track record of performance to get a fair valuation.
The market is not impressed by the restructuring plans. The most convincing argument supporting the market's view is that neither insiders or the company are buying at these levels. Further the shares of BDc's and asset manager spin-offs (FSAM, ARES, MDLY) are not performing well.
This appears to be spin-offs of operating companies owned by the BDC, PSEC. Unlike ACAS, PSEC is externally managed. I sold all my shares in PSEC earlier in the year. They have been expanding too aggressively and I have concerns about the quality of their holdings.