One principal factor is stock options. They will be rendered virtually worthless after the spin off. Therefore, 35 million plus options will be exercised before the spin off and probably about half of the resulting shares will be dumped on the market before the spin off. The market sees this and does not want to buy before the option shares are cleared.
You are wrong. ACIN and ACAS need to trade above $10 per share. Many institutions are prohibited from buying shares trading below $5 per share and there are margin limitations on shares trading below $10 per share.
ACAS and probably ACIN will have a reverse split.
You had better look at the slide presentation. 8 million of the 41.9 million option shares do not vest until after 2015.
Apparently options will be virtually worthless following the dividend spin-off of ACIN. If the spin -off occurs before year end there will be 8 million of the 41.9 million options not vested. Assuming that ACAS does not accelerate the vesting of these options (I know this may be unrealistic) then the initial dilution from the exercise of the 33.9 million options could be about $1.20 down to $18.92. Using an assumed proceeds of $320 million from the exercises and the use of these funds to purchase 22.1 million shares back at $14.50 per share leaves a net increase in shares outstanding of 11.8 million and a dilution of $.85 down to $19.27.
If ACIN has 13.50 NAV and trades at about 11, for a 10% yield, and ACAS trades at NAV of 5.20 then total value is 16.20 for a gain of about 10%. Is this a good risk reward?
You are correct. However, this presentation brought into focus the $1.41 dilution from stock options. Many posters on this board have believed this was already reflected in the published NAV. However, if the proceeds of the exercises of options is used to buy back shares then this dilution is a little over $1. However, NAV is now viewed as about $19 not $20.,
Most importantly NOI is running only about $1.20 annualized. This will only support a marker value of about $12.00. There is considerable narrative about how this NOI will be increased .but no hard numbers. The market is craving a proforma income statement as to what the NOI might be, how it will be accomplished and a possible timetable.
NAV is about $19 after allowing for dilution from stock options. Their slide presentation shows $1.41 dilution from stock options. After using the proceeds from option exercised to repurchase shares the dilution is reduced to a little over a dollar per share.
The value of the stock will ultimately be driven by the NOI. To support $20 will require at least $2.00. of NOI. Presently NOI is at about $1.20 annualized. How that gap can be closed is the question and that is what is weighing on the stock price. .Management needs to spell that out.
Better brush up on your tax law. It will be a qualified dividend distribution by a C-Corp. The spin-off of ACGI will be a tax-free distribution.
I am not sure that ACI will not be a tax free spin. It will be a qualified dividend distribution from a C-Corp with substantial NOL's.
The market is speaking. It doesn't like ACAS and is unimpressed with planned spin off. Latest announcement of possible buy backs appears to be too little too late. I hope that the market is wrong.
i agree. This on top of large stock options already granted. The over $37 million last year to the top 5 executives is close to 10% of the EPS. Name another company with 10% EPS to the top 5.
This reinforces my belief that this is not a long term holding.
You appear to be suggesting that the sum of the parts immediately after the spin off may reflect a depreciation from today's price. I certainly hope not and am holding on for the spin off. Regarding ACI, I am not sure as to the tax status. IR gave me a tentative opinion of non-taxable but I believe this may not be correct. It appears that it will be a taxable dividend distribution from a C-Corp. However, will the NOL of ACAM produce a partial or total ROC on the distribution? This will all be spelled out in the prospectus.
Their 2014 YE investment in operating companies was $2.774 million at cost and $2,151 million at FMV. Yes , I have seen their published returns on equity exits but there are a lot of built in losses remaining.. If ACAS with about 50% of their investments historically in equities had achieved anywhere near 15% returns the stock would have gone to the moon.
My interest in ACAS is not based on substantial narrowing in the discount in the BDC's but in a possible premium in the asset manager. I will not be a long term holder of the BDC's due to fees charged and my aversion to ordinary income. I will hold the asset manager.
I question your assumption of a 15% return on equity investments. If ACAS had achieved this result it would have a higher NAV and no discount on NAV.
You mention that RAS has distributions that are ROC. I am concerned when companies have returns of capital, capital losses carried forward or NOLs (ACAS is in this camp) at the height of a bull market and an economic expansion. Yes, this is favorable for distributions tax wise but what does it say about the management's investment and operating capabilities?. Warren Buffet doesn't have any NOL's. I have no capital losses forward and am sure that you don't either.
In seeking out capable investment and operating managers in today's market I would be very reluctant to choose those with loss carry forwards.
I am long ACAS and am very pleased with the performance over the past 5 years.
Yet I am doubtful about the performance going forward. Although I give the management high marks for their performance over the past 5 years their long-term investment performance is poor. The gross assets they manage have not kept up the S&P and I suspect the assets in your portfolio.
A complete liquidation of the company would yield immediate gains. What is the future of this business beyond closing the discount to NAV? Is it a growth company in which you would want to hold long term?
Yes, the management has done a good job post 2009 crises, but have they produced the investment results that would cause investors to pay the fees they are seeking? They are no KKR, Blackrock, Soros, Cooperman. Assuming ACAS could close the gap to NAV wouldn't you exit for greener pasture?
See my earlier post today about latest article from Seeking Alpha. The analyst assumes spin=off could be the end of 2016.
It starts with $19.50 NAV, alter allowing for dilution from stock options. It assumes that the BDS's with 80% of that value, or $15.60, will trade at a discount of about 15% for a total value of $13. It assumes the asset manager will have about $175 million in annual fee income and trade for about $7. This brings the total present value to about $20. It assumes that the spin-off could take two years to complete at which time the total value will be at least $22 for a an annual return on the present price of over 20%.