It has been over three months since I’ve updated you on the status of the Special Situations Real Money Port. It’s hard to believe that so much time has already passed. I’d been distracted by all the developments of Parlux Frangrances (PARL) and I didn’t get a chance to put together an update. However, members of Contributor’s Corner were kept up to date on developments of this portfolio.
Let me get you up to speed on what has transpired since August 2006. I’ve been involved in some odd-lot tender offers. These deals involve opportunities that occur when a company offers cash (specifying a price range) for a specific quantity of their shares (i.e., a tender offer) and provide holders of less than 99 shares a priority to be cashed out before other shareholders. This priority is important because companies often prorate the amount of shares tendered for each participant when the tender offer is oversubscribed. However, even when these cash offers get too popular, the odd-lot holders still receive cash for all of the shares they tender.
Since August, I was involved in odd-lot tender offers made by Salomon Brothers Inflation Management Fund (IMF), Acxiom Corp (ACXM), and Birner Dental Management (BDMS). Here are the results of those deals:
- IMF – 99 share bought 7/11/06
- Cost $1,585.01
- Net cash received $1,705.52 on 8/11/06
- Return $120.51; 137% APY
- ACXM – 99 share bought 8/31/06
- Cost $2,429.48
- Net cash received $2,450.00 on 9/18/06
- Return $20.52; 19% APY
- BDMS – 99 shares bought 9/22/06
- Cost $1,996.85
- Net cash received $2,141.12 on 10/5/06
- Return $144.27; 609% APY
The Special Situations Real Money Port, as usual, was also involved in several going private transactions since August 2006. I bought 499 shares on 8/22/06 for a total of $1,703.55 and I received $1,996.00 in cash for those shares on 10/4/06. That’s a 17.2 percent return or a 284% APY.
As you also know, I bought Parlux Fragrances (PARL) back on 6/14/06 for $4,352.95 thinking the CEO was going to take the company private. The CEO changed his strategy and this going private transaction fell apart. I sold my 400 shares on 10/9/06 for $6.25 per share for a total of $2,492.97. I took a 43 percent loss on this one.
I also bailed out of my long time holding in Central Federal Corp. (CFBK). This going private transaction was also cancelled. I bought it way back in early 2005. I thought it would recover, but that never really happened. I got several dividends while I waited but they did not make up for the loss I took. The shares went down 34 percent from when I bought the shares to when I sold the 200 shares on 8/31/06.
You would think that this portfolio was doing terribly give the above losses. However, the performance since inception is a positive 10.1 percent and year to date, the rate of return has been 8.2% APY.
Given the current available opportunities, I don’t think this rate of return is going to increase much in the near future. The increased private equity involvement in taking companies private has reduced opportunities in going private transactions. This could be reaching a turning point but in the mean time I’ll likely be focusing on odd-lot tender offers and spinoffs. I’ll be providing details of my research and new positions in Fat Pitch Financials Contributor’s Corner.