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Why I love the end of the year (SMHI and AMCX)

You’ll notice that I avoid all mention of my portfolio performance at year-end. Yes, that’s on purpose. My blog is not here to help you invest … its to help ME invest. And I don’t think I need to crow about my results, good or bad (like this year) as they may be. I’m trying to improve my method. I think the results will follow.

So let’s get on with it. Why do I like year-end? Because a lot of people do dumb things with their portfolios. Now don’t think I’m referring to individual investors, though they do dumb things too; I’m really referring to those lemmings who get paid big bucks to lose manage other people’s money. Yep, that’s right, the professionals. They love to window dress. Gotta sell their losers and buy more of the stocks that have gone up so they can ‘look good’, performance be damned!

How do we, smart investors take advantage of this? Well, I’ve found that a good place to go prospecting for new investment ideas during December is in the 52 week low list. When a stock has really underperformed for the year what happens at year-end? It becomes a candidate for tax loss selling, or even ‘just-get-me-out-of-that-position-whatever-it-costs’. There is just something oh so human about getting rid of your losers; it seems that once they’re gone from your portfolio a weight is lifted, you can finally forget the damage they did and the grief they inflicted. I have to admit that I too am inclined toward participating in this annual ritual, but I try to remind myself that I would really be doing something STUPID; I would be selling at exactly the same time that a lot of other people would be selling. So I put off my portfolio clean out until March or April (Spring cleaning anyone?) when I hope others will be thinking about something else. Instead, December is the time to take advantage of this annual rite and buy up the year’s losers other investors are dumping. We all know that other investors push Mr. Market to extremes. Prices get bid up too high for ‘good’ companies and bid down too low for ‘bad’ companies. Of course WE don’t partake in that do we? So let’s try to take advantage of Mr. Market’s little mania, and what better time than in December?

Two new positions

Last year’s spinoff: Seacor Marine Holdings (SMHI)

You all know I like spin-offs. Joel Greenblatt and all! So here’s a spinoff that looks so unappetizing that I just can’t resist. First of all its in an industry that is nothing if not ‘out-of-favor’, offshore drilling support. Second the company has been losing money hand over fist for the past couple of years. Third, it’s too small to be on the radar of most professional investors ($230 million market cap). OK, there are a couple of positive factors too, 1)  the company is selling at about half of book value (with much of the equipment having already being written downs in the past couple of years) and 2) a number of the top brass from the parent company moved over to the smaller spinoff, showing some confidence in this ‘loser’. The company I’m referring to is Seacor Marine Holdings Inc. (SMHI). It was spun out of  Seacor Holdings (CKH) in June of this past year. In a strange twist Seacor Holdings started in the business SMHI is in, support ships for offshore drilling, then branched out into other marine activities and is now selling off its original business unit at what appears to me a market bottom. When I have to hold my nose to purchase a security, when my stomach churns with nausea at the sight of a company’s financials, then I know that nothing too bad can come out of the investment because most other investors will have had the same reaction …. and will have passed on the opportunity. The spinoff was effected on a 1.007 for 1 basis (don’t ask me why the funny number … just another point in its favor as owners of CKH were left with some odd number of SMHI shares) last June and began trading at $18 and change a share. Since then the shares have lost about 1/3 of their value and I was able to pick up my small position at the beginning of 2018 for around $12/share. Meanwhile the parent company, CKH, has gained about 1/3 since the spinoff. Taken together, however, the market values of the two separate companies have so far NOT exceeded the value of the pre-spin company (and that in a market where the average gains have been more than 10% during this period). When and IF the offshore drilling service sector turns SMHI should do wonderfully; this is a bet on the market turning before their cash runs out! Recent price action of petroleum bodes well for a change in the market.


The laggard spinoff: ; AMC Networks (AMCX)

Did I mention above that I’m enamored with spin-offs after my experience with NACCO Industries? Yes, I think I’ve written about this a couple of times. So here I go again, I’m looking at a spinoff that took place some 6+ years ago. AMC Networks (AMCX) was spun out of Cablevision Systems in June 2011 and started trading at around $35 a share. The spin-off included the entertainment programming assets (read cable channels) developed by Cablevision Systems over the prior several decades but not the NYC sports properties (MSG and MSGN) that were subsequently spun out of Cablevision as separate companies. Since the spin-off, the share price of AMCX has had its ups and downs, trading up to a high of around $85/share in June 2015 then subsequently trending down to their current level of around $52/share. Among the publicly traded programming assets AMCX trade for one of the lowest EV/EBIT (interesting article in Barrons) and the shares currently show up on Greenblatt’s Magic Formula list. So why do I like the shares now? No particular reason except they are trading around the lows of the past couple of the years, and, oh yes, management is getting long in the tooth; Josh Sapan who has been president and CEO since the spin (and well before that too) is getting on towards retirement age (getting a little tired of it yet, Josh?) and, more to the point, Charles Dolan, Executive Chairman, is now in his early nineties. Mr. Dolan (Sr., not to be confused with the son Jim), after holding out on selling Cablevision Systems for years finally pulled the trigger and sold the family jewels to Altice in 2016. Since then, Jim has busied himself with the running of MSG/MSGN, while the rest of the family sits on the board at AMCX. As there is no obvious family member to succeed Mr. Dolan Sr. at AMCX (not to speak of Josh Sapan), might we be getting towards an inflection point? In any case, I think with Disney potentially starting an on-line platform to compete with Netflix it may be time for programming assets, which have been in the value doldrums for the past 5 years (except Netflix!), to be revalued upwards in a more competitive environment.

Disclaimer: As always do your own due diligence, the above is neither a recommendation to buy or sell any securities…. I’m just in this for fun; behave accordingly!


Married, Divorced and Married again! (BBX)

You know those couples who get married, divorced and then married again? Unless you have actually been through this yourself you probably find the whole thing kind of strange. Why did they get divorced in the first place if they were only going to tie the knot again? The answer is not always logical; these things just happen.

OK so I’m having that kind of relationship with BBX Capital (BBX). I owned BBX until last summer; I sold when the courts upheld Mr. Alan Levan’s appeal against an earlier guilty verdict in an SEC lawsuit. Mr. Levan was back in as Chairman at BBX and I thought it time to get out. OH WHAT POOR TIMING ON MY PART. Shortly thereafter, BBX announced that BBX and BlueGreen Vacations (BXG) would sell 10% of BlueGreen’s equity to the public (5% to be sold by BBX and 5% by BlueGreen itself). What was interesting was that post-IPO BBX was still going to own 90% of BXG and that per the preliminary prospectus BXG shares were going to be priced in the $16-$18 range. This meant that the implied market cap of BXG was going to be substantially larger than that of BBX (which had some other holdings in addition to its 90% interest in BXG). I assumed that the purpose of the IPO was to highlight the value of BXG, demonstrate how undervalued BBX was and thus goad Mr. Market into bidding up BBX shares. When I finally realized what was happening BBX shares had climbed from my exit price of $6.40/share to around $8.50/share and I thought “Gee, the easy money’s been made and besides I don’t really know anything about the time share market except that it seems to me a real scam!”. Of course hundreds of thousands of people own time shares so it can ‘t be a TOTAL scam. Somebody must think buying a timeshare vacation house is a good investment. In any case, I thought that since the IPO hadn’t happened yet, perhaps BXG wasn’t really going to end up priced in the $16-$18 range, so maybe the opportunity wasn’t as attractive as it seemed.

Fast forward to the end of December. The BXG IPO had already successfully taken place at the beginning of November. The price of the IPO was, as I expected, lower than the price in the preliminary prospectus, $14 a share rather than $16-$18 (still, not bad!). But more importantly, shares in BXG had climbed from their initial IPO pricing to around $18.00/share. However, Mr. Market, being that unpredictable fellow that he is, had bid DOWN shares in BBX, which were then trading in the $8.00 range. I can only imagine what BBX management (read Alan Levy) was thinking at this outcome; I too was simply stumped by Mr. Market’s reaction to the IPO. OK so BBX management HAD done some rather flakey things in the past and maybe they’d do something flakey again in the future. They had, after all, just invested $60 million in a chain of sweet shops called IT’SUGAR this past summer. (What, were they trying to imitate Buffett’s investment in See’s Candies?? Well, I could actually think of stupider things to do …..) Furthermore their investment in Renin, a manufacturer of interior doors and hardware, didn’t seem to be generating much cash. And then there were the various investments in real estate. Were they actually worth anything? I found them more than somewhat difficult to value (accounted for with the equity method as they are). Top that off with about $165 million in cash (some pre-existing, some from the IPO) and $145 million in debt at the corporate level ($80 million in borrowings from BXG plus $65 million in subordinated debentures). So, yeah, maybe Mr. Market didn’t have any great expectations for BBX management’s investing prowess. But all that aside, unless you believed that net, net these assets had a significant negative value, the valuation of BBX simply didn’t make sense. Each share of BBX owned the equivalent of .656 shares of BXG (103 million A & B class BBX shares outstanding with BBX owning 67.3 million shares of BXG). BXG shares were trading over $18.00 at year-end 2017. Thus each share of BBX owned about $12 of BXG share value but was trading at around $8! I can understand a holding company discount, especially when management of the holding company has done some odd things in the past. Maybe it would be understandable if management at the holding company was different from management in the owned investments, but here that’s not the case. So my simple investment thesis is that the share prices will converge; either the BBX share price will begin to increase (maybe even retaining a small discount) toward the underlying value of its BXG shares, or BXG shares will begin to drift downward, bringing the value of the BXG investment down towards the price of BBX.

Note that I know nothing about the time-share market. (Have I said that before?) And therefore I have no idea whether BXG is trading at an appropriate market valuation. My investment thesis is based solely on the seeming discrepancy in valuation between the two shares. I have no idea how long this  divergence will last, months, years even, but I think that eventually Mr. Market will come to his senses and be ‘rational’ about valuing these two securities.

Further note: again a hat tip to Clark Street Value who had a nice write-up on BBX Capital a couple of months ago.


Disclaimer: You should be aware by now not to rely on this or any other of my posts for investment advice; this blog is simply an externalization of some of my random thoughts about investing.


Sometimes it pays to acknowledge you’re not as smart as you think, and other year-end tales

I’m writing this from a place way up in the mountains where there is no internet connection. I find it healthy to disconnect sometimes, because it forces me to think and reflect, rather than ‘follow the market’.

So I’ve been reflecting on my successful trade in NACCO Industries (NC). Not that I want you to think I’m bragging, a close to 70% return in only a six weeks is nothing to sneeze at after all, but, really, I’m not. I just want to learn from this experience so I can replicate it… over and over. In large part, I have to say, the return was mostly pure chance. These things happen once in a while if you’re in the right place at the right time… Still, is there anything I can learn from it to better my next investment?

What were the factors leading to such a phenomenal (for me at least) return? Well, the first was that I ‘showed up’, I actually purchased shares in the spinoff before the event. I have the Clarke Street Value blog to thank for that. Second, I was quick to recognize that this spinoff had all the makings of a classic Joel Greenblatt (meaning, attractive) spinoff; the parent’s two businesses were in completely unrelated fields (Coal and small home kitchen equipment), it was somewhat complicated (family controlled, dual class share structure) and it was a small enough transaction to be under the radar of most institutional and hedge funds. So the first reminder to self is to identify all upcoming spinoffs. They generally lead to some good returns (again, thanks Joel Greenblatt). To do that you’ll need to read, read, read: the Wall Street Journal, Barrons, Bloomberg, whatever you can get your hands on, oh and of course Clarke Street Value blog.

So what were the other factors leading to success? 1) timing of the purchase (pure chance), 2) timing of the sale (again, you got it, PURE CHANCE) and finally acknowledging that I didn’t really know which of the eventual spinoff entities was going to outperform … so I held both. Maybe I was just too lazy to do the research. Maybe I figured I really didn’t know enough about either industry to make an educated guess about where each spinoff entity would trade. But let’s just say I was smart enough to acknowledge that I just didn’t know; the important thing was that post-spin investors were going to have the chance to value each business independently, coal investors were going to be evaluating NACCO, small kitchen appliance investors were going to be evaluating Hamilton Beach, independently of each other. Most likely investors would value the sum of the two independent businesses at more than the original combined entity. Furthermore, perhaps the spinoff was in preparation for the family to divest one of the two businesses, which would be an added kicker.

What actually happened was nothing that I could have predicted. The first day of post spinoff trading, 9/29, NC traded below $20 per share and HBB traded in the low $30s. Investors were dumping the coal mining shares in favor of the kitchen aid business. This is just what I thought would happen. I myself, favored HBB over NC (but with of course no research to back this up). Luckily I did nothing. By the end of Monday, the next trading day, however, NC was trading in the low $30s (and I was berating myself for not having bought NC below $20 for a quick 50% gain!). Still, I let sloth prevail and did nothing. Over the ensuing month both shares traded up to the low $40s. When the shares of NC finally overtook HBB in dollar terms and I had a 70% gain in 6 weeks I said, enough is enough and sold. How could two businesses be worth 70% more separate than together? Now, I could understand a gain like this after a couple of years of decent performance on the part of one or both companies. But really, after 6 weeks and no further information? It was just too much for my rational mind; I was out. It wasn’t a clean ‘out’ however; NC had distributed 1 share of HBB A stock and 1 share of HBB B stock for each share of NC owned at the spinoff date. The catch was that the B shares were not registered to be traded on any exchange and they had to be exchanged on a 1 for 1 basis for A shares. To further complicate the issue the B shares were not in book form so it was going to take 6 weeks to make the exchange (needless to say I’m still waiting). So to close out the trade I shorted an equal number of A shares to what I would receive in the exchange. And lucky I did! Since then HBB shares have declined over 30%. Had I not exited when I did I would now be up only some 40%. Not bad, but not the stellar 70% return I managed. So a further lesson; Don’t be too greedy!

OK a few housekeeping items. I sold off my position in (SPRT) last month, primarily because it was too small but at the same time I didn’t have enough confidence in the investment rationale to increase the position to my standard size. I also sold of my position in Gyrodyne (GYRO) for a tax loss I needed to balance out other LT gains. I haven’t soured completely on GYRO and may buy the position back in the new year.

Bubble? Bubble? What Bubble?

So much has been written about whether we are in an equity market bubble that, not to be outdone, I thought I’d offer my two cents. As an added feature I’ll also offer up my thinking about Bitcoin and crypto currencies! I can’t be any more wrong about these things than all the other commentators, can I? It appears from reading all the garbage commentary that nobody really knows what is happening anyway.

So let’s start with the equity bubble…..

Of course we’re in an equity bubble! Just look at the most favored stocks on the US equity exchanges, the FANG stocks. They mostly trade at impossible multiples of current earnings. Doesn’t anyone remember the Nifty Fifty? (and what happened when they were no longer Nifty?) No one in their right mind believes corporate earnings can be predicted with any semblance of accuracy; Earnings 2 or 3 quarters out can hardly be guessed at, never mind 5 or 10 years. So why should any company be valued at over 100x earnings (unless of course it is sitting on assets worth its market capitalization)? Current multiples anticipate earnings 5, 10 or more years out! Many pundits find all sorts of ‘logical’ explanations for the market trading at current lofty multiples; the low interest rate environment, new technologies, a quantum shift in the digital economy, etc. etc. All I can say is “Give me a break!”. How many times have we heard “Its different this time”, that is, until it isn’t. Sorry, I’m a non-believer! I think the market moves in waves, from dearth to excess and back to dearth. We just happen to be near the crest of the wave right now.

And bitcoin? Well, does Tulipmania ring any bells? I’m wondering just when ‘investors’ in cryptocurrencies wake up and find that poof!, their investment went up in ether last night. Now, I’m certainly not predicting this will happen tomorrow or next month or next year; bitcoin could go to $100,000 in the next two years (or two weeks!) for all I know before the proverbial ‘stuff’ hits the fan… but hit it, it will! The value of bitcoin is simply based on demand and supply. Supply is limited and recently demand has been high. Very high. It could get higher. But, because there is not much that can be done with bitcoin that cannot be done with any other currency (like pay for the necessities or even the luxuries in life) I don’t really see what kind of edge it has. Well, it has an edge; its anonymous. But how long will national governments let ‘investors’ invest speculate in UNREGULATED assets (and I use that term loosely) that CAN’T BE EASILY TAXED??? My guess is not too too long…..

The real question an investor has to ask him/herself is WHAT TO DO knowing that we ARE in a bubble. I’ve been asking myself that question for the past 2 or 3 years, that is, since I began thinking that we had entered bubble territory. To my mind the question has become more urgent in the past year, since the presidential election, with the 20+% rise in the US equity market. For the general investing public I think the best thing to do is nothing. Remain fully invested with the understanding that your portfolio WILL INEVITABLY DECLINE at some point by 50 or 75%. If you get used to doing nothing on the way up, then perhaps it will be easier to do nothing on the way down! It’s important to remember that timing the market is a fool’s game… so don’t even consider trying! But for an investor who can spend a bit more time and energy looking into various market opportunities, is there anything he or she can do to position his/her portfolio for the inevitable bear market, short of holding only cash? And even holding only cash ‘equivalents’ is not without risk as we saw in 2007/2008. It doesn’t help that cash provides close to zero return in this environment. My answer to this is simply to look for what appear to me mis-pricings and ignore the overall market. I’m also trying to be careful to move up the corporate priority ladder in terms of securities, for example the preferred units in Steel Partners LP (SPLP-PRA). And of course, I have a number of investments that are in liquidation so the cash SHOULD be coming back sooner rather than later (NYRT, FUR).

So that’s it. My advice is to do nothing more than prepare mentally to see your portfolio lose half its value in the next couple of years….. And then DO NOTHING when it does begin the decent! That latter ‘DO NOTHING’ is, of course, a real challenge.

Steel Partners Preferred (SPLP.PRT)

In my last post I alluded to a new position that I was building in a preferred issue. At the time I was writing that post I hadn’t yet accumulated a full position so I left the issue unnamed. An anonymous reader, as if reading my mind, suggested I look at the Steel Partners preferred units.

So now I’ll confirm I purchased these preferred units, but the T class not the A class. The original class A preferred units were issued last February for the buyout of Steel Excel shareholders. Then last month additional preferred units were issued to fund the buyout of the balance of the outstanding Handy & Harman shares not owned by Steel Partners. However, these latter units were designated class T units, but ONLY to distinguish them from the original class A units issued in February for ease in calculating the December 2017 dividend payment. After the December dividend payment the T class units will revert to A class units.

So why are either class of preferred units interesting? For one thing the balance sheet of SPLP is solid and cash flows from operations appear to cover LT debt several times (although this is not particularly clear as Steel Partners has interests in a number of businesses in different industries including manufacturing and banking – DO YOUR OWN DUE DILIGENCE). The preferred units, like preferred stock, have a call on cash flows superior to the common units, AND THE MANAGEMENT TEAM IN CHARGE OF SPLP CURRENTLY OWNS 50% OF THE OUTSTANDING COMMON UNITS OF STEEL PARTNERS. This means Lichtenstein’s management group would have to lose ALL their equity in the venture in order for the preferred units to become worthless. Thus, it seems to me that management incentives are at least to some degree aligned with those of preferred unit investors.

My interest in the T class units was tweaked when I noticed that they were selling at about a 5% discount to the A class units. That didn’t seem to make sense. The only difference in the cash flow streams between the two preferred classes is 10.4 cents at the December dividend payment, 37.5 cents payable to each class A preferred unit vs. 27.1 cents for each class T unit, but the T units were selling for $1 less. To explain this I can only suggest that there was additional selling pressure on the T class due to the fact that certain holders of the preferred units who had received them in the Handy & Harman exchange offer either 1) HAD to sell as they were constrained to holding only certain types of instruments or  2) considered the limited upside of the preferred units inconsistent with their investing goals. In either case I LOVE IT WHEN THERE ARE ‘FORCED’ SELLERS. Furthermore, just to make these units more attractive, they have a defined life; The issue must be fully retired at par, $25, in 2026, with 20% of the issued to be retired in 2020.

This is a period where I have been looking for investments that fit into one of two categories: either they are 10/1 (possibility of 10x up vs. 1x down) or relatively shielded from the current nosebleed equity markets with a reasonable return. These preferred units, of course, fall into the latter camp.  OK, so once I identified the preferred units as attractive why didn’t I ‘back up the truck’ and buy as much as I could, or at least buy a full position? Well, here we get into an ‘implementation’ issue. MY implementation issue. Scene: two weeks ago…price of both the A units and T units were trending down each and every day. I calculated that at $20 and change the units were yielding an IRR of 10%+. So I purchased a first tranche of class T units at about $20.12, thinking I would add a second and possibly a third tranche below $20 a unit as the price continued to trend down. BUT, and here’s the problem, rather than continuing their downward trend, the price suddenly reversed direction and began increasing! At first I thought, maybe this was just a blip upwards before the downward trend resumes. After a couple of days of gains, when I finally realized that this was not the case, I finally began putting in limit orders to get another tranche at a $.30 higher, then $.40 higher, then $.50 higher, etc. Yes, each time missing the purchase because I was nickel and diming my limit price. SO JUST HOW STUPID CAN I BE?? It’s a curse for me to make my first purchase at the low because I then anchor to that price and have a hard time pulling the trigger subsequently when the price goes up.

Anyway, that’s the saga of why I’m holding a half position in these preferred units.


As always, the above is not investment advice; always do your own due diligence!


Out with the Old and in with the New

When considering a new investment I generally expect to hold it for a minimum of 2 or 3 years; if you have a dissonant view about a certain security (and that is the secret to making a decent return in the stock market) you can’t expect Mr. Market to suddenly change his mind just because YOU purchase the security. It takes time. After all, how long does it take YOU to change your mind about an investment? and remember, Mr. Market is quite a stubborn fellow. Prone to excess, but quite a stubborn fellow. A company generally needs to demonstrate that it is on a track to exceed Mr. Market’s expectations for a number of quarters if not years before Mr. Market can swallow his pride and re-price its equity. I think we can acknowledge that changing ones mind about an investment is perhaps one of the MOST difficult thing for an individual to do, and Mr. Market, after all, is just an amalgam of individuals.

So how is it that I have exited my last investment, NACCO Industries (NC), after less than 2 months? Well, incredible as it may seem, Mr. Market has changed his mind about NC and revalued it (and it’s spin-off progeny, Hamilton Beach (HBB)) by close to 70% in less than 2 months! Is it possible that by spinning off the Hamilton Beach, NC management has increased the intrinsic value of the now-separate companies by 70%? I hardly think so. Perhaps NC was trading at only 60% of its intrinsic value in the first place and the spinoff lifted the shroud from Mr. Market’s eyes? Well, maybe. I’m just not sure that pre-spin NC was trading at 50% or 40% of its ‘intrinsic value’ and so I have exited my position with a quite reasonable 68% gain.

My primary reason for selling is that my initial thesis has proved out; the spinoff repriced the equity to take into account the two different businesses. And secondly, the shares have already risen beyond my target exit price and I no longer see  the same upside as I did at the time of my initial investment. The future for the two companies does look a bit fuzzy right now; we haven’t seen stand-alone company performance yet for either one. Furthermore, on a short-term horizon, 3rd quarter earnings will be released for both companies this week. Will they disappoint? I don’t know. Perhaps not and both securities will rocket to another 70% increase. But then again, there could be a disappointing earnings announcement with a resultant fall in one or both share prices. With this uncertainty and the market in such a heady state overall I think it is prudent to take a bit of money off the table.

As you will remember NC had (and still has) a two class share structure; class A shares are publicly traded on the NYSE while class B shares are held by the controlling family and have 10x the voting rights of class A shares. When Hamilton Beach  (HBB) was spun out of NC on Sept 30 each NACCO shareholder, whether class A or B, received one class A share and one class B share of Hamilton Beach for each NC share owned as of the record date. I would have thought that shareholders of NC class A shares would receive only class A shares in HBB and class B shareholders class B shares, but this was not the case. All NC shareholders, whether class A or B shareholders, received the same securities in the spin-off. The issue here is that HBB class B shares are not registered on any exchange and therefore not salable. In order to sell your HBB class B shares you must first exchange them for class A shares. As I have now discovered from my broker the class B shares are not in book form so there must be a physical exchange!! In short, this appears to mean it will take up to 6 weeks for HBB class A shares to appear in my account after my exchange request. Oh, and, of course, there is a $30 fee to do this! So to dispose of all my shares, besides selling the NC and HBB shares in my account, I have also had to short a number of HBB shares equal to the class A shares that I will receive after the exchange is completed and the class A shares delivered. Hopefully the mechanics will work out without too much difficulty (or cost).

As to a new position, yes, I have begun accumulating shares in a preferred issue that I will post about when I have a full position… it’s a rather illiquid security and I don’t want competition from my two readers out there!

As always, the above is my view on the aforementioned securities; please do your own due diligence as I am more likely to be wrong than right!

An appeal to Saint Jude (GLAE)

It seems I have a special attachment to Saint Jude, the patron saint of lost causes; I am a shareholder of Glassbridge Enterprises (GLAE). This is a company that, on the surface, appears to have little value or chance of survival. Of course, the worst part is that I paid up to become a shareholder.

The first thing to remember about Glassbridge is that in its former life as the company known as Imation it was a net-net for many years…… until suddenly it wasn’t! No, not because the share price rose, but because somehow assets disappeared into thin air, or rather more likely they weren’t there in the first place. In fact, when I bought into GLAE last winter I thought it WAS a net-net as shares appeared to be selling well below book value. Yet, when the transmigration from Imation to Glassbridge happened, pffft!, book value disappeared, and as of June 30th this year book value was $-5.68 a share! This negative book value did factor in a substantial amount of liabilities from discontinued operations ($44 million). Most of this, according to the 2016 10K, was accounts payable that management was disputing. So, since then, what’s happened to these disputed items? Well, last week the uncertainty around some of these liabilities was resolved. A lawsuit brought by CMC against several former Imation entities was settled; $10.025 million of restricted cash assets from discontinued operations will be released to CMC and an additional $1.5 million in cash and $1.5 million in notes will be paid out over the next year. Offsetting this, $21 million of current liabilities from discontinued operations will move off the balance sheet. From what I can see this should improve book value by approximately $8 million ($1.60 per share). Of course non-restricted cash, it seems, will suffer! Note that this still leaves $23 million of liabilities from discontinued operations on the balance sheet, of which $11 million appear to be accruals for “legal fees” (2016 10K) against which there don’t appear to be any segregated current assets. Hmmm… I would love to see a little more color on this in the next 10Q, but I imagine that we will have to wait for the 2017 10K to get more information unless something is resolved in the meantime.

Since the above is primarily accounting shenanigans it doesn’t really help us to know whether there is ANY value left in the Imation carcass or whether some value is currently being created by GLAE operations (asset management). So I’m still waiting to see if I’ve dumped money into a black hole or whether phoenix-like, Glassbridge will rise out of Imation’s ashes. Mr. Market obviously doesn’t think much has been resolved as shares have bumped down over the interim.

Stay tuned and say a prayer to Saint Jude for me.