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Steel Parners: Still selling at a substantial discount

June 9, 2015

Management at Steel Partners continues to try and simplify the LP structure, or rationalize the holdings, as they say. Two minority holdings have been fully acquired; API has been substantially purchased, and this past week HNH acquired JPS. Unfortunately, management’s efforts have not yet been rewarded in terms of a narrowing of the discount to NAV. On the contrary, the unit price continues to languish slightly above last year’s tender offer price, while the NAV continues to increase.

This is a quick post to simply point readers to the shareholder letter released in May that shows management’s (I believe conservative) estimate of the partnership’s NAV. You can view it here. Most holdings are valued at their public market prices, which I believe are substantially undervalued due to a ‘control’ discount. Also note that Webank is estimated at book value though it achieves outsize returns. With all of this the discount to management’s estimate of NAV is over 30%. What’s next? Another tender offer? I wouldn’t mind! My only fear here continues to be the creeping takeover of the company as management rewards itself with units.

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4 Comments
  1. John Abbott permalink

    Thanks for the great blogs on SPLP. I am in corporate finance and have been working on a project regarding this company.
    It does seem like they are trading at a discount and their management fee of 1.5% and incentive fee of 15% of the increase in EV seems better than the usual 2 and 20. I did notice that the incentive fee paid to the manager is paid in units and I was wondering how exactly the details and how the unit payment works.
    Any help on the subject would be greatly appreciated.
    Thanks again!

  2. Matt permalink

    Does the valuation of CoSine Communications make sense to you in management’s letter? They assign their investment a value of $114.6mm, but the latest press release from COSN shows only 22.723mm shares outstanding. With a market price of $3.05/share on 4/30/2015, that would mean SPLP owns more shares than the number of shares that exist. I know I’m missing something.

    • Matt,

      Did you take into account that COSN issued additional shares to SPLP in exchange for its shares in API and NATH? Take a look at the 8k dated 1/26/15.

      • Matt permalink

        Jay, I did a little more digging and I think that $114.6mm number includes COSN equity (21,279,721 shares at $3.05/share), COSN preferred shares ($12.7mm face value), and COSN debt ($37mm face value). See COSN’s year end report (http://www.cosinecom.com/wp-content/uploads/2015/03/Cosine-Announces-Year-End-and-Q4-2014-Results-Final-1.pdf):
        “As a result of the issuance of the shares of CoSine’s common stock pursuant to the contribution agreement, SPH, through its wholly owned subsidiaries, SPH Holdings LLC and SPH Group LLC, now controls 21,279,721 shares, or approximately 80.6%, of CoSine’s issued and outstanding common stock.” The debt is mentioned in SPLP’s quarterly filing (and probably elsewhere). Thanks for the reply and the post.

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