I periodically write about special situations or workout investments, a type of value investing that I occasionally find worth partaking in. In the last year, I mostly focused on traditional net-net value investing since there have been relatively few opportunities for going-private transactions in the last year or so.
One that I did find was Boss Holdings (BSHI, now BSHID.PK), a pretty simple company that distributes gloves, boots, and pet supplies to retailers, and which someone listed at Fat Pitch Financials’ Contributors Corner (of which I’m a subscriber). Back in October 2009, they announced their intention to perform a reverse/forward split for all shareholders holding less than 100 shares in order to delist the company at $7.65 a share. After researching the company a bit more and noticing that it also met net-net value investing requirements a few times in previous months as well, adding to its appeal.
As with most small going-private transactions (e.g. the type that individual investors can most benefit from since large institutions tend to not have disproportionate advantages of scale, size, and power in these plays), BSHI was trading on very low volume. I was able to get an order filled on October 14th for 99 shares at $5.99. As I’ve written previously, I’m using my son’s small Coverdell account to invest in these types of situations since the amounts involved are also small. Including my $8.95 trading fee, my total cost was $601.96. Around the end of January, the company issued its preliminary proxy announcing its intent to do a reverse/forward split at $7.65 a share, a definitive proxy at the beginning of March, and official approval of the vote in late April. On April 27th, I noticed that the shares were removed from my account and expect the cash to be deposited in my account within a few weeks’ time. Update: cash received on May 17, 2010
Keep in mind that not all going-private or special situations transactions work out in the end. There is also a series of stages and announcements that occur before a going-private transaction is finalized.
A simple ROI calculation shows that I’ll have made $155.39 on this trade or a return of about 26% in about 7 months’ time. While not a huge amount, I’m still pleased given that the low risk of this transaction and that there are limited opportunities to invest my son’s small Coverdell account.
I’d ideally like to find more special situations investing opportunities, but there just doesn’t seem to be as many appealing ones as there have been in previous years, so I may have to go with parking some of the money in an index fund rather than in cash while awaiting more opportunities to show up.