Cadus Corporation (OTC:KDUS) might be familiar to a few value investors who enjoy having their patience tested. Cadus is a former drug development company that sold essentially all their assets in 1999 to OSI Pharmaceuticals (which itself was purchased by Astellas Pharma in 2010). Ever since Cadus has been more or less a shell company, with cash and some net operating loss carry forwards (zero revenues, no full time employees only a part time CEO earning $25,000 per year).
Carl Icahn has been a major shareholder of the company since the mid-1990s, and has resisted calls from investors to liquidate the company citing the $19,341,000 of NOLs. It may seem tiny to a multi-billionaire, but Icahn is probably the type where it bothers him leaving any amount of money on the table. In February, he finally got moving and Cadus announced "the company is currently seeking opportunities to profit from purchasing land and residential homes for construction or renovation and resale in the state of Florida." He assigned his wife's son in law as the new CEO and as of 5/14/14, they have purchased 9 homes in Florida for $20.9 million, clearly targeting the upper end of the housing market.
Cadus Corporation's strategy sounds similar to David Einhorn's strategy with BioFuel Energy, however with BioFuel they're buying a larger operating company and have significantly more NOLs to monetize. With Cadus, the house flipping venture appears short term in nature and maybe a simpler tactic to monetize the NOLs, and liquidate the company after the homes are sold? Cadus should also be a less stomach churning ride as the retail day traders have likely long forgotten about Cadus.
To further fund the house flipping operation, the company went forward with a rights offering at $1.53 a share, one right for each share outstanding. Icahn backstopped the rights offering and now owns 67.8% (40% prior) of the company after the rights offering, meaning almost all of the original shareholder base other than Icahn declined participating (I would expect a similar result in BIOF's upcoming rights offering). The pro forma book value looks something like this:
3/31/14 Book Value = $22,314,215
Rights Offering Proceeds = $19,803,934
Proforma Book Value = $42,118,149
Shares Outstanding (after the rights offering) = 26,288,080
Book Value/Share = $1.60
The thesis is pretty simple with Cadus Corporation, it trades roughly at Icahn's recent cost basis and a liquid/current book value. If the luxury flipping operation works out well, Cadus should be able to use up the net operating losses in the next year or two. Due the short term nature of house flipping, I could see the company being liquidated once the tax asset is monetized. It's not going to be a multi-bagger, but could provide an attractive return with minimal downside.
Disclosure: No Position