This is another simple thesis with a near term catalyst, LGL announced a rights offering beginning on 9/5/17 to raise a little more than $11MM to pursue acquisitions, likely to monetize their NOLs without creating an "ownership change", the offering was expected to close on 10/10/17. The rights offering was a little unconventional because it was announced at a small premium ($5.50 exercise price) to the share price at the time of the announcement and it was going to be tradeable, at a premium, what value would the rights have if you could just buy the shares directly for cheaper? I looked at it then, as I try to look at all rights offerings, and passed. But on 10/5, they issued a press release announcing the rights offering would be pushed back until 10/25 because they received a non-binding cash offer for their two operating businesses making the situation a lot more interesting. Then on 10/23 they pushed the rights offering expiration back again to 11/13, likely to give both sides more time to agree on a deal?
The shares today trade for $5.66, we know that Gabelli was a buyer at the rights offering price of $5.50 as he's essentially backstopping the rights offering and along with the current CEO will have effective control of the company after the rights offering settles. With the potential cash offer on the table, I think it significantly de-risks the situation:
- On the upside, we could either get straight taken out at a premium or receive a significant cash infusion to the holding company.
- On the downside, the two sides can't come to a deal, you still have an improving operating business, the rights offering closes and the company receives a cash infusion for additional acquisitions knowing that a proven capital allocator is effectively in control of the company.
- The investment group submitted their bid after the rights offering was announced so they must believe their offer is the superior path and has some urgency to it;
- Gabelli likely can't buy significant amounts of shares on the public market, either for liquidity reasons, or because he has non-public material information, but he can have the company conduct a rights offering and acquire shares that way, oversubscribe, and gain control of the company;
- The company is run by a 40+ year industry veteran in Michael Ferrantino, however he came to LGL in 2014 to spark a turnaround, he's 74 years old, the business trajectory is turning for the better, is now the time to cash out and retire?
Disclosure: I own shares of LGL