Friday, November 15, 2019

Asta Funding: Going Private Offer

Asta Funding (ASFI) is an old familiar name in the value investing community (I owned it for a stretch), it was once primarily a buyer of defaulted consumer debt for pennies on the dollar that would then go out and sue debtors in order to garnish their wages and recoup their investment, fun stuff.  Following the financial crisis, Asta took a writedown of most of the value in one of their large consumer receivables portfolios but it ended up still cash flowing and looked cheap with this potentially large zero basis asset.  They used those cash flows to diversify into similarly unsavory financial services businesses without much logic such as social security disability advocacy, personal injury claims and structured settlements.  This is a family controlled business and they have treated it that way in the past, they had a dust-up with Mangrove Partners which Asta ultimately ended up paying what looked like greenmail with a large tender offer, followed by a special dividend for most of the market capitalization pushing it further into microcap terriority, then had to restate years of financials, all of which led the shares to be completely ignored by the market.  For a while there it was trading below cash, a clear error of omission on my part not jumping on it then as I've always kept ASFI on my watchlist.

But on November 1, Gary Stern, Asta's Chairman and CEO offered to purchase the remaining outstanding public float (the Stern family owns ~60% of the company) for $10.75 per share conditioned upon acceptance by a special committee of independent directors and a majority of the minority shareholders vote for its approval.  Given the premium to where shares had been trading, I would expect both to be relatively easy to obtain.  Book value is about $13.50 with more than half that being cash, maybe there's a tiny chance of a bump.  But the board is only 5 members, one of which is Gary Stern, two of them have been on the board since the mid-2000s and have let this situation play out to-date, the other two are relatively new but likely friendly with the Stern family given the controlled status.  Even without a bump, financing should be a breeze considering the Sterns can dividend out the cash to themselves when in full control making this a low risk idea.

It's about a 6% gross spread, not fantastic, but I'm familiar with the company and its management, I see this as their opportunity to return to a family company and operating in the dark without pesky minority shareholders or exchange listing requirements (about half their press releases in recent years are NASDAQ de-listing notices).  Plus I have some dry powder and have been stashing cash in more small special situations like this until I find more mainstream ideas.

Disclosure: I own shares of ASFI

2 comments:

  1. What did the Sterns do that illustrate abuse of their position of control at ASFI?

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    1. Maybe I'm being a bit unfair, but there's a lot of nepotism, high salaries, related party transactions, etc. Primarily poor capital allocation, branching out into the other businesses when the stock was trading as cheaply as it was is pretty abusive to minority shareholders. Especially when they weren't really at arms length or very transparent. Took a very aggressive activist to shake things up and even then, they protected themselves. But my tone is probably too harsh.

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