Wednesday, May 22, 2013

Will Comdisco Ever Finish Liquidating?

I was sifting through Horizon Kinetics' holdings (one of my favorite value investors) and stumbled upon an interesting special situation in Comdisco Holding Company (OTC:CDCO).  Comdisco was a computer leasing and disaster recovery company that ran into trouble in the aftermath of the crash and declared bankruptcy in 2001.  Prior to their troubles, CEO Nicholas Pontikes used $3 billion to invest in 900 starts ups in the middle of the tech bubble, a rather disastrous decision.  After declaring bankruptcy and emerging as Comdisco Holding Company, the new entity's limited purpose was to sell the company's assets (including the 900 start ups) and distribute cash to the creditors and shareholders.  It's essentially a zero coupon bond, but without a defined maturity date.

Today, with only a few of the start up investments remaining and most of the assets in cash or near cash, the liquidation scenario is pretty easy to estimate with the current balance sheet.

The one adjustment I'll make is to value the company's equity investments in private companies at $5,166,000 per Comdisco's estimate of the realizable value.  With that adjustment, stockholders' equity jumps to $30,003,000 versus a current market capitalization of $20,190,000.

The question becomes, how long will it take to complete the liquidation?  A quick Google search will show investors asking this question in 2008-2009 and assuming it would be only 2 years, and here we sit in 2013.  Now that most of the private company investments have been sold off, could it finally finish in the desired 2 years?  As a general rule, I look for investments that return a 20% IRR, plugging the PV, FV, and I/Y values into my trusty BA II Plus and I get 2.17 years, so probably anything under 2 years gets you over the 20% hurdle when you consider ongoing expenses, etc.

One other thing to consider, the contingent distribution rights holders seem to be telling us that an end might in sight.  CDCOR shares last traded for $0.069, with 148,448,188 shares outstanding, that's a market capitalization of $10,242,925 compared to the $11,229,000 liability on the balance sheet, only about a 10% discount.  Overall, Comdisco seems like an interesting special situation without much downside and little correlation to the broader market.  But beware, its highly illiquid and rarely trades, probably going to have to be patient with a GTC limit order.

Disclosure: No position

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