Voltari Corp: Tiny NOL Shell, Icahn Taking it Private

Voltari Corp (VLTC) is a tiny nano-cap (~$5MM today) and not actionable for many people, but it was once a mobile internet advertising company that pivoted to a triple net lease real estate strategy in 2015 after a rights offering where Carl Icahn gained control of the company.  Why was Icahn interested in the company?  They had somehow managed to rack up almost $500MM in federal NOLs and several hundred million in state NOLs.  Entities controlled by Icahn own 52.7% of the common stock and 98% of the preferred stock.  That preferred stock accrues interest at 14% (13% prior to 1/1/18) and has been paid-in-kind since inception, today the redemption value has grown to over $65MM, essentially wiping out the common equity over the last 3+ years.  Additionally, an Icahn entity is the lender on a $23MM revolving note used to finance the company's triple-net acquisitions, which there have only been three: 1) JPM Chase branch in Long Branch, NJ; 2) a 7-Eleven store in Flanders, NY; 3) and a more sizable office building leased to McClatchy in Columbia, SC.

One could say he's been slowly squeezing the value out of the company for several years and on 12/7, he delivered the final blow to equity holders, offering to buy the remaining 47.3% of the company he doesn't own for $0.58 per share or for a total of about $2.5MM.  For that $2.5MM, he'll presumably gain sole access to the NOL and can start putting it to real use ( VLTC hasn't generated taxable income since Icahn gained control).  I'm far from a tax expert, but I'm guessing either his preferred stock or the passage of the 3 year look back is enabling this move without busting the NOL.

He has a history of doing this sort of thing, Cadus Corporation (KDUS) was another Icahn controlled nano-cap where he bought a dozen or so luxury homes in south Florida into an NOL shell, it generated no revenue during this period and Icahn offered to take out the equity for $1.30 per share prior to the first property sale, eventually bumping it twice to the final takeout of $1.61 per share.  We could see a similar bump with VLTC, what's a few hundred thousand more to secure access to a $500MM NOL?  But I'm also not counting on it, there are only 4 board members, 2 of which are affiliated with Icahn including the Chairman, although he's somehow considered independent despite being on many Icahn controlled boards and owns zero shares -- there are no friends to minority shareholders here to provide much resistance.  Also, the equity (placing no value on the NOL) isn't worth anything after deducting the revolver and preferred stock.  Despite all that, given Icahn's history and recent moves to clean up his empire, I think the offer will at least hold with a slight chance of a bump to secure it getting done.  Today it trades for $0.50 per share, offering an absolute return of 16% over 6-9 months it'll take to complete.

Disclosure: I own shares of VLTC

Cadus Corporation: Flip this House with Icahn

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