We first looked at SOAP on February 2nd (see Greenbackd’s post archive here) because it was trading well below its net cash value. An activist investor, Mithras Capital, had disclosed an 8.7% holding and called on the company to liquidate. After some urging on Mithras Capital’s part, management acceded to the request and announced a liquidation. SOAP stockholders approved the liquidation of the company on July 28 and received a special dividend of $3.75 per share the next day. Based on our $2.50 purchase price, the $3.75 per share special dividend returned our initial capital plus 50%. At yesterday’s close, the $0.65 stub represents a total return to date of 76%. Management originally estimated the final distribution to be between $0.25 and $0.75 per share, which means the stub is presently trading at a 30% premium to the $0.50 midpoint of the distribution range.
On September 9, in our guest blogger series, Wes Gray and Andy Kern took a look at the SOAP stub as a stand alone investment. Gray and Kern argued that there was plenty of value left in the stub:
e. Total Return PossibleAt its $0.65 close yesterday, the stub is up 20.4% since that post.
Low Estimate: .39 first distribution (Q2 2010), .06 second distribution (Q4 2010)
=>-4.57%
Expectation: .70 first distribution (Q1 2010), .06 second distribution (Q4 2010)
=>59.01%
High Estimate: .82 first distribution (Q4 2009), .15 second distribution (Q4 2010)
=>102.98%
Expected Return:
P(Low)=.25
P(Estimate)=.50
P(High)=.25
ð .25*-.0457+.50*.5901+.25*1.0298=54.11% expected return by Q4 2010.
The sale of the company’s non-cash assets including its “principal intellectual property assets,” the value of which we were speculating about on August 11, yielded cash consideration of approximately $2.2M. SOAP does not expect to receive any additional material consideration for the few remaining non-cash assets left in its possession.
The value proposition updated
According to the most recent 10Q, which was prepared on a liquidation basis, SOAP has around $11.4M in net assets. This includes total liabilities of around $5.6, of which $5.5M is a reserve for liquidation costs. Here is an extract from the 10Q:
With 15.2M shares on issue, and assuming SOAP spends the full $5.5M reserve for liquidation costs, SOAP looks likely to yield $0.75 per share, the upper end of management’s estimated range and a 15% return from here. If there are any savings in the $5.5M reserve, SOAP could pay out substantially more.
Conclusion
Given that the stock is trading at a 15% discount to what now appears to be the low end of the likely final distribution, I’m going to maintain Greenbackd’s position in SOAP.
[Full Disclosure: I do not have holding in SOAP. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]
Greenbackd
[greenbackd.com]
Greenbackd is a former corporate advisory and securities lawyer working in value-oriented activist funds management.
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