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Barel Karsan
Barel Karsan

Net-Net Plus Catalyst: Paulson Capital

March 05, 2012 | About:
Paulson Capital has already been discussed on this site as a potential value opportunity. But while the company remains deep in net-net territory, somewhat of a catalyst is now present, which could entice those of you value investors who have a catalyst bent.

Last week, this Nasdaq firm with a market cap of just $5 million stated that it has reached an agreement to sell its retail advisory operation (subject to regulatory approval). But there is a lot of uncertainty here, as the purchase price is not yet disclosed!

Seventy-five financial advisors at Paulson manage over $1 billion in client assets, so we could be talking about a sizable sale price relative to Paulson's market cap of just $5 million. At the same time, however, the operation has been losing money, so it's not clear at all what kind of price investors can expect.

Even if the business is sold for a low amount, however, investors are still protected by the company's balance sheet, which should only be bolstered with the funds from the sale of the retail unit. What the company will do with the proceeds is anybody's guess, however. Paulson has issued dividends before, but hasn't since 2006.

Either way, this could be a "heads I win, tails I don't lose" situation. If the purchase price is large and commensurate with the number of client assets being handled, shareholders will own cash far in excess of the current market cap. If the purchase price is low and commensurate with the operation's recent profitability, shareholders will still own a company that trades at a discount to its net current assets.

Disclosure: Author has a long position in shares of PLCC

About the author:

Barel Karsan
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 3.3/5 (11 votes)


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