Stockholder activist..to be or not to be

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By now you may well be tired of me writing about my hotels. I do see them as my hotels, as I own a share of the company which owns the hotels. One of the principles I try to emphasize on this site is that as a stockholder you are a part owner of the company you have invested in.

For those of you who do not yet know the saga of my hotels, here are the prior posts:

My hotels are (almost) sold – a lucky escape for this Dividend Tycoon

Reflections on buying a ‘cheap’ hotel

As I have already subjected you to this saga, I felt I should update you as to where things stand and let you know what has been happening. The future prosperity of this Dividend Tycoon is somewhat dependent on these hotels. My future investment in some of the best companies in the world depend on me selling my hotels.

Since my rather gleeful post declaring that my hotels were almost sold, I have been in contact with a few other minority stockholders of the company. There is some dissatisfaction at the proposed price the majority stockholder has proposed to buy the minorities out at. The Net Asset Value of the company (or in plain language, the value of the assets less all liabilities) is roughly R1.50, and the proposed price is R0.65. This does seem to be a very cheeky and opportunistic bid. Quite frankly this is why I bought stock in this company in the first place, it was a bargain at the price, but now the majority stockholder’s family is trying to get that bargain all to themselves. However all is not lost at Dividend Tycoon HQ because we only paid around R0.50 for a large block of the current holding, so it will still be profitable.

What has happened so far:

  1. I have spoken to other stockholders. This is easier than it used to be. I connected with them through twitter. The ball started rolling when I saw a disgruntled tweet from a fellow stockholder.
  2. I have emailed the CEO (majority shareholder) to express my view that the price does seem low in relation to the value of the assets, and that perhaps a middle ground (a fairer price) was possible. The buyout will require a circular setting out the mechanics and reasoning for the buyout, it will also need to include a justification for the price offered. In light of this I asked how the price could be justified given that the 2016 audited annual report stated that assets were worth over R1.50. His reply, while polite, was rather weak and did not really address my questions, I certainly was not satisfied with the explanation given.
  3. There has been a stock exchange announcement from the company stating that there is a firm intention to buy out minorities at R0.65. This will require the approval of 75% of the non-family owned stock. In  other words, 25% could block the scheme. This is not a huge amount of the total stock given that it is a micro-cap stock and 80% is owned by the controlling family and they are not able to vote given they are the people proposing the buy out. This announcement says a circular will be released on about 13th September detailing the offer, along with the justification for the price.

So there you have it. We have to wait too see the circular, and then vote whether we approve or disapprove of the scheme. I am in two minds.

On the one hand the right thing to do would be to try and block the scheme, and demand a higher price. However, with that comes risk. Perhaps there will not be another offer, and a disgruntled majority shareholder could make life unpleasant for minorities, for example by not declaring dividends.

On the other hand, quite honestly, I am desperate for the cash as soon as possible. Dividend Tycoon HQ does not run on fresh air alone and a fresh injection of capital is sorely needed. At the moment I can only research, study and salivate at the great dividend paying stocks when they are on offer at a reasonable price. This micro-cap hotel stock was never high quality, it was just cheap. This has worked out fairly well in terms of the gain, but I have come to realize that I get far more satisfaction from owning the great companies, the companies you can buy and never have to sell, that send you a dividend payment every year like clockwork. That is what I want now.

This is the benefit of blogging, I think I have answered my own question just by writing this post. I do not want to be a disgruntled hotel owner, I want to be a satisfied part owner of Walt Disney or Colgate or Johnson & Johnson, or even Amazon.com.. Yes these stocks may all be too expensive right now, but I want to know that I can buy some should the price be reasonable.

What would you do, fight it or take the money? I will study the circular when it arrives and let you know of any further developments. However, I can feel my days as proprietor of Fawlty Towers slowly coming to an end..I hope.

 

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