Mergers, Activist Widows, and Piles of Cash: An Update on 2 NCAV Stocks

Investing in companies selling at a discount to their assets requires a keen eye to monitor ongoing events. In March, I posted about 3 stocks selling below their NCAV.  Since then, two of the stocks have had significant developments.

At the time of my post, Audiovoxx (VOXX) held a cash pile so high, Scrooge McDuck could swim in it. Instead of distributing a portion of this hoard to shareholders, management spent $167M (and added debt)to buy Klipsch, a maker of high end home speakers. Some are saying that this will add to VOXX’s intrinsic value and spur the company beyond its mediocre recent performance.

However, if  you purchased VOXX expecting a liquidation or cash distribution, that hope is gone and you are now counting on management to successfully integrate this recent transaction. Paying a steep price (20x earnings) for Klipsch does not help matters.

Vicon Industries (VII), has started to move in a slightly different direction. 10% owner Anita Zucker, the widow of Hudson’s Bay’s Jerry Zucker, filed a 13D with the intention of shaking up management’s policies.  Specifically, she wants to see the company better use its cash through dividends or buybacks. Last week, Zucker and another activist investor were able to get a nominee of theirs a seat on the Board of Directors.  The company’s share price is currently at $4.60 and they have over $3 per share in cash. Frank Voisin is keeping a close eye on VII and covering the situation at his site.

The developments at these two companies show two of the potential outcomes for NCAV stocks. Always remember that for companies selling so cheaply, management has three choices with the cash: they can distribute it, waste it, or invest it wisely. It is important to think through the risks and potential rewards before purchasing.

Disclosure: None

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2 Responses to Mergers, Activist Widows, and Piles of Cash: An Update on 2 NCAV Stocks

  1. James Huddleston says:

    Thankfully, I only looked at VOXX after they made that acquisition. I’ve learned now to pay close attention to management’s intentions when dealing with stocks that are undervalued on an asset-basis. You can see that Seth Klarman sold out at a steep loss shortly after they announced that acquisition, as I recall.

  2. mosinvestor says:

    Unfortunately, management intentions are usually the most difficult parts to figure out. Even a great like Klarman makes mistakes every now and then.

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