With most articles I do on net-net's I include my liquidation analysis spreadsheet. I include this not because I think the company in question will liquidate, but to show the maximum possible downside. In some cases the biggest downside (outside of fraud, or massive asset squandering) is actually an upside. Of the net-net's I've written about and researched I don't think I remember any actually liquidating.
While I haven't had a net-net liquidate, although some should, I have been involved in one liquidation situation. I purchased EDCI stock a few years back once the decision to liquidate was made and I realized the liquidation value was in excess of the trading price. I ended up selling out way too early but I know people who held on made 2-3x or their initial investment, I ended up with a 50% gain in about four months or so which I thought was spectacular. I blew the gains on a trip to Florida, and while stocks are nice they don't compare to a sunny sandy beach but I digress...
So what's the deal with Maxco you ask? Well management realized a few years back the best way they could realize maximum shareholder value was to liquidate the company and distribute the proceeds. The company has liquidated substantially all of their assets at this point and made four distributions to date.
At this point all that's left of Maxco is the CEO, an empty office and the receptionist. At the bottom of the annual report filed at the end of March 2011 management indicated they expect a final liquidating distribution of $.60. The final distribution is a result of a large IRS refund they received last year.
The situation seems pretty straight forward, and you're probably wondering at this point if there are no assets left to liquidate why hasn't the company paid out the final distribution? The reason is a bit unique, due to the size of the tax refund a special committee needs to review it before the company is allowed to release the funds to shareholders. The IRS guidelines state that a review of this type can take up to 18 months depending on the complexity of the return. The company mentioned they would update their website when the audit process began. It's been a year since the last posting on Maxco's website so I decided to call and see if there were any updates, unfortunately there aren't. The audit still hasn't started, although the woman I talked to said she doubts it will take the full 18 months given the simplicity of Maxco.
A shareholders return in this liquidation depends on two factors, the price they pay, and the amount of time between the purchase date and the liquidation date. I've included a graphic I put together showing how the longer the process drags on, or the higher the price paid the return drops. I know this is intuitive for most readers, but often a graphic makes it much easier to understand both the potential and liability.
Maxco looks like the perfect investment, put in a bid $.02 above the last quote, hope things wrap up in a year and you're looking at a 200% return. I agree, this looks excellent on paper, the problem is it's very difficult to actually purchase shares, trust me I've been trying.
Here is a screenshot I grabbed of ALL the trades going back to September 2011:
Most trades are less than 1,000 shares ($180!?!?!) and my guess is they're partial fills. If you decide you want Maxco shares I would strongly encourage a limit order with an all or nothing specification.
No post would be complete without me asking this question, for Maxco this is very easy to answer:
-The current market cap is $621,730, yup, smallest stock I've ever written about.
-The stock is very illiquid as mentioned above.
-Uncertainty regarding the timing of the final distribution.
Talk to Nate about Maxco
Disclosure: I have an order outstanding for Maxco shares at $.18, yup I'm optimistic.