Thursday, April 12, 2012

CIBL Followup, details on the sale and some thoughts

I wanted to write a follow up to my post on CIBL from January.  The original post is linked here.  I don't follow up on too many of my ideas because so far not that many ideas have played out in a way that deserves a post.  The CIBL thesis has played out, and there's still a lot of interest in that post, so instead of having people wade through comments to find answers I thought I'd post an update.

Quick links
News of the sale: link
Proxy link: link (contains the 2011 unaudited annual report as well, hidden at the bottom)
CIBL website: link

Background

CIBL was originally a spinoff of assets from the communications company LICT (written up here).  The assets CIBL holds are partnership interests in two wireless companies in New Mexico as well as an interest in two TV stations located in Iowa.

What made CIBL interesting was that management had indicated that they believed their wireless assets were worth more than the trading value of the shares and they intended to sell them if possible.  When I first posted I received a number of comments from burned out shareholders telling me that management had been trotting out that line for a while and they doubted a sale would happen.  I'm happy to say they were wrong and a sale is finally pending.

What happened

On March 23 news hit the wire that CIBL had reached an agreement to sell their wireless partnerships.  The long awaited asset monetization had finally come to pass.  Now all shareholders had to do was wait for the proxy which outlined the deal.  The proxy was posted either late last night or early this morning and can be found here.

In my post on CIBL I had estimated that a range for the wireless assets was anywhere from $25m to $68m, a very large range.  Based on the limited details I had on the wireless it was really hard to nail something down more accurate then that.  The good news was at the time there was a large margin of safety, the company was selling for $15m which included both the wireless and the TV stations.  There was a lot of discussion on the original post on what a proper buyout multiple might be.  As it turns out Verizon ended up paying 7.5x the partnership EBIT and 12x the partnership cash distributions.  Here is the table included in the proxy showing the partnership EBIT and distributions:


According to the proxy CIBL sold their partnership interests to Verizon Wireless for $31m which is in the lower end of my range, but still double the market cap at the time of the post.  CIBL estimates that the after tax proceeds from the sale will be $18,775,000 which comes out to $750 per share.

Of note as well is the process, CIBL was first approached by Verizon in 2008 and was made an offer that CIBL considered too low.  The companies went back and forth for the next four years and finally this winter agreed on the $31m price.  The proxy states that this offer is 75% higher than the original Verizon offer.  Verizon was and is the only interested buyer, so if CIBL shareholders vote this down it's unlikely someone else will come in with a higher offer.

Going forward

I think the estimate of value for the TV stations is probably unchanged at around $200 a share.  The company also has about $75 per share in cash at the end of 2011.  The company stated multiple potential uses for the cash in the proxy, here's what they said:
The company doesn't indicate if they have had any interest in selling the TV stations.  So if CIBL paid out the entire $750 as a dividend shareholders would be left with $75 in cash and two TV stations that might be worth $200 or so.

When I thought about this I came to the conclusion that I'd rather have $950 today if possible rather than wait for a the stations to be sold off and proceeds distributed.  So I sold out of my shares this morning at $950.  The end result was a 50% gain in three months which I'm happy about, but it wasn't the double or triple I was hoping for.

Lessons learned

I felt like there were a few take aways from my short investment (2.5 months!) in CIBL.  
  • A precise intrinsic value calculation isn't necessary if you can buy with a big enough margin of safety.  My range of $25-68m was large, but I purchased CIBL at $15m.  The sale took place in my range guaranteeing me a gain.
  • Even illiquid unlisted stocks become fully valued eventually.  A shareholder who purchased based on managements original comments has between a 4.5x and 6x gain on their purchase.
  • I was overly optimistic on my original assessment because I didn't understand some of the nuances of the partnerships.  I read the filings but didn't totally understand exactly how the partnership breakdowns worked.  This meant in my original assessment I attributed much more of a potential sale to CIBL then what would eventually go to them.  This could have been a much bigger error, but again having a wide margin of safety saved me.

Disclosure: No position

1 comment:

  1. Hi Nate,

    You might consider taking a fresh look at CIBL. It looks like they plan to stay in business and are in the process of taking over control of ICTG a small telecom company in North Dakota. You might also look at MGHL, another Gabelli-related company. It has been long dormant -- holding only about 15 cents/share in cash and a tax loss carryforward of several million dollars (most of which expire in 2013). They recently hired a young fellow to try to get some value out of the tax loss carryforward and offered him some fascinating options and warrants. There may be some value there.

    I enjoyed your previous writeup of CIBL.

    Dick

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