Tender Offer for Goodheart-Willcox Company (GWOX)

Textbook publisher Goodheart-Willcox is an Oddball that was written up on Oddball Stocks way back in October 2012 when shares were trading for about $72.
I ran across Goodheart-Willcox in the Walkers Manual, the numbers in the manual intrigued me, from 1998-2001 the company had earned anywhere between a 24% and 32% return on equity, and EPS had grown at 25% annually. I was even more impressed with the ROE when I noticed the company was debt free. I was curious about how they were doing now, so I picked up some shares and contacted the company for an annual report. I received a few years worth of reports and liked what I saw. In the years between 2001 and 2011 the company had continued to throw off excess cash, but with reinvestment opportunities limited cash just piled up on the balance sheet. The company had become what value investors affectionately call a "cash box". A cash heavy company with a business bolted on.

So what is the business of G-W you ask? They're a textbook publisher. Most readers will see the last line and think "no wonder they're a cash box, dying business, dying industry, and relies on government funding." That's the bear case in a nutshell, a bit more information might change some perceptions, but my guess is for 99% of my readers this stock is untouchable because of some preconceived negative bias. I understand that, I've wrote about this stock to a number of investor friends, and all of them came back with some variation of my above sentence. I've heard it said that courage of conviction, and patience are two skills investors need to succeed. Both of these traits are required in double doses for G-W.
The Oddball Stocks Newsletter also did an update on Goodheart-Willcox in November 2014 when it was trading for $81, which was right around book value at the time.

Along the way from 2012 until now, GWOX paid some healthy dividends - a total of $23 per share since the post back in October 2012. The last trade of the stock was in December 2018 for $107 per share. That made for an IRR of 10%... until today.

We received a notice today that the GWOX Employees' Profit Sharing and Stock Ownership Plan and Trust is offering $150 per share for up to 124,000 shares (which is 27.8% of the outstanding stock). That boosts the IRR to 15%... but it happened in "One Day".

At $150, the market capitalization of the company (with 445,725 shares outstanding) is $66.9 million.

The P&L for GWOX is "cyclical" because of the school book adoption cycle. To some, the business looked like it was in secular decline. If you look at the financials from back in 2012, it earned $5.6 million in 2006 (on $31 million of sales) but only $563,000 in 2012 (on $17 million of sales). Even from 2013 through 2017 it never earned more than $1.6 million, with two of those years being below $1 million. But then for the year ended April 30, 2018, it earned $8.3 million!

Is the tender offer worth taking? There's some juicy nuggets that bear on that in the tender offer document - we will be discussing in the upcoming Issue of Oddball Stocks Newsletter in June. Stay tuned!

1 comment:

  1. Hard to know if this is the beginning of an attempt to go private eventually. The tender offer is set up to buy out odd lot shareholders first. They also mention that CEO and officers, who own quite a bit of shares, are not expected to tender any shares. An interesting situation to be sure and a very solid little business.