Wednesday, May 16, 2012

Deregistering To Earn More...

Here, we see an article about a bank in New York that is symptomatic of the numerous companies have begun deregistering their stocks so that they can have a rosier economic future.

SNIP:


Between legal and accounting fees, being a public company costs Empire State Bank roughly $10,000 a month.
But, the bank took steps to end those expenses Monday, when it filed papers to deregister its common stock. Once the Securities and Exchange Commission processes the bank's papers — which takes about 90 days — Empire State will no longer have to file quarterly or annual reports or proxies.
The move should help drive profits at the three-branch bank, which has struggled with lackluster performance. Empire State, founded in 2004, on Monday reported a loss of $54,000 in the first quarter, down from a quarterly profit of $38,000 a year before.
...
Costa was only able to deregister because of President Barack Obama's Jumpstart Our Businesses (JOBS) Act, signed into effect early last month.
Companies with more than 300 shareholders had previously been barred from deregistering, precluding his bank from doing so, Costa said.
The new law ups the threshold to 1,200 shareholders, Costa said.



This is a great way for small companies to become more profitable. While the intrinsic value of the businesses should go up with these sorts of transactions, a lot of people are scared to death to own the stock of a non reporting company. Certainly, this could make liquidity go down for the companies, and thus, their share prices could lag with an absence of buyers. If markets over-react to the downside, there could be some great opportunities.


Disclosure/Disclaimer: I have no position in regard to the company mentioned. I reserve the right to change any of my positions at any time. This is not advice of any kind and is solely my own opinion. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

4 comments:

Anonymous said...

I think you are missing the point. Sure... they say there is going to be this cost savings...less red tape...etc.

What they don't tell you is they will probably no longer file a proxy detailing executive compensation (guess where the savings is going??!). Good chance that ONLY shareholders will receive periodic financial reports (so much for trying to find a market for your shares).

The good thing about banks is that there is great quarterly information they have to file with the SEC.

Before investing in any Dark Companies.... read some of Oddballstocks.com coverage of some of these stocks....

Best of luck

jeff said...

Anon,

A few paragraphs of my thoughts on the whole subject of common stock de-listment is hardly enough to address the plethora of issues at hand. If you are comfortable with a management team and they view shareholders as partners, your point will generally (there may be exceptions) be void. Generally, this is something that I would look for when investing in that sort of company.

Even if a company only sends out reports to shareholders, there may still be a market for shares and wild swings in price to be taken advantage of. JG Boswell comes to mind as one where it is super hard to get info, but, there is a decent market for the shares (and to some degree large swings in price).

Oddball stocks is one of the best investing blogs out there.

All that said, I appreciate your concern, even though it came off as a touch derisive.

Anonymous said...

Sorry it came off as derisive...not meant to be. I invest in Pink Sheet companies myself, but usually 5 - 10 years after delisting as the stock has been forgotten.

One correcition in my previous post.. Banks file data with the FDIC, not the SEC. I own a couple of banks (IOFB and one I am trying to build a position in) that don't file.... appear to offer superior value.

Boswell is an interesting case study. There is a considerable following on value blogs. I believe one of them has gone so far as to try to sell you spreadsheet detailing there financial results. This is an outlier in Dark stocks...usually very limited information on the web.

Great blog!

Nate Tobik said...

My ears were burning.. This post obviously hits close to home for me. Unlisted/unregistered stocks are endlessly fascinating. I had seen the news about the new 1200 shareholder limit as well. I think we're going to see a lot of movement in this space, and hopefully some profitable going private transactions as well.

I think banks are the best way to dip a toe in the market because as Anon says everything is on the FDIC website quarterly. Even still most of these dark companies aren't all that dark if you're willing to pick up the phone. I've only had one company refuse to send me the annual report when I requested it. I ended up getting it a few months later when they mailed it to all shareholders, so no problems there.

What I love about unlisted stocks is this is an opportunity to invest in smaller companies that aren't running the company to play by Wall Street's rules. The other nice thing is after making the initial buy decision you can usually forget about the company for a year until the next annual report comes out, these are low maintenance stocks.

I agree that JG Boswell is a bit of a poster child for the unlisted world. I read the book King of California that was basically a company biography. All said the company isn't as fascinating as a lot of the other companies that are flying even deeper under the radar. While JG Boswell is standoffish towards investors there are plenty of unlisted companies that are shareholder friendly selling at much more attractive discounts.

This comment isn't complete without agreeing with Anon that knowing and understanding management is key on these companies. Managers who are looting the organization are to be avoided unless the discount has priced that in.

Glad you guys enjoy my blog, I have no shortage of companies to write up in this space!

Nate