One of my largest positions is Autoinfo (AUTO), as I believe the buyout price is way too cheap. I recently posted an article over on Seeking Alpha highlighting the investment and why I think it’s so compelling. Unfortunately, it’s currently on Seeking Alpha Pro, so you’ll need that to view the whole thing, and because it’s on pro I can’t just copy the article and post it here. However, I did want to highlight some of the key learnings from the proxy.
The first place I look in merger proxies is the merger background (see page 25-30). I was shocked to learn the company had received two bids for $1.25-1.30 late last year that both fell through. It’s somewhat of a red flag that the bids fell through, and it’s also extremely strange that the board would take a bid 25% below those levels just a few months later. I’ll leave the interpretation up to you, but it certainly raises the question “where is the board’s negotiating skills?” and “what the heck were these people finding in due diligence that made them walk???”)
Second, I thought the fairness opinion was an absolute joke. I’ve never seen someone try to justify multiples this far below comps, so I’m not even going to comment on this snippet.
Finally, the DCF and LBO analysis was equally amusing. I mentioned in a post over the weekend how unnecessarily changing discount rates is a poor way to handle risk, so you can imagine what I thought about the rates used here.
I’ll pose a simple question- if the analysis is right, would you rather get taken out at $1.05 or have a stock worth $1.05 whose intrinsic value will grow 18-20% per year?
Disclosure- Long AUTO
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