PN misses by .15, revs rose 2.9% 60.2M vs 71.41 consensus. More importantly they withdraw guidance. Special dividend $2.50/share. Increasing buyback to $40 million from 15 million.
Rob
This is so crazy. Shares are under $6, and they’re doing a special dividend for almost half that to shareholders of record on November 28??? Insanity. AND buying back shares! AND the CEO says they have an offer on the table that is better than the Ebix offer (which one can only assume means MORE than the $10 or $11 per share Ebix offered). See for yourself, from Monday’s CC:
Steven Mariano: Well, the Ebix transaction was rejected because it wasn’t the best offer on the table…The rejection of the Ebix deal was plain and simple because we had a better offer from someone else.
Matt Carletti: I want to make sure I heard you right. You said that there was a better offer on the table than the Ebix one, and that it’s still currently being evaluated?
Steven Mariano: That is correct
And the stock continues to linger around $6. Just hard to believe this is actually happening. I don’t know that much about legal ramifications of this sort of thing, but isn’t this fraud or something? I mean, not only the fact that it certainly seems PN is not giving shareholders all the information it should be, but given the Ebix press release which explicitly stated that THEY were the ones who terminated the discussions, somone is lying. That doesn’t seem ok.
Salient text from that release: Ebix announced that, on Sunday, November 6th, it communicated to Patriot National, Inc. its decision to terminate all discussions regarding a potential acquisition of Patriot National
It’s baffling to me that no one is coming out and saying, “Hey, you’re saying one thing and Ebix is saying the opposite. Let’s get this straight…who terminated the discussions and WHY?” Maybe that’s the problem with Mariano owning most of the shares.
As was said in another skeptical thread, BUYER BE-FREAKING-WARE.
Bear
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PN got a downgrade today to neutral UBS. New tgt 6.50. They cite a new term loan which will lower 2017 and 2018 est by 25%. They are also concerned that the special dividend will eat up 67M of their cash.
Rob
The special dividend is a pretty large yield, as these things go. But it shouldn’t have a material impact on the stock price for a couple reasons: 1) It’s money the shareholders already “own” (either through retained earnings or a new debt issuance) but aren’t deploying into the business, so changing its form shouldn’t change its value. 2) The share price will be adjusted for the amount of the special dividend on/after the ex dividend date (which is typically after the distribution date for a special dividend). It’s zero-sum; you don’t get to have your cake and eat it, too.
The conflicting statements about the EBIX deal falling through probably don’t have any real legal ramifications (though I’m not a lawyer). This seems to be the PR equivalent of “Oh yeah, you can’t fire me, 'cause I quit!” And we may never know who was the true firer and who was the quitter.
The lack of info about the alleged other offer on the table would be a little more disturbing, if I were still a shareholder. Does “a better offer” mean from a totally separate bidder? I have my doubts, since that would have more likely been disclosed in another press release (and resulted in another stock pop). Could the “better offer” be from one of Mariano’s other business interests? If so, maybe it’s his BATNA (back-up plan, if you’re not into negotiating lingo) or a ploy to try to drum up additional interest. [Picture a used car salesman telling you he’s got another buyer lined up for this one, but he’ll sell it to you today only, cause he likes your style.] Whatever it is, I’m guessing there’s enough gray area to adequately cover their butts.
Again, it seems that some shareholders have a lot more material information than the rest of us.
BUYER BE-FREAKING-WARE!
They call me,
Mr TBS
P.S. Forgive me if my PN thoughts have any whiff at all of I told you so. Not my intention in the least (especially because I didn’t tell anyone anything about PN while I was in it or when I sold it). I am genuinely curious about this whole chain of events, how it will all end up and what I can learn for my future evaluations of small, closely held companies.
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P.S. Forgive me if my PN thoughts have any whiff at all of I told you so. Not my intention in the least (especially because I didn’t tell anyone anything about PN while I was in it or when I sold it). I am genuinely curious about this whole chain of events, how it will all end up and what I can learn for my future evaluations of small, closely held companies.
I echo this. And actually PN will always have a special place in my heart, come what may. I bought in the $4 range and sold in the $8 range, making this my single most successful investment of 2016. The phrase that comes to mind is “better to be lucky than good.”
Bear
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The conflicting statements about the EBIX deal falling through probably don’t have any real legal ramifications (though I’m not a lawyer).</1>
Based upon the wording of the statements in this regard by both PN and EBIX that I have seen, I agree with this, and I AM a lawyer.
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I agree that the conference call was a mixed bag.
Positives:
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It sounds like they have a number of deals that are done and that will be reflected in next quarter’s results. This offsets any concern I had when first seeing that this quarter’s numbers were lower than I expected. What was said on the conference call convinced me that next quarter’s numbers will likely be back up at least where I would expect them.
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The fact that there was another “better” deal than what EBIX offered is encouraging, although I agree with others that it’s hard to know how to weigh this. Could it have been an offer by the CEO to take the company private? On the other hand, he couldn’t outright claim there was a better offer without something else substantial being on the table.
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The dividend is definitely nice, but I agree, odd.
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The company is actively working (successfully, it seems) to diversify its revenue base.
Negatives:
- The biggest negative for me was the interest rate they are paying on their credit – 8 1/4% if I remember correctly. Compare that with what EBIX is paying on its recent credit – I think it’s under 3%. That’s a big deal to me, especially when they are borrowing to pay that dividend.
In some ways, this company seems a little like EBIX several years ago: management is convinced that it was undervalued and took dramatic steps in light of that. In EBIX’s case, it was to initiate a $100M buy back. With PN, its a $40M buy back/$60 or 70M dividend. What may be lurking here is a personal interest of the CEO (who owns a very large portion of the company) to pull proceeds out of the company. He thinks the EBIX offer wasn’t high enough (taking him by his word), so selling the company won’t bring what he’s looking for. So an alternative is to pay out/take a large dividend and wait for a better offer. That’s just a guess on my part, but I agree with the analyst who suggested that–if the company is so undervalued–a larger buyback would be better than the dividend.
Like I said, I have mixed feelings about the company at this point. I do think they are in an industry niche that has room for significant growth. My guess is that this will be fruitful if you have the stomach to wait it out.
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Mr TBS - I agree he could have an offer from a friend to keep it legal. I believe the fact the market is ignoring the CEO’s statement of a better offer is a big red flag - along with the long list from Bear.
Just wanted to say I’m also very curious how this one plays out, but am satisfied being a spectator.
Pretty good article was written on seeking alpha yesterday titled
Making Sense Of Patriot National’s Term Loan
I’d post a link but I use the SA mobile app.
The posts after the article really get into possible manuevers for the CEO to take it private, but still conclude it all doesn’t make sense from the information the shareholders have been provided.
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On November 21, 2016, in connection with the previously disclosed lawsuit filed by Hudson Bay Master Fund Ltd. in the United States District
Court for the Southern District of New York (the “Court”) against Patriot National, Inc. (the “Company”), Steven M. Mariano, our Chairman and
Chief Executive Officer, and American Stock Transfer Company, LLC as a nominal defendant, the Court granted a temporary restraining order
enjoining the Company from issuing a special cash dividend of $2.50 per share of common stock on December 9, 2016, unless the Company first
places $57.5 million in escrow pending a hearing on December 1, 2016. At the December 1, 2016 hearing, the Court will consider whether a
preliminary injunction will be ordered that would continue to prohibit the Company from issuing a special cash dividend of $2.50 per share of
common stock. The Company is vigorously opposing the request for the issuance of a preliminary injunction. The Company previously
announced the special dividend in a press release and Form 8-K filed with the Securities and Exchange Commission on November 14, 2016. Subject
to any further order of the Court extending the temporary restraining order or issuing a preliminary injunction, the Company expects to pay the
announced special dividend as planned on December 9, 2016 to shareholders of record at the close of business on November 28, 2016.
The restraining order was issued without a hearing and the Company is confident that it will prevail on the merits at the December 1, 2016 hearing.
The Company has been indemnified for any losses related to this litigation by Mr. Mariano.
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I submitted that previous posting by accident before I commented. It is an 8-K form issued this week for any of those still hanging on to this one.
HAPPY THANKSGIVING TO ALL !!!