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Posts Tagged ‘Lawndale Capital Management’

Andrew Shapiro, President of Lawndale Capital Management, has provided a further update on Reading International Inc (NASDAQ:RDI) (see the RDI post archive here):

In Reading’s 2008 Consolidated Entertainment/Pacific Theaters acquisition of 181 movie screens in California and Hawaii, there were three contingent purchase price reduction tests, each forgiving a portion of the acquisition’s seller note PLUS interest RETROACTIVE back to the Feb 2008 acquisition date. Two of those tests have already taken place and have reduced the seller note (“US Nationwide Loan 1” on Reading’s 3/31/10 schedule of Notes Payable) to $15.3 million.

This article notes the first anniversary of a competitive theater in Bakersfield California, within the competitive radius of Reading’s Valley Plaza 16, triggering the last contingent purchase price reduction test.

A multiple of the cash flow reduction experienced by Reading’s theater over this PAST year (that is lower EBITDA which RDI shareholders have already “suffered” from) is to be returned to Reading in the form of forgiveness on the seller note. The measurement will take place this current quarter.  Reading’s lowered debt from forgiveness of a portion or all of the US Nationwide Loan 1 and recovery of accrued interest expense on the forgiven principal RETROACTIVE to the Feb 2008 acquisition date is likely to occur during Q4, after Pacific Theater’s audit of Reading’s claim.

RDI has also announced that it has settled its tax dispute with the IRS. Here’s the release:

Reading International Settles Tax Case with IRS

Los Angeles, California, – (BUSINESS WIRE) – July 16, 2010 – Reading International, Inc. (Reading) (NASDAQ:RDI) announced today that its wholly owned subsidiary, Craig Corporation (Craig), has reached an agreement in principle to settle its tax dispute with the Internal Revenue Service (IRS) related to Craig’s tax year ended June 30, 1997. Craig and the IRS are currently in the process of documenting this settlement. The settlement resulted in a 70% concession by the government and will lead to the previously issued IRS Notice of Deficiency, dated June 29, 2006, in the amount of $20.9 million, $47.2 million inclusive of interest, being set aside by agreement of the parties. Reading estimates that, as of the date of this release, Craig’s liability under this settlement is approximately $15.0 million inclusive of interest, although final calculations have yet to be agreed. As of March 31, 2010, Craig had reserved $4.5 million against this liability.

The impact of this settlement with the IRS on Reading is approximately $14.0 million, resulting in a charge against earnings of $9.5 million for the second quarter.

[Full Disclosure:  I hold RDI. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Andrew Shapiro, President of Lawndale Capital Management, has provided an update on Reading International Inc (NASDAQ:RDI) (see the RDI post archive here. Andrew has also responded to commenters in the first post.):

Reading International: Index Fund Selling Presents Unique Liquidity Opportunity

As previously reported in mid-May, movie exhibitor and real estate developer Reading International (NASDAQ: RDI) announced what should be a major near-term catalyst for unlocking substantial embedded value in one of its most highly appreciated real estate development projects, Burwood Square, located in Melbourne, Australia. A unique major liquidity opportunity for buyers is being presented over the next week as substantial RDI shares (approx 1.3 million) are to be sold by Russell index funds. Such funds are completely indifferent to Reading’s value-unlocking activity, but are forced to sell at the end of this week when RDI is deleted from the Russell 2000 index, because it missed this year’s market capitalization cut-off.

Burwood Sale is a Catalyst
A May 16, 2010 article on SeekingAlpha.com, discusses the property and provides URL links to the parcel’s up-zoning and present development plans. A follow-up SeekingAlpha article on May 27, 2010 makes the argument that Burwood’s sale would convert difficult-to-value real estate and sizable hidden unrealized appreciation into easily valued cash, and that if Reading’s real estate value were removed from Reading’s present enterprise valuation, investors get a large geographically diverse movie exhibition business for “free”. (Note, alternatively, monetizing the movie theater business would create long-held and highly appreciated real estate for “free” as well.) That article concludes that, as Reading monetizes Burwood, investors ought to more easily price, via a higher stock price, the intrinsic value of both of Reading’s cinema and real estate segments.

Catalyst realization is in the Near term

A detailed Information Memorandum (a sales “teaser”) on the Burwood Square parcel posted on Reading’s website not only includes some some compelling photos and information illustrating the parcel’s substantial value, but it also sets a near term timeline for the sales process. Submissions of expression of interest and buyer qualifications are due next week on June 28th. Selection of short-listed candidates to participate in the next round of bidding will take place July 5th.

RDI being deleted from Russell 2000 Index on Friday June, 25

On Friday, June 25th, the Russell indices will be recomposed for the coming June 2010-June 2011 year with new members added and some old members deleted. The composition of the Russell 2000 index (a subset of the Russell 3000E) is purely based on market capitalization size on Russell’s cut-off date (May 28, 2010), not any fundamental business assessment of value or prospects. Reading’s closing market capitalization on May 28 placed the company about 40-60 slots below the 3000th ranking company, and thus, Reading has been listed by Russell as one of over 200 companies being deleted from the Russell 2000 index. Note, RDI will remain in the less followed Russell Micro Cap index.

Index fund selling presents unique liquidity opportunity for RDI buyers
It is important to note that RDI’s upcoming deletion from the Russell 2000 index was not qualitative based and index funds can’t consider whether Reading is monetizing its Burwood Square parcel or not. They MUST sell their shares on or around the Friday June 25, 2010 recomposition date. RDI’s average daily trading volume is about 50K shares, a modest and respectable number for a company that lacks any sell-side analyst coverage whatsoever. However, this amount is dwarfed by the estimated 1.3 million or more RDI shares held by index funds connected to the Russell 2000 index that must be sold.

Given the substantial surge over the last several months in RDI shares held short to approximately 780K shares on May 28, I feel some RDI shares to be sold by index funds are already spoken for. However, a substantial block of RDI stock liquidity remaining to be sold by index funds will enter the market in the coming week and, once sold, won’t be available to interested buyers under similar circumstances again. The next index participation in RDI likely won’t be till next year, after Burwood and possibly other real estate parcels are monetized or built out. That scenario would be index funds buying RDI shares, when the company likely gets added back into the Russell 2000 index.

Disclosure: At time of writing, funds author manages hold a long position in RDI. The funds may buy or sell shares at anytime.

[Full Disclosure:  I hold RDI. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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On Tuesday last week I ran a post on Lawndale Capital Management’s campaign to have P & F Industries Inc (NASDAQ:PFIN), among other corporate governance initiatives, rein in the compensation paid to PFIN’s Chairman and CEO, Richard Horowitz for poor performance.

Lawndale’s May 26 amended 13D exhibited its May 25 letter to PFIN board, which also annexed Proxy Governance’s Comparative Performance Analysis of PFIN. Both are worth reading for the background.

PFIN held its annual meeting on June 3, 2010. Lawndale voted its fund’s shares to “Withhold” on all of PFIN’s director nominees. Lawndale’s President, Andrew Shapiro, attended the meeting and met with PFIN’s board to discuss Lawndale’s many concerns, including but not limited to, excessive executive compensation, the need for greater independent composition and functioning of PFIN’s board and oversight of management’s unsuccessful acquisition strategy and operational execution.

PFIN reported the results of the annual meeting late afternoon on June 8:

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On June 3, 2010, the Board of Directors (the “Board”) of P&F Industries, Inc. (the “Registrant”) held a Meeting (the “Board Meeting”) immediately following the Registrant’s 2010 Annual Meeting of Stockholders. At the Board Meeting, the Board reconstituted the composition of the Board’s Compensation Committee and Stock Option Committee, so that, effective immediately, the members of such committees were Kenneth M. Scheriff (who was appointed as Chairman of each such committee) and Jeffrey D. Franklin, who also remained Chairman of the Audit Committee. All other committees of the Board remained unchanged.

At the Board Meeting, the Board also established the position of Lead Independent Director to preside at executive sessions of the non-employee directors and to serve as the principal liaison between the non-employee directors and the Chairman of the Board. The Board appointed Marc A. Utay to serve as the initial Lead Independent Director in addition to his continuing role as Chairman of the Nominating Committee of the Board.

Voting results from PFIN’s annual meeting were as follows: Robert Dubofsky, Alan Goldberg and Chairman/CEO Richard Horowitz had 31.9%, 29.9% and 29.5% of the votes cast as “Withheld”, respectively.

[Full Disclosure:  I do no hold PFIN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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