Saturday, December 5, 2009

Convera Corp.

Convera is a liquidation play. Convera is trading for $.22 and the company estimates investors will receive $.26 per share in cash in the next 12 months and an additional $.11- $.19 after intellectual property is sold. The trading volume on Convera shares is small with around 150,000 shares traded a day.

According to Yahoo Finance, Convera’s business consists of “vertical search services to trade publishers in the United States and the United Kingdom. The company provides hosted white-label search technology and services, which enable publishers to generate Web traffic and online revenues by creating customized search applications. Its search platform helps publishers to combine site search, their proprietary content and an editorially vetted best of the Web into a vertical search application that provides an authoritative and comprehensive search experience for specialist audiences. Convera Corporation’s vertical search service comprises a suite of various components, including Web Search Platform that incorporates multimedia search of Adobe Systems Portable Document Format, image files, and other data formats; Convera Ad Service that allows publishers to manage and pursue search-based advertising revenues for their vertical search Web sites; and Publisher Control Panel, a self-service application that provides the publisher with the ability to control and tailor the Convera Web Search Platform and the Convera Ad Service for each vertical search site from a single interface. It also offers Converanet, an online search directory portal that contains various search engines in a single Web site. In addition, the company provides various professional services consisting of Web site customization; search engine optimization, marketing services, and training; and advertising sales kit development and training.”

Liquidation Time table:

Majority shareholders have already approved the liquidation:

According to the proxy statement: “Holders of our Class A Common Stock which represented a majority of the voting power of our outstanding capital stock as of the Record Date, have executed a written consent in favor of the actions described above and have delivered it to us on September 22, 2009, the Consent Date. Therefore, no other consents will be solicited in connection with this Information Statement.”

The Certificate of Dissolution hasn’t yet been filled:

“We anticipate that we will first take corporate action with respect to the Plan of Dissolution in accordance with our stockholder approval by filing the Certificate of Dissolution with the Secretary of State of the State of Delaware not less than twenty (20) days after the mailing of this Information Statement to our stockholders.”

The first cash distribution will take place shortly after the certificate of dissolution is filled with the state of Delaware.


The liquidating distributions consist of two parts. First, Convera will distribute a cash component worth $.26 per share. Second, after the certificate of dissolution is filled, Convera will merge its remaining intellectual property with VSW recieving a 33% ownership stake in VSW. Convera will sell its 33% interest in VSW or distribute it to shareholders. The company says the value of its ownership interest in VSW will be $.11 - $.19 per share.

Cash Component:

According to the proxy statement:

“In connection with the Merger, our stockholders will receive cash, plus a pro-rata share of an aggregate of one-third of the common stock of VSW. Our management estimates that our residual cash, after transfer of all of the operating assets and $3,000,000 in cash at closing of the Merger, drawn-down portion of the $1,000,000 line of credit, and various wind-down activities, will be approximately $14,000,000. We plan to distribute $10,000,000 shortly after the closing of the Merger, with the remaining $4,000,000 to be distributed in $2,000,000 increments at six months and 12 months after the closing of the Merger, subject to possible holdbacks for potential liabilities and on-going expenses deemed necessary by our board of directors in its sole discretion.”

The present value of this cash distribution, assuming a discount rate of 10%, is estimated at $0.26 per share. The calculation was performed as follows:

Value of intellectual property:

“Following the filing of our Certificate of Dissolution, we expect to consummate the merger of B2BNetSearch, Inc. and Convera Technologies, LLC, each a wholly-owned Delaware subsidiary of Convera, with VSW 2, Inc., the Delaware parent company of Firstlight Online Limited, a company in the business of online advertising sales and marketing incorporated as a company limited by shares in the United Kingdom (“Firstlight”), pursuant to, and subject to the terms and conditions of, an Agreement and Plan of Merger dated May 29, 2009, as amended and restated on September 22, 2009 (the “Merger Agreement”). As a result of the Merger, Convera will own 33.3% of the total outstanding capital stock of Vertical Search Works, Inc., a Delaware corporation and the indirect parent company of VSW 2 (“VSW”)."

“Both our CEO, Patrick Condo, and CFO, Matthew Jones, will join VSW after the effectiveness of the Merger. Mr. Condo has entered into a transition agreement with us and we intend to enter into a transition agreement with Mr. Jones. Additionally, it is the intention of the parties that Messrs. Condo and Jones enter into employment agreements with VSW.”

“In accordance with such agreement, we will pay Mr. Condo, among other benefits, an aggregate amount of $480,000 in cash in a lump sum on the 30th day after the closing of the Merger, provided that Mr. Condo has signed and delivered a general release in favor of us and the release has become effective.”

“Hempstead assessed the value indication associated with a one-third equity interest in VSW based upon the discounted cash flows methodology. Specifically, under a discounted cash flows methodology, the value of a company’s stock is determined by discounting to present value the expected returns that accrue to holders of such equity. Projected cash flows for VSW were based upon projected financial data prepared by our management. Estimated cash flows to equity holders were discounted to present value based upon a range of discount rates, from 25% to 35%. This range of discount rates is reflective of the required rates of return on later-stage venture capital investments."

The resultant value indications for the VSW component of the transaction, on a per-Convera share basis, are as follows:

The valuation placed on the 33% interest in VSW is $.11 - $.19 per share. Convera’s estimate of the value for the cash and valuation of VSW stock to be received in liquidation are within a range of $0.37 to $0.45 per share.

Herb Allen:

Herbert A. Allen has been a director of the Company since the effective date of the Combination on December 21, 2000 and was a director of Excalibur since June 2000. He has been President, Chief Executive Officer, Managing Director and a director of Allen & Company Incorporated, a privately-held investment firm, for more than the past five years. He is a member of the Board of Directors of The Coca-Cola Company. He is the father of Herbert A. Allen III.

The Allen family and Allen and Co. control over 61% of the company. Since Herb Allen is friends with Warren Buffett, I’d assume he is honest and trustworthy. He is also a very well connected person, knows a lot of power players, and with his own money on the line its good that the person in control has an interest in making sure the liquidation is completed quickly and efficiently. Both Herb Allen and his son are on the board of directors of Convera.


Convera shareholders will receive the following as part of the liquidation:

1) $10m or $.187 per share upon closing of the merger
2) $2m or $.037 per share 6 months after the closing
3) another $2m 12 months after the closing plus 33% of VSW, estimated to be worth $.11- .19 per share.

At a purchase price of $.22, I’m being paid an 18% return to hold a free option on the value of VSW. The value of VSW is unknown but all the upside is free. One of the major risks in a liquidation play is executives have an incentive to delay the liquidation process and continue collecting their salaries. In this case, the executives are being hired by VSW so they don’t have to worry about losing their jobs. In addition the CEO, Patrick Condo will receive $480,000 30 days after the closing of the merger. Executives, especially the CEO have an incentive to move the liquidation process along quickly. Also, Herb Allen controls over 61% of Convera and he and his son are on the board. I like the fact that he’s friends with Warren Buffett and he will insure that the liquidation process moves along quickly because $8 million of his money is on the line.

The author owns shares in Convera.

Tuesday, October 13, 2009

Sold Horsehead Holdings

I purchased shares in Horsehead Holdings back in March at $4.23 per share and I recently sold my investment at $11. I made at 160% return on my money in 6 months. I invested in Horsehead because it was trading for $150 million with $123 million in cash and a net current asset value of $150 million. I was buying at 40% of book value and the replacement value of the facilities is over one billion dollars. Not only was Horsehead incredibly cheap but it was a great company to. It’s the lowest cost producer of zinc in the world and the only company that can use 100% recycled feedstocks in its facilities. Horsehead’s competitive advantage in the zinc market is further benefited because its facilities are next to steal mini mills with long term contracts for the delivery of feedstocks. It would be extremely hard for a competitor to come in and hurt the company’s supply of low cost EAF dust. No other company has been able to develop recycling techniques comparable to those of Horsehead. Horsehead has a large moat in the zinc market. I also recognized the potential for higher economical uses of the iron by product that could be worth up to $13 million per year. In addition, the company continues to increase the percentage of feedstocks derived from EAF dust. 66% of the company’s feedtsocks are EAF dust and for every percent increase, margins expand.

Revenue decreased 64% in the first half of 09 because of lower realized prices for zinc and a decrease in shipments. Net income was negative $24 million vs. a profit of $24 million in the same period last year. The decrease was due to lower prices of zinc and less production. The company idled some capacity but fixed costs are still high. EAF dust fees were also substantially lower. A $22 million charge occurred due to hedging activities.

The company resumed operations at its Rockwood, Tenn., recycling facility in August. The company said it expects to restart one of two kilns at the Rockwood plant in mid-September. It had idled the facility as a result of the economic downturn.

In September Horsehead issued 9.1 million shares in a secondary offering at $10.50 per share less discounts and commissions of $0.525 per share and received $80 million in cash. “The Company intends to use the net proceeds from the offering for general corporate purposes, which may include capital expenditures, acquisitions, working capital, investments and the repayment of indebtedness.” After the offering there are 44.364 million diluted shares outstanding. Horsehead currently has $160 million in cash when the proceeds are factored in and a market capitalization of $500 million.

The secondary offering changes the dynamics for my investment in Horsehead. The market cap of the company is now around $500 million. The price of zinc has averaged about 90% of the cost of production. Unlike oil or many other commodities, zinc is so plentiful in the world that the price of zinc is based on the cost of production and has averaged around 90% of production. Predicting the price of zinc is impossible but looking at historical prices and the cost to produce zinc it doesn’t look like their will be any large upside from here. I have no competency in zinc prices and the price of zinc meant little to my investment in Horsehead. I invested because it was the lowest cost producer of zinc and it was trading below net current asset value. Horsehaed is no longer cheap and based on historical earnings it appears fairly valued.

Thursday, October 1, 2009

Alex Bossert Featured in "Of Permanent Value: The Story Of Warren Buffett" By Andy Kilpatrick

Last year I was lucky enough to be featured in a chapter of the 2009 edition of Andy Kilpatrick’s book “Of Permanent Value: The Story of Warren Buffett.” I was in chapter 205, page 1169-70. The chapter was titled “The Story Of Alex Bossert, Age 17.” Andy Kilpatrick is good friends with Warren Buffett and has been updating the book every year. The book is sold directly at the annual meeting every year.

Next year’s edition will be out in April and has a chapter on me and my friend Eric Schleien. Chapter 215 is titled: “The Alex Bossert Story, Age 18.” The chapter is on page 1215.

“Of Permanent Value” is considered by many to be the most extensive book about Warren Buffett and value investing.

Monday, September 28, 2009

Pabrai Funds Annual Meeting Notes 2009: Huntington Beach California

I attended Mohnish Pabrai’s annual meeting in Huntington Beach California last Saturday. I thought Mohnish did an awesome job as usual. I’ve been lucky enough to get to know Mohnish over the past few years and I grateful that he is so willing to share his ideas with others. Mohnish is both a friend and mentor. I admire his investing abilities and I also find him to be a very genuine person who like Buffett, is always having a good time and cracking jokes.

Here are my notes on the Pabrai Funds 2009 Annual Meeting in Huntington Beach California:


The formal presentation began with Mohnish discussing his checklist. He came up with the idea after reading an article in the New Yorker by Atul Gawande about checklists in medicine. He mentioned a few of the items on the checklist. Is the business simple to understand? Does the investment have a margin of Safety? Does the business have a moat? Mohnish went on to say that he has analyzed many of Buffett’s and other value investor’s mistakes as well as his own and added the mistakes to his checklist.

Mohnish cleaned house in the fourth quarter of last year. He sold many of the poor performers and weaker names and invested in natural resource companies and banks. He added 10 new positions in the 4th quarter of last year. The portfolio is now much stronger as a result. Mohnish's funds are up around 110% since the begining of the year.

He has also learned a lot from Seth Klarman about diversification. The old structure was geared towards 10 names with 10% of the fund allocated to each. Now, Mohnish has adopted a 3, 5 or 10 method whereby most positions will be 3 or 5% or the portfolio and if the seven moons line up he will allocate 10% to the investment. Mohnish said this should lead to better results.

Mohnish then discussed a few mistakes he has made. Compucredit is a subprime lender that was trading at 5x earnings and growing rapidly. The investment was sold at a 72% loss. The company has a win lose dynamic where is the company does well it is because they are preying on lower income customers.

Sears Holdings is another mistake. The funds lost 60% in Sears. Retailers are tough businesses. Mohnish is unhappy with himself for investing in this particularly because he wrote a chapter in his book Mosaic about why retailers are tough businesses. The thesis was that Lampert was very smart and would redeploy assets in better things. Sears also has below market leases and some very valuable brands. If it didn’t work out the real estate would be sold. But the problem is that 324,000 employees are between the investors and the assets. Sears cannot compete with Wal Mart.

An investment that worked out late last year was Level 3 bonds. Mohnish purchased the 3.5% 2012 convertible notes around November 4th for an average price of $432. The bonds have a $1,000 face value. He sold for $680. The bond markets were tremendously depressed during the crisis.


Q: One of the first questions came from someone who wasn’t happy with Mohnish’s performance last year. From peak to trough the funds were down 70%. This person said that was inexcusable. He also wanted to know why Mohnish doesn’t pay attention to the macro view? To avoid the huge losses last year Mohnish could have raised a large cash position?

A: Mohnish said that for the most part investors were blindsided. Also, he can’t go short and can’t take on leverage. Even if he focused on the macro view, it would have been very difficult to have forecasted what happened last year. He does have some appreciation for the macro view though. But, its much easier to focus on situations where the probabilities are easier to handicap. Mohnish will benefit from inflation because of the natural resource investments he has. Going forward the changes for the funds will be more diversification, a little more emphasis on the macro view and higher cash positions. He is currently a net seller of stocks.

Q: Due to the events last year do you still wait for 3 years for your investments to reach intrinsic value?

A: Mohnish said he is still patient with investments and will wait 3 years for a particular investment to reach intrinsic value. The majority of the gains in the portfolio are long term gains. He will try to minimize taxes. He would never place a stop loss order.

Q: Would you invest in Chinese companies?

A: He said most lay outside his circle of competence. But he has made investments for the partnership in India. He also has one Chinese investment. When making foreign investments he would focus on the ethos of management. There are many great companies but its hard to make investments from foreign companies while being based in the US.

Q: Would you invest in Gold?

A: No. Gold is too hard to value. It has luster value but the intrinsic value is unclear. He has investments in gold through some of the companies he owns. He wants to invest in productive commodities and then find the lowest cost producer. Then he would be interested.

Q: Would you invest in warrants, options or short stocks?

A: Won’t look at anything except possibly covered calls. He has experimented in his personal portfolio and so far only lost money. To invest he would have to go through an amendment process with investors.

Q: How does the Kelly criteria fit with the 3, 5, 10, portfolio allocation method?

A: Pabrai told Munger about his diversification ideas and Munger interrupted him and said that he is going in the opposite direction then him. Pabrai said that since he’s running other people’s money he has to be risk averse. Berkshire has had way more than 20 holdings for a long period of time and done very well. Some large bets have gone wrong. The Kelly Criteria works if the inputs are correct. In some instances he placed the wrong inputs in the formula. Some of his large bets went wrong. He did the formula wrong. He’s moving to a greater cash position like Klarman. When stocks are cheap such as earlier this year he puts the cash to work and now he is a net seller. So over time the cash position will build up as ideas become less plentiful and then cash will decrease when investment opportunities become more plentiful.

Q: Do you use the checklist for portfolio strategy? For example, is there an item on the list that says that you won’t invest a lot in just one industry?

A: The checklist is company specific. The portfolio structure comes before the checklist comes into play. He wouldn’t put a large portion of the partnership in one industry. There will always be at least one issue on the checklist for even a good idea. If you exclude leverage 80% of investments are ruled out. There is always at least one issue. 10 of the questions on the checklist are on leverage, 5 on management. Such as; does management have a large stake in the company? The checklist puts the tradeoffs in front of you. Another checklist item is; does the company have union issues?

Q: An entrepreneur asked Mohnish for some advice on running a business.

A: Focus on what you’re passionate about. Find what you’re interested in and good at. Then hopefully people you know well will give you money.

Q: Did Mohnish had any confidence issues in the 4th quarter of last year?

A: Mohnish said he had no confidence issues but he was watching redemptions closely. He saw the most incredible opportunities he’s ever seen. He was very excited about the investments that were being made. He said that he looked for investments in businesses that had moats and products that were essential.

Q: Why is Mohnish closing the fund to new investors at one billion in assets?

A: He wants to focus on smaller companies. If he had a billion dollars, with 5% allocation he would put $50 million into each investment. To stay under the 5% threshold he would need under a billion in capital.

Q: Someone asked if he could explain his Pinnacle Airlines mistake?

A: Based on value metrics it was very cheap. It totally fails the checklist. There is no win/win dynamic in the business ecosystem. Pinnacle would rake in money as the carriers lose a lot of money.

Q: Could you discuss the lunch with Warren and Charlie?

A: The lunch was worth every penny. 54 different topics were addressed. Buffett said that if he could have lunch with anyone it would be Isaac Newton and then he stopped and said no it would be Sophia Loren. Mohnish told Warren that Harina really enjoyed the lunch but her real love in life is Charlie. Buffett then arranged a meeting with Charlie. He found Charlie to be gracious, like having lunch with your grandfather. Mohnish asked Charlie how he handled his fund’s poor performance in 73 and 74. Most of it is family confidential. Warren told his kids that the most important decision they make is who they decide to marry.

Q: Any book recommendations?

A: The Black Swan was good but could have been written in only ten pages. Atul Gawande’s article in the New Yorker about checklists is a must read. That’s the article that sparked Mohnish’s idea to create his checklist. Also, Atul has written two books, Better and Complications. Mohnish highly recommends both. Mohnish also mentioned the book, The Miracle: The Epic Story of Asia's Quest for Wealth by business journalist Michael Schuman.

Q: Why were there so many redemptions?

A: Last year 15% of the fund’s assets left. Mohnish feels bad because these people were not able to let the investments play out and lost out on a lot of upside. The reason was partly hardship redemptions and fear of equities. Some investors went completely to cash. Some sold everything and went completely into cash. Investors like to do the opposite of what they should. They invest after stocks have done well and sell after they have done poorly. Mohnish received the most new money in 05-07) and the most was taken out just before the best gains in the history of the fund.

Q: Was he forced to change his methods and ideas or was it voluntary?

A: It wasn’t a change rather it was an evolution. Munger says to be a continuous learning machine. But, underlying principles always stand.

Link to Pabrai Funds 2009 Annual Meeting notes from Chicago

Friday, August 21, 2009

Nicholas Financial Update

Nicholas Financial had a good first quarter because of a drop in loan losses. Nicholas is able to make highly profitable loans as a lot of competition is hurt. The company has only a fraction of the debt to equity ratio of its peers but because of its unique lending strategy and its able to make an ROE of 20%+ in a normalized environment. I believe the company is worth at least $12 per share.

For more background information on Nicholas and my original write up click here

All my posts related to Nicholas click here

Nicholas Financial reported net income of $2.3 million for the three months ended June 30, compared to net income of $2.1 million last quarter and $1.6 million in the first quarter of 2008. Revenue for the just-ended quarter was $13.7 million, compared to $13.1 million a year earlier. Things are beginning to improve for Nicholas as loan losses, operating expenses and the cost of borrowed funds fell in the quarter. Net income rose 34%.

The biggest issue I see is the company needing to increase its credit line and renewing it in November of next year. This shouldn’t be an issue because they extended their credit line last year without a problem. The credit line is for $115 million and they have $104 million drawn down. The line of credit has one key covenant, which is that the pre-interest-expense, pre-tax income must be 1.25x interest expense at the end of each month. They're at 3.8x as of this quarter. The company should have no problem there.

The economic indicator that best correlates to Nicholas’s charge off rate is the unemployment rate. The pre-tax margin for the quarter was 6.34% and the provision for credit losses was 6.16%. Credit losses would have to double from here to bring Nicholas into the red, a very unlikely scenario, given that the provision for credit losses fell from 6.26% of average credit receivables to 6.16% in the current quarter. Net charge offs fell from 8.94% in the fourth quarter to 7.72% in the 1st quarter. Management anticipates losses absorbed as a percentage of liquidation will be in the 11%-16% range during the remainder of the current fiscal year. Losses as a percent of liquidation were 11% in the 1st quarter.

The loans the company is making are getting more profitable as their competition has diminished during the credit crisis. The average discount of new loans purchased has risen to 9.29% from 8.87% a year ago. At the same time the new loans are becoming more profitable they are also being made with more stringent credit standards:

The primary changes include; raising the minimum income required by the debtor to qualify for loan approval, reducing the maximum dollar amount that can be advanced for certain loan applications, and the maximum dollar amount that can be approved by a branch manager on certain approvals.

- First quarter 10Q

The average pre-tax yield over the course of the company’s history is around 9%. So when that level is reached again and it is likely that it will be at 9% or higher given that the loans being made now are of higher quality, due to lack of competition. With $216 million in net finance receivables at a 9% pre-tax margin, net income would be $12.5 million. At the same time the company is growing at more than 10% per year. With a multiple of 10x earnings Nicholas is worth $125 million or $12 per share.

Each of the 50 branches is budgeted (size of branch, number of employees and location) to handle up to 1,000 accounts and up to $7.5 million in outstanding finance receivables, net of unearned interest. To date ten of the branches have reached this capacity. The goal is to get all the branches to this level. If all the branches were operating at this optimum level the company would have $375 million in net finance receivables verses $216 currently. One issue for the company has been attracting qualified branch managers who are able to run a small business and at the same time be street smart and tough enough to collect from non paying customers. In the CEO’s letter to shareholders he said:

As a result of the spike in the unemployment rate, especially within financial services, we are now attracting a much higher number of quality job candidates than we have in the past. In many instances their company has either gone out of business or made considerable cut backs leaving them out of work or fearful of future layoffs. This recent change in the recruiting environment has allowed us to staff our company with several well-qualified people, making us stronger than ever. We believe this opportunity will help us to expand our Company, while our competitors pull back or in some cases, abandon our markets.

- Chairman’s Letter to shareholders 2009

During the recession management stopped all expansion to keep the balance sheet strong. Management is more confident with their current results so they have two more branches scheduled to open in the near future. This expansion will include new branch locations in Akron, Ohio and in Gastonia, North Carolina, which will bring the number of branch locations to 50 in 12 states. Also, the company mentioned, for the second time, that it is interested in an acquisition: The company “remains open to acquisitions should an opportunity present itself.” In ten years net worth has grown from $11 million to $88 million. Clearly the company has room to grow.
Nicholas is currently trading for $70 million with $88 million in shareholders equity. I believe the company is worth $125 million and I added to my position a few months ago at $5. Company insiders also thought the company was cheap and have been adding to their already large holdings.

Tuesday, May 12, 2009

Wesco Financial Annual Meeting Notes


Thanks to Dah Hui Lau at

May 6, 2009, Pasadena, California

The meeting was called to order promptly at 2:00 p.m. and carried on at a leisurely pace until ad-journment at 2:04 p.m. The question-and-answer session then commenced. However, in a style he later characterized as “Socratic solitaire,” Charlie Munger both asked and answered the first several questions.


How serious is the present mess?

“Deadly serious.” “You can’t tell what happens when people get disappointed enough of a dysfunctional civilization.” The Depression led to Hitler. The government has been right to react vigorously.

What caused the mess?

It was an example of a lolapalooza effect: the result of a confluence of causes acting in the same direction.

• Abusive practices in consumer credit, namely extending credit to people who couldn’t handle it, knowing they couldn’t handle it. Sometimes you have to resist sinking to the level of your competitors. But fomenting bad practices often becomes its own punishment. “If you do things that are immoral and stupid, there’s likely to be a whirlwind” that sweeps you away.

• The “scum of the earth” in mortgage credit who “rejoiced in rooking” their borrowers.

• “We had Wall Street go crazy,” pursuing any way of earning money short of armed robbery. In Merrill Lynch’s last purchase of a mortgage outfit, they knowingly bought “a bunch of sleazy crooks,” thinking that if it makes money, who cares that they’re crooks.

• Poor regulation and legislation. Some of the legislators genuinely thought they were being pro-social in helping poor people buy houses, but they weren’t; you need sound credit just as you need sound engineering. Some of the problem was Democrats pushing Fannie and Freddie to lend, some of it was “Republicans who overdosed on Ayn Rand” and thought unrestrained free enterprise was as good for the finance industry as for the restaurant industry.

• The repo system of credit allowed this: “one of the best ways to create excess credit ever invented.” Credit default swaps that let you profit if someone else fails are a terrible idea; in buying life insurance, you’re wisely required to have an insurable interest. Mark-to-model accounting on derivatives let both sides show a profit; “the accounting was phoney because all the customers wanted it phoney.” But Charlie’s never met an accountant who’s ashamed of his profession. People like Greenspan made what was going on respectable by endorsing it, but “it isn’t like free enterprise in restaurants”—more like legalized armed robbery. In the end, “We had to save a lot of these people whether we liked it or not.” To nationalize Fannie
and Freddie and then lower interest rates so good borrowers could buy houses was “very smart government.” In the old days, regulators kept silent about banks until they had to act, then announced a fait accompli; “put me down as dubious” about the public stress-testing. Charlie probably won’t like what Wells Fargo is made to do. Warren and Charlie think more highly of Wells Fargo than others do because of their low cost of funds. Charlie’s willing to put up with less than perfection from the government; on the whole, “it’s working out fairly well,” and “a lot of it has been done beautifully.”

What are the long-term consequences for Wesco?

“Practically none.” Wesco’s holdings will go back up, and indeed some of them have already gone
back up quite a bit. Its businesses will take advantage of the recession, Carnegie-style, to strengthen their positions.

What has the government done wrong?

• Ethanol is stupid. The use of fossil water and loss of topsoil isn’t accounted for, you barely get out more energy than you put in, and driving up the cost of food for the poor is “monstrously stupid.” But ethanol appears to be waning.

• Cap-and-trade is an “insane idea.” The Chinese aren’t going to decrease their emissions. But cap-and-trade might fade away too. What we should worry about is using up hydrocarbons too fast; they have uses, as in fertilizer manufacture, where we have no substitutes. Solar is the way to go; we don’t want everybody, North Korea included, having atomic power plants. Solar, a smart grid, and battery cars. Charlie thinks solar will come down in cost by 50%, but it’s worth switching even if it doesn’t; he agrees with Freeman Dyson that somewhat increasing the cost of energy wouldn’t be a big deal. “We should listen more to Freeman Dyson and less to Al Gore”; one knows how to think and the other doesn’t. China stands to gain from solar too; they’re choking on the emissions from the brown coal their power plants burn. Israel gets half its water from desalination driven by electricity. Cheap power could benefit the Arab nations too, and decrease tensions. “To me these are just ABC. Every bright high-school student in
the room should be nodding his head. . . but I’m not sure that’s the effect.” We could handle a rise in sea level; look at Holland. “Nervous Nellies” see trouble ahead, but we should see plenty. We do need to override obstructive local governments to get the smart grid built. We need more
of the Chinese approach. One of India’s problems is that it has too much due process.

How fast will improvement come?

Japan went all-out with stimulus and lowered interest rates to zero, yet they got stasis instead of a return to 4% growth. That would be terrible in this country, where there’s less social cohesion. “Japan is a very interesting and threatening example,” but Charlie doesn’t know how our case will play out. Japan wasted much of its stimulus filling every pothole three times and leveling every street. We should build that smart grid. Here’s Charlie talking economics, never having taken an economics class in his life. “I’m not apologizing,”and not impressed with academic economics.

What about stock prices?

Charlie’s agnostic on what they’ll do but would be willing to buy at current prices. Coca-Cola is worth what it’s selling for, and so is Wells Fargo. He wouldn’t expect miracles from them, but it’s generally a bad idea to expect miracles anyway. If you wait for a bottom, it’s often too late to buy by the time you know you’ve seen it. Charlie’s pretty fully invested himself. This might be a mistake, but that’s his thinking, and “you’re entitled to know, because you’re cultists.”

What kind of reregulation should come to the financial industry?

An investment bank that is too big to fail shouldn’t be allowed to be anything but a fairly boring
business, making markets, underwriting offerings, and so on. It used to be that way. Partners didn’t make much money. They were conservative people, they actually owned the business, and they’d seen the Thirties. It’s “crazy” to let bright young men buy what they want in the repo market with enormous leverage. Gambling on high leverage ought to be banned. We don’t need options exchanges or credit default swaps. A man doesn’t deserve high pay for ballooning a balance sheet at a tiny spread. “Any idiot could do it. In fact, many have.” We don’t need a world where large numbers of very bright people are trying to get rich by outsmarting each other. Charlie admires Obama for saying he’ll reduce the power of New York, but isn’t sure he’ll have the guts to do as much as Charlie would like done. It’s “not pretty” to make your money by being a better card player than other people, whom you lure into the game.

Buying Berkshire vs. buying Wesco?

“As always,” Berkshire is a better buy at current prices. Wesco gets bid up “because you people are cultists,” but if Charlie were buying today, he’d buy Berkshire. Berkshire is becoming a bigger and better known thing all the time; Wesco is just a byway, and it’s only an independent company by accident.


(Harper’s Magazine) If you were Secretary of the Treasury?

“They’ve been doing pretty well.” Paulson deserves credit, as do the current Secretary and Summers. They’re very able and will do a good job, though constrained by politics: sometimes you know what should be done but can’t do it for political reasons. Considering what they are facing, Treasury has done a good job.

(Motley Fool) If you were Obama, what would you incent?

Charlie would reduce the incentives to go to Wall Street. He’d the markets less deep and liquid, more inefficient. He’d promote the smart grid and do away with the ability of every state and hamlet to block it. He’d promote electric cars. As for Detroit, it’s an “example of a problem where, if you argued for the solution that had a chance of working, they’d bat you over the head and remove you.” Toyota has tough challenges; what hope is there for Detroit? Wringing out everything through bankruptcy and emerging with a single domestic company would have a 40% chance of working. What they’re actually doing has 0% chance except by constantly adding money. It wouldn’t be the end of the world if domestic auto manufacturing died out. It happened in England. Rochester used to prosper on the strength of Xerox and Kodak, and Buffalo has dwindled but is still a pretty nice place. This sort of change, some falling while others rise, is natural. “If someone my age can cheerfully die,” we can put up with the declining communities.

(Kathy Kristof) Many individual investors are disillusioned, seeing both Wall Street and Main Street businessas corrupt, and have sworn off stocks. Are they right to feel that way?

Individuals should maximize their Social Security benefit. That isn’t going away. After that, to expect a lot from stocks, bonds, or whatever is sort of irrational. The best way to achieve felicity is to aim low. Warren’s standard advice, low-cost index funds, is perfectly good for most people, and certainly better than trusting the average stockbroker. (The stockbrokers in the room are different, but “they’re not normal.”) It’s in the nature of markets to go down sometimes. Some people in this room can earn twice the normal return, and Charlie has himself, but he can’t teach everyone how to.

( How do we avoid losses like last year’s? Or can we?

It can’t be done. “If you aren’t suffering a little right now, you haven’t lived a life that’s right.”

(Paul Larson, Morningstar) Book recommendations?

Outliers, by Malcolm Gladwell. “There’s a reason it’s a bestseller.” “I tend not to read self-help investment books. It’s kind of like soap operas: I figure I know all the plots.”


How to hedge against inflation?

Charlie can remember the 2-cent stamp, the 40-cent-per-hour minimum wage replacing the 25-cent wage. Inflation didn’t ruin the investment climate over his lifetime. When the mass of people can vote, you have to expect inflation. It was a miracle that we had no inflation from 1860 to 1910. But is Berkshire shorting Treasuries or buying TIPS? Berkshire is “aware” that inflation is “the way of the world,” and we do what we can. But we bought a lot of utility bonds paying 9 and 10%. That’s not good if you have inflation, but it’s better than government bonds paying 3%. We don’t have a one-size-fits-all solution.

How can Berkshire invest in Goldman Sachs while inveighing against Wall Street behavior and excessive executive compensation?

The merits outweighed the defects.

What effect will problems in commercial real estate have on GE Capital?

“They will lose some money.”

Isdell and Kent seem much more successful at Coca-Cola than their immediate predecessors, yet it’s the same
company. Why?

The current CEO is “exceptionally gifted.” You can expect good results when a gifted CEO runs a
good company.

What will the business model look like for banks like Wells Fargo going forward?

They’re well situated and have bright prospects. More regulation wouldn’t be a surprise.

Can one teach executive leadership?

Some people are more teachable than others, just as some dogs are. Capitalism keeps filtering out the people who don’t do well and replacing them with people who do better.

What qualities do you look for in a leader?

Trustworthiness; good judgment. Warren’s right that an IQ of 130 is enough (though Berkshire wouldn’t be nearly what it is today if Warren’s own IQ was 130). Overreaching is the problem, and is encouraged by salesmen.

How do the long-term prospects for the investment climates in India and China compare?

If you’re asking whether Wang Chuanfu of BYD will do well, he’ll do “amazingly well.”
Why is growth emphasized? Are there limits to growth? Yes, of course. The material world is finite.

Berkshire’s invested a lot in railroads, but freight volumes are down, and a smart grid with solar and wind would be bad for coal hauling. What would change your views on railroads?

Burlington Northern would still be hauling freight. Railroads have competitive advantages over trucks. They look pretty foolproof; they’d be more foolproof if there isn’t a shift away from coal.

How long would it take to design a smart grid?

Charlie doesn’t know. We’ll need regulatory streamlining to get it built, but it’s perfectly doable.

(Whitney Tilson) Newspaper reports made the Berkshire meeting sound like a gloom-fest, and I wondered whether I’d been at the same meeting. How do you see opportunities today and their effects five years ahead?

Sure we have opportunities, and a smart grid would be good for Berkshire. The guys running Berkshire’s utility business are very good; for one thing, they get along with regulators by giving them what they’d want if they were regulators. There’s “considerable opportunity” for Berkshire to be bigger in utilities.

Human misjudgment?

Like sunshine, it will always be part of the world. At Berkshire, there’s less of it than elsewhere, and his provides an advantage. The best chapter in Outliers is the one about the guy with the 200 IQ who was a total failure in life.

Will there be oil to meet demand in the next five years?

We’re near peak oil, whether the peak is just behind or just ahead. On the other hand, there’s a lot of new gas, and that’s surprised everybody. The world will adapt to whatever the price of oil is, “because it has to.” Oil at $200 a barrel wouldn’t crater America. We’d change our ways and adapt.

What questions are you asking yourself? What should we be worrying about?

There are bad things to worry about. If Charlie were asked the odds of atomic weapons being used in the next 30 years, he’d put them “pretty high.” But you work on things you can change, and “suck up your gut” about the rest. Japan is still a decent place despite 0% growth, though it might not work out the same here; being monoethnic helps them.

What do you think about insuring, or buying, municipal bonds?

Charlie doesn’t want Berkshire insuring an endless amount of municipal bonds. A lot of politicians might yield to the temptation to throw their troubles on some insurer instead of on their taxpayers.

It sounded, at the Berkshire meeting, as though $100 million per year on advertising was maintenance cap-ex for GEICO, and the other $700 million on advertising should be thought of as growth cap-ex. Is that right?


Have you read Snowball?

Yes. It’s an interesting book, covering a life in such detail. By and large it’s reasonably accurate, though any book that thick will have errors. And she made a lot of money.

What do you think of reverse mortgages?

They make sense, but they involve big commissions and dealing with frail old people, so Charlie is leery of them, as of anything sold on high commission to the old. Berkshire’s an example, in some ways like a university without walls.

Could we someday have documentation of decision processes released, even if long after the fact?

Berkshire’s example hasn’t had much influence. Charlie compared it to a surgeon he knew of who did a very difficult procedure. Other surgeons admired him but didn’t dare imitate him. Charlie likes Ben Franklin’s idea of not paying government officeholders and would like to see it extended to corporate directors. A fee of $250 thousand is a lot of money to, say, an university professor, and he’s going to do what it takes to stay on the board, and try to get on more boards. But university trustees serve without pay, and directing a public company is a similar public service. “You can argue that Walmart is more important than Harvard” in its cultural and economic impact. Being a director is interesting; why should you need to pay?

Will the coming inflation be like that of the Seventies?

Inflation coming is a good bet, but there’s not necessarily a good way to bet on it. TIPS have drawbacks. Real estate can drop in price, as we’ve seen. Keep your expectations reasonable.
Charlie told the story of a man who owned his house clear and had $1 million invested, letting him live in his house on the dividends. His broker talked him into selling puts on Silicon Valley bubble stocks. He lost his money and his house and took a restaurant job, all from trying to get more when he already had enough.

When will deflation stop and inflation start?

Omaha had no real estate boom and hasn’t had a bust; if you want a house in Omaha now, buy it.
Every market is different. Pasadena real estate is expensive, but it’s a well run city, and if Charlie wanted a house in Pasadena for his family to live in, he’d probably buy. “Now, I might buy it at foreclosure. . ..”

Why did China cease to lead in science 500 years ago?

A dumb, self-satisfied emperor and Confucian bureaucrats “like French Literature at Yale.”

Do you see something special about China?

Charlie likes Confucian values, especially the respect for elderly males. They have a strong work ethic. They’re family-minded. When Wang Chuanfu needed $300 thousand to start BYD, a cousin provided it to him. (That was the best investment the cousin ever made.) Their leaders are engineers: “That’s my kind of Communist.”

Is AIG still underpricing risk? Will the disruption in insurance create opportunities for Berkshire?

Scandal has been bad for AIG’s business. They’ve been “very unlucky.” They’ll survive but have a difficult hand to play. It could happen to Berkshire, or anybody else, if they make dumb decisions.

What’s the future of finance education, giving recent overwhelming evidence that diversification, for example, doesn’t work?

Charlie doesn’t think much of finance professors. Some of them try to turn finance into physics, but it can’t be done. He can’t tell you how to get a good academic finance education.

How can an individual shareholder, who can’t meet management, judge trustworthiness?

There’s no one answer. If you go to Mass. General and say you want to learn to read bone-tumor slides well, they can’t teach you. “No one’s any good at it who hasn’t been doing it for eight years.”

Are corporate lawyers’ fees too high?

Yes. On the other hand, if you can get into a good law school, you’re surrounded by bright people, half from the opposite sex. It’s a good place to meet a mate. And lots of people go to law school without intending to practice. But law in big firms has been too prosperous. Charlie has a lawyer friend who suggested that his firm cull one customer per year, on principle. Charlie thinks it’s a good idea, but the friend’s colleagues shot it down. Charlie’s big early success in business was firing lots of his customers, the ones who didn’t want to let the firm make any money.

What’s the future of the two newspapers you own?

The ordinary daily paper will perish or perhaps become something like public broadcasting, subsidized by one or two big backers.

What do you think about California tax-free bonds?

We have a crazy legislature, gerrymandered to contain only “certified nuts” from the left and the right who naturally hate each other. Charlie doesn’t know how it will play out. You can’t assume good will win. Sometimes evil wins.

Warren has said a weak dollar isn’t enough to resolve the U.S. trade deficit. How might it resolve?

Sometimes the completely unexpected happens. Who could have foreseen Margaret Thatcher and her sweeping changes after 20 years of Labour? “Warren is more pessimistic than I am.” Warren thinks China will tire of sending us goods in exchange for bits of paper. Charlier thinks China is gaining enormously, and the loss of purchasing power on their bits of paper is a small price to pay. The gains don’t show up in the equations of economists, but that means the equations are wrong. Getting good at manufacturing is a form of wealth.

Unrelated to the Wesco Meeting, here is a very good interview of Charlie Munger done recently by Stanford Law School.

Monday, March 16, 2009

Horsehead Holdings


Horsehead Holding Corp. is a producer of zinc and zinc-based products with production and recycling operations at six facilities in five states. The company along with its predecessors has been operating in the Zinc industry for over 150 years.

Horsehead is currently trading for $145 million with $123 million in cash on the balance sheet and no debt. Book value currently stands at $358 million. The net current asset value is $150 million.

The company filed for bankruptcy in 2002 due to record low zinc prices, production inefficiencies, high operational costs, and legacy environmental costs associated with prior owners. Sun Capital purchased the company out of bankruptcy and the company went public in 2007 at $18 per share.

They are the largest refiner of zinc oxide and prime western (PW) zinc metal, in North America. The Company is the largest recycler of electric arc furnace (EAF) dust, a hazardous waste produced by the steel mini-mill manufacturing process.

Horsehead operates five hazardous waste recycling facilities for the recovery of zinc from electric arc furnace (EAF) dust and other zinc feedstocks. The five recycling facilities recycle the EAF dust into a zinc intermediate called CZO, which is shipped to their Monaca, Pennsylvania, facility for further processing into zinc metal and zinc oxide. The company’s processing capacity is 565,000 tons of feedstocks which will be processed into 150,000 tons of finished products. They own all of their facilities. Its products are used in a variety of applications, including in the galvanizing of fabricated steel products and as components in rubber tires, alkaline batteries, paint, chemicals and pharmaceuticals. The Company also owns and operates on its premises a 110 megawatt coal-fired power plant that provides it with a source of electricity and allows the Company to sell approximately one-fifth of its capacity on the open market.

EAF Dust recycling

The company is the largest recycler of EAF dust, a hazardous material produced in the steel mini mill process. For every ton of steel produced in the mills 30-40 pounds of EAF dust is generated as a byproduct. This dust contains about 20% zinc. About one million tons of EAF dust is produced in the U.S. every year. The full capacity of their seven kilns plus the flame reactor in Beaumont is 565,000 tons of zinc feedstocks and they are looking to expand that further.

The EAF dust collection market started in 1988 when EPA classified EAF dust as a hazardous waste. Horsehead’s predecessor company, New Jersey Zinc, was among the 55-60 different technologies that were developed to address the regulatory issue. However, none succeeded on commercial basis, except very few ones such as Horsehead’s. Horsehead’s ability to recycle EAF dust and use it as a feedstock for its Monaca smelter gives them a competitive advantage over traditional producers of zinc. The company has a lower breakeven point because instead of paying for its raw materials or mining for zinc, it receives a service fee from the steel mini mills to recycle their EAF dust. Acquiring their raw material at a negative cost gives Horsehead a competitive advantage over their competitors. Horsehead has the only zinc smelter in North America that can produce zinc metal and zinc oxide using 100% recycled zinc feedstocks. In addition their recycling process has been designated by the EPA as a “Best Demonstrated Available Technology” for the processing of EAF dust. In addition, EAF dust recycling operations provide them with a reliable, cost-effective source of recycled zinc without relying on third-party sellers

Horsehead gets about 50% of its EAF dust from Nucor steel. Many of their facilities are situated near Nucor’s plants. Most of Horsehead’s suppliers of EAF dust have been with them since the business started in the 80’s. The company recycles EAF dust for 7 of the 10 largest EAF producers.

Currently, 60% of their feedstocks come from EAF dust. There are significant new opportunities for Horsehead to increase the amount of its feed stocks that come from EAF dust. Since the EAF dust is acquired at negative cost, every increase in the use of EAF dust lowers their overall costs and increases margins. Currently about 1/3 of EAF dust production in the U.S. is deposited in landfills. The steel mini mill share of U.S. steel market has doubled over last 10 years and is expected to increase to 70% of the market by 2017 up from less than 60% today. The steel mini mill market is expected to continue to grow 2-3% a year with new projects under construction currently. Horsehead has many opportunities to increase the portion of their feedstocks that come from EAF dust.

Horsehead management has continually stated that they are looking to increase their EAF processing capabilities. In January of 08 they placed a second kiln into production at their Rockwood, Tennessee facility. This kiln will add 90,000 -100,000 tons to Horsehead’s feedstock capacity per year resulting in approximately 14,500 tons of additional finished zinc product. A new recycling facility is currently under construction in Barnwell, South Carolina near a Nucor Steel facility. The new facility will be able to process 160,000 tons of feedstocks per year and is expected to be complete in the latter half of 09. Management expects production of zinc will increase to 175,000 tons from around 150,000 tons per year currently due to these new projects.


Horsehead is the only proven recycler of EAF dust and has no direct competitors. The competition comes from domestic recyclers of zinc secondary’s and miners. U.S. Zinc is a recycler of zinc secondary’s with the ability to produce 75,000 tons of zinc oxide per year. But, U.S. Zinc lacks the integrated processing and smelting capabilities that Horsehead has. The high price of zinc in recent years has attracted attention to the industry. Zinc Ox is currently constructing a plant in Ohio with output of 90,000 tons of zinc metal from dust sourced from a company called Envirosafe and Turkey. In addition, Steel Dust Recycling is currently constructing a plant to recycle EAF dust in Alabama and The Heritage Group has announced its intention to build an EAF dust processing facility in Arkansas. All of these facilities are years away from startup but could pose a risk to Horsehead.

Horsehead competes with landfills for EAF dust. But steel mills have many reasons to go to Horsehead instead. The mills that the company purchases its EAF dust from benefit from less exposure to potential environmental liabilities arising from disposing the hazardous dust in a land fill.

Over 75% of the zinc used in the U.S. is imported. Horsehead benefits from its close proximity to end users and lower costs of transportation verse foreign producers.


Horsehead sells its finished products based on a slight premium to the prior month London Metals Exchange (LME) price for zinc. The LME price dipped just below 50 cents per pound in 2003 and rose to a high of just of over $2 per pound in December of 2006. But since then the price has fallen to just below 60 cents per pound. The company has been working to reduce costs and their cash flow breakeven level is currently around 50 cents. In 2006 the company made $54.5 million which includes a $16 million management fee to Sun Capital. Excluding this fee, the company made $65 million in 2006 and $90.7 million in 2007. Net income for 2008 fell to $39.4 million due to the decline in the price of zinc and a decline in shipments, offset by a large gain due to hedging.

The future LME price of zinc will be affected by idled or closed zinc mining and smelting capacity growth in steel consumption and falling inventories. The current inventories of zinc have risen from the all time lows of a few years ago but are still well below historical average. Inventories have begun to fall as zinc mines and smelter capacity has been removed due to the low price of zinc. In 07, 11.3 million tons of zinc was consumed worldwide. This is expected to increase by 4-5% a year to 13.6 million in 2012. Meanwhile the supply of zinc is likely to be tight, when the economy improves. Brunswick, the world’s fourth largest zinc mine owned by Xstrata, produced 2% of the world’s zinc last year, is expected to be depleted by the end of 2010. It is likely that a decrease in capacity and curtailed capacity additions will cause the price of zinc to rise from the current historically low levels. Also, any stimulus such as the U.S.’s and China’s that includes infrastructure spending will increase demand for zinc.

In the 4th quarter cash provided by operations was $65.5 million. This includes $64 million in cash received from puts on the price of zinc which were sold in the 4th quarter. Sales of finished product were at an average zinc contained price of $.79 in the quarter. When the price of zinc declines the company is also affected by a lag in cost because the feed stocks going through the income statement were purchased back when prices were higher. When prices for zinc stabilize, costs will decrease further. Management expects that cash from operations will be negative for the first half of 09. But, cost cutting measures and an increase in the use of EAF dust instead of other feed stocks have pushed the breakeven point down to around $.50 per pound. Horsehead made $70 million on put options in 08 and they currently have puts for 90,000 tons of zinc at $.5 per pound through 09 to protect them if prices fall further.

Because of the large decline in the price of zinc the company has taken many actions to reduce costs and conserve cash. During the 4th quarter the company has: reduced output at the Monaca facility, suspended production of zinc oxide made from higher cost feed sources, took at extended outage at the recycling operations over the holidays, implemented a reduction in workforce, renegotiated feed prices and cut smelter output by 17%.

Untapped Value in Iron Byproduct

Horsehead’s operations produce about 350,000 tons of iron rich material that they sell into the aggregate market each year. This iron rich material contains about 175,000 tons of iron that the company believes they could sell for much more than they are getting currently. The company sells this material for about $1 per ton. The company believes they could sell the iron portion for $50- $75 per ton. The company successfully tested higher value applications for the iron rich material in the fourth quarter and expects to place its first order during the first quarter of 2009. The value of this byproduct could be worth $9-$13 million per year.


The company is the largest recycler of EAF dust in the world with no direct competitors. Horsehead's ability to recycle EAF dust gives them a competitive advantage over traditional miners and smelters of zinc. Horsehead is working to increase the portion of their feedstocks that are EAF dust and increase processing capacity. Horsehead also benefits from its close proximity to end users in the U.S. In addition, Horsehead has the potential to make a lot of money on the iron byproduct produced from their operations. Horsehead's stock has collapsed due to the decline in the price of Zinc. But, with their competitive advantages and large cash hoard, Horsehead can survive the recession. Horsehead is currently trading for $145 million with $123 million in cash on the balance sheet and no debt. Book value currently stands at $358 million and net current asset value is $150 million. The company made $65 million in 2006, $90.7 million in 2007 and $39.4 million in 2008. I believe Horsehead is very undervalued.

Sunday, March 15, 2009

Sold Footstar

In late November I purchased shares in Footstar at $2.8 per share. In January I received a $1 dividend as part of the company’s liquidation. In the 4th quarter the company received $53 million from Kmart for the remaining inventory and reduced the market price of their headquarters building to $12 million from $19 million. The current carrying value on the balance sheet is $6.2 million. In addition, 4th quarter earnings came in at the high end of my estimate at $25 million.

Last week I sold my shares for $2.63. In 3 months I made a 30% return on my investment in Footstar. I purchased Footstar because I believed that the company would be able to distribute at least $4.5 per share as part of their liquidation. After accounting for the recent dividend and the operating results for the 4th quarter which were better than I had estimated they would be, the company estimates it will distribute $2.65-$3.45 per share to shareholders. There is still a 30% upside from the current price using the best case. But, the sale of the headquarters building could take time especially in this environment. If the best and worse cases are averaged shareholders would end up with a 15% return on their money. With the opportunities available in the market today I’ve decided to sell my shares in Footstar.