Retail Holdings announced today that a 54.1% owned subsidiary has entered into an agreement to sell their whole stake in Singer Bangladesh for $75 million. Given that Singer Bangladesh is the largest remaining piece of Retail Holdings assets this gets the company pretty close to the finish line with regards to their plan to fully liquidate. Besides Singer Bangladesh they only have a 60.8% stake in Singer India left that is also owned indirectly through the same subsidiary.
While the sale of Singer Bangladesh is nice, the price is very disappointing. Retail Holdings owns (indirectly) a 37% stake of Singer Bangladesh that is worth $91 million based on the latest market price in Bangladesh. Besides this stake, they also own a 20% stake consisting of non-remittance shares and these shares have $15 million in accumulated unremitted dividend distributions. Given the restrictions these shares have with regards to paying distributions to shareholders outside Bangladesh it makes sense that these are worth substantially less than normal shares, but I think they should certainly be worth something. Selling their whole Singer Bangladesh stake for a discount to the latest market price and throwing in the non-remittance shares and their accumulated unremitted dividend distributions for free seems a pretty bad deal. In a best case scenario, with a zero percentage discount, these assets could be worth $155 million, more than twice the agreed upon price of $75 million.
Despite the bad deal the stock is up a tiny bit today, which makes sense. Most of Retail Holdings market cap will soon consist of cash, and presumably be returned to shareholders. Taking into account the $75 million that will be received for their Singer Bangladesh stake, NAV/share stands roughly at $12.40 which means that there is actually a little bit of upside left from today’s share price of $11.66. Guess that shows that buying stuff with a sufficiently big discount does offer some margin of safety, but still: I’m pretty disappointed by this outcome.
Disclosure
Author is long Retail Holdings
from the press release:
“”The sale is a very significant milestone in the execution of Retail Holdings’ stated short-to-medium term strategy, to maximize and, ultimately, to monetize the value of its assets, with the objective to divest these assets and to distribute the resulting funds to shareholders. Following the sale, Retail Holdings only remaining operating asset will be Singer Asia’s 59.1% equity interest in Singer India Limited. No decision has yet been made as to the form of the distribution of the proceeds from this transaction and the approximately $8 million in cash accumulated at Retail Holdings.””
is that $8mm reflected in your spreadsheet?
Yes, I think so. They probably just moved some of the net cash from Sewko Holdco to ReHo holdco. If they would have moved the full 21M in cash at Sewko to ReHo you would end up with $9 million in cash actually. Of course, there might have been some cash flows that have happened after the latest semi-annual report, perhaps there have been some dividend payments from Singer Bangladesh or Singer India, but shouldn’t be too material.
The press release states:
“The net cash consideration to be received for the Bhold shares is approximately US$75 million, subject to certain post-closing adjustments. Approximately 54.1% of this amount is attributable to the Retail Holdings shareholders”
And
“No decision has yet been made as to the form of the distribution of the proceeds from this transaction and the approximately $8 million in cash accumulated at Retail Holdings.”
And
“Following the sale, Retail Holdings only remaining operating asset will be Singer Asia’s 59.1% equity interest in Singer India Limited”
So:
54,1% * $75 = $40.575
Cash. =$ 8
SI 54,1%*59,1%*$37 =$11.825
Total =$60.4
So I have an even lower number than you. Very disappointing indeed and show how important your margin of safety is.
Why did the stock fall from $12.60 in October to $9.65?
IT appears someone knew this would have been sold below market value.
Thoughts?
Well…when you incentivize the CEO on how much capital is returned to shareholders by 4/30/2019 you have this happen. A lot of capital left on the table. Not sure what recourse shareholders have but it seems like the company wanted to unload assets ASAP. Interesting that in the latest press release the CEO puts a 12-24 month window to fully liquidate the company so I am hopeful Singer India keeps growing and royalty payments over the next 1-2 years generate additional value. The company has not been very clear as to the structure of the trademark royalty agreement. There is speculation that with the write down of the Singer notes for $1 RHDGF ( another questionable decision ) was able to restructure the royalty agreement with perhaps the lion share of royalties accumulating to shareholders. Not sure why there is no transparency.
I don’t know if I agree with you. They have been trying to monetize their Singer Bangladesh stake for I don’t know how many years. Maybe the deadline provided a little push to finalize a deal, but doubt that a lot of money was left on the table.
W.r.t. the royalty payments, i think people who ascribe much value to this are totally mistaken. If you read the press release about the Singer Bangladesh sale there is a line that they will have a license from SVP Worldwide. So wouldn’t count on anything going to Retail Holdings…
Yes they have been trying for some time to sell it but why now and at such a sweetheart price? Last week they stated it would take 1-2 years to fully liquidate the company so why now? It had to be the incentive. Also there were a lot of assets to sell excluding the non-remittance shares such as the “free” shares. If they could not find a buyer sell it in the open market. The business is strong and share price soaring. It could have brought a lot more in that the $75 million. I had a market cap of $140 million at the high in February/March 2019 so the gap is eye popping. In addition they included the manufacturing plant that could have been sold to a third party. In regards to the royalties you might be right that this will be a nonevent but I am not rejecting the possibility of continuing royalty payments until there is more clarity on how that agreement was structured. Thanks for your comments.
well…here we have the valuation of Retail Holdings:
Cash at Sewko/Singer Asia $8.2
Shares of Singer India (59.1% of total equity) $21.2
Total $29.4
at 54.1% $15.9
Cash at Retail Holdings (before dividend) $43.1
Total $59
Current value $49 for a 20% discount
Post dividend, the discount may be more interesting.
also, note the tax treatment as ordinary income for this dividend. the prior ones were usually return of capital.
You are toast as a US shareholder if you own this stock in a non IRA account. Not sure why they did not buy back shares instead of declaring a dividend.
Sounds like the Singer India sale will happen sooner than later, unfortunately the price is down about 10%.
I am wondering why there has been so much volume traded above $10. I would have guessed that after the announcement the price would have taken a hit.
well there’s still good value on the residual if you’re a)trading in a tax efficient account or b) if you think the price will rise further into the dividend ex date.
true, the question is who is buying?
Where did you see an announcement on the Singer Sale? Could not find anything.
05/22/2019 08:42:50[BSE]
Singer India Ltd – Disclosure Of Information Under Regulation 30 Of The
SEBI (Listing Obligations And Disclosures Requirements)
The Board of Directors of Singer India Limited(SIL)in their meeting held Media
on 22nd May, 2019 were advised by the Managing Director of SIL about the
below information received from the Ultimate Parent Company of SIL,
Retail Holdings N.V. which information in the opinion of the Board is
considered to be material .’Retail Holdings N.V. (‘Retail Holdings’) had
been pursuing a strategy to monetize the value of its investment in its e58acc81-8329-42f3-
various subsidiaries by divesting these assets and distributing the a610-0ff99deb4a6e.pdf
resulting funds to its shareholders.
Today, Retail Holdings N.V. has only one principal operating asset, being
its 59.07% indirect equity interest in Singer India Limited (‘SIL’). Retail
Holdings now has decided to divest its equity interest in SIL.No decision
has yet been made as to the manner of divestment of Retail Holdings
interest in SIL, and no discussions are currently underway with any
potential buyers of SIL.
Alpha, will you consider coming back into the trade post div?
At current levels, I think NAV on the stub is around $4. Feel free to correct me if you disagree with the math,
The risk is performance of the underlying, or a sale like bangladesh at a significant discount to NAV.
I get 3.5 USD, using the liquidation financials published by the company in their last press release, adjusting for the fact that Singer India has declined in price. Underlying assumption is that the stake has not been sold yet.
I’m pretty sure they would post an announcement if they sold it. They always communicate these things fast, and it’s probably required from a regulatory point of view in India as well. And yes, I’m also getting something around $3.5.
Yes $3.55 for me but if RHDGF bought back heavy in May you might get much higher.
Is there a way to buy Singer India itself? I think it’s the Reho selling pressure that’s driven it down so much.
I don’t think it’s easy as a foreigner to get access to the local market in India, but it should be possible.
Just wondering if Singer India gets sold by 12/31/2020 or is this a 2021 event. Corporate expenses are killing any results form the Indian sub and would like to see a full return of capital ASAP.
I don’t expect that this will be sold by 2020. Could even take more time than 2021…
Quick math given the move in Singer India. I see market cap in USD terms right now as around $35mm. If Sewko owns 60% of that, and then ReHo in turn has 54%, that’s a value of $11mm, vs a current market cap at RHDGF of $7mm. So about a 50% discount. Does that seem right?
You might want to check the latest press release on the Retail Holdings site!
So looks like they got 31% of my estimate of MV, but had to sell 41% of the co to do it.
Alpha, Singer India has risen a bit, and RHDGF is stuck around 0.45 a share. Given they own approx 12% of singer india (USD $4.5mm) plus some cash isnt there value here with RHDGF market cap only at $2.1mm?
Or is the cash all getting burned by admin expenses?
There certainly could be some value, but Retail Holdings has a history of selling their stakes at (big) discounts to market, so it is tough to say how this will turn out. And in addition to that, expenses can quickly eat up a lot of the potential profit.
looks like they sold it for 5mm net (54% of that to RHDGF holders). if it closes in jan, and there are now surprises, seems like there may be a small puff left in this cigar butt?
There might be, but on the other hand, in previous communications management was very clear that they didn’t expect distributions above $0.50/share. I own a handful of shares, but no high expectations.