Retail Holdings announces sale of Singer Bangladesh

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

7 thoughts on “Retail Holdings announces sale of Singer Bangladesh

  1. Josh

    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?

    Reply
    1. Alpha Vulture Post author

      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.

      Reply
  2. Sjoerd

    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.

    Reply
  3. pigby

    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?

    Reply
  4. Bob-Emerging Values

    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.

    Reply
    1. Alpha Vulture Post author

      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…

      Reply
  5. Dan @ Soaring

    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.

    Reply

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