Seeking Alpha
Profile| Send Message|
( followers)  
Barron's Online has an online exclusive about David Abrams spending almost $29.6 million to buy more than 1.4 million shares in USA Mobility (NASDAQ:USMO) between August 11 and 16.

Abrams is a director of USA Mobility and oversees Abrams Capital Partners. He also used to work with Seth Klarman at Baupost Group. (Baupost also owns USMO stock.) These most recent purchases are for Abrams Capital, and the firm now owns roughly 3.9 million shares or 14.4% of the company.

This from the linked article:

Amid a stream of negative news about the company's weakening operations, USA Mobility shares have fallen sharply since going public at around $36 per share nearly two years ago. But the stock has gained 45% since touching a record low of $15.67 on June 27.

The piece quotes Ivan Feinseth, managing director at Matrix USA, as saying, "The fundamental value drivers are negative." He then says USA Mobility is under-earning its cost of capital as the return on capital and free cash flows continue to fall off.

He asks a probing question. "Why do you have a pure pager if you have cell phone with text messages?" Feinseth, who has a Sell rating on the company, appears to be the only analyst actively covering the stock.

In an investor conference earlier this month, USA Mobility's management estimated it will have roughly 4.1 million customers this year compared to 7.68 million three years ago, and revenue of about $500 million this year, down from $1 billion n 2003.

The Barron's Online article also quotes Ben Silverman of InsiderScore.com, who says USA Mobility fits Abrams' investment style and calls the recent purchases "an interesting play."

"The way I look at this is you have a wild card here, he adds. "Obviously the company's business is eroding, but [USA Mobility] continues to churn out cash flow and return cash to investors."

USA Mobility made a special dividend grant of $3 per share, or $82 million, in July before declaring a quarterly dividend of 65 cents per share. Management announced it was confident that the company's cash flow would sustain the regular payout at this level or higher for five years.

Further down:

Noting Abrams Capital's investment horizon of 18 to 36 months, Silverman says that with the dividend payout Abrams may "feel comfortable putting money in this investment and getting a return on yield."

You'll recall that last week I posted about USA Mobility moving to paying quarterly dividends. So returning cash to shareholders has to figure in to the ultimate success -- or failure -- of this stock pick.

I first recommended USA Mobility in August 2005 at $26.34. The shares closed yesterday at $22.59.

USMO 1-yr chart:

USMO 1-yr chart

Source: USA Mobility Director Buys Nearly $30 Million of Stock