Wanted to post an update about the Blyth (BTH) situation following last night's strategic update from CVSL (NYSEMKT:CVSL). I published an article earlier this week about the Blyth situation and the new developments that have occurred over the last couple of weeks. In that article, I stitched together some statements from an interview with CVSL CEO John Rochon [where he mentioned selling an Herbalife stake (HLF) and acquiring a Blyth stake], a few Edgar filings and did a little reading between the lines to submit the proposition that there is a company with the incentive and financial wherewithal to buy a significant stake in Blyth that had already started to do just that. Due to the limited information available when the article was written, some aspects of it were necessarily speculative. Yesterday after the market closed, CVSL held a conference call to share a strategic update with investors and I was able to confirm several key facts:
1) CVSL has been buying BTH stock - the previously referenced interview stated clearly that CVSL was buying shares of BTH, but the "source familiar with CVSL" language left room for the possibility that the source wasn't as familiar with CVSL as the writer believed. On yesterday's call, we heard it from the horse's mouth - CVSL Chairman and CEO John Rochon stated that CVSL had indeed been purchasing shares of CVSL.
2) CVSL's BTH stock buys have been open market purchases - We also heard from Mr. Rochon on the call that the purchases have been open market purchases. Do not miss the importance of this aspect, as the published "float" numbers typically include all shares except those held by insiders or 5% owners because both have a tendency to be longer term holders and there are strict SEC regulations requiring them to disclose their intent in addition to any subsequent transactions. If BTH had purchased their shares directly from one of the institutions holding 5% or more in a private transaction, this would have been a zero sum game and the float would be the same as it was before. But that was not the case, CVSL's BTH stock was purchased on the open market. Thus, the shares CVSL now owns are still considered to be part of the public float but in reality they are not. The shares CVSL acquired did not reduce the Wall Street Journal or ShortSqueeze.com's official float calculation because they are not yet a 5% owner, but these shares have been effectively removed from the public float because of #3 below. This is a big deal because BTH already has the highest short to float ratio I have ever seen for a NYSE listed stock and the nature of Mr. Rochon's other comments (see #4 below) suggest to me that the unshorted float could be less than half of what I previously believed, possibly just a few hundred thousand shares now.
3) CVSL's BTH stake is viewed as a "long term investment" - Mr. Rochon indicated that the company views their BTH shares as a "long term investment". While what constitutes "long term" may be somewhat subjective, the IRS deems long term to be at least one calendar year and I think it is fair to say these shares were not purchased to be flipped in 90 days. Mr. Rochon's history of acquiring small stakes in public companies and building them over time suggests this is likely just the beginning. Also, his comments about the company's relationship with Blyth management further solidifies his "long term investment" characterization in that it sounded more like the early stages of a much more significant relationship.
4) CVSL's BTH holdings are still below the 5% threshold, but Mr. Rochon made it clear that was "..as of today" and stated further that CVSL "...would like to be a large shareholder". These comments suggest an intent to be not just a 5% owner but much more. I followed up the conference call with an email to the company's IR representative asking for some additional color on Mr. Rochon's definition of "large shareholder". The reply was very polite, but not willing to go into specifics for obvious reasons. He did hint that I might want to review Mr. Rochon's history to get a sense of what might constitute "large" to Mr. Rochon.
I did a brief search after the call last night for Mr. Rochon's deal history beyond the Mary Kay LBO and focused on publicly traded targets. On the high side there was the acquisition of a 22% stake in Avon (back in the '80's) and a more recent $2 billion + attempt for 25% of Avon. On the lower end I found an investment of $10m for 7.2% of the parent company of Dirt Devil vacuums, a stake that was upped to 8.5% in the next filing period, then 9.5% and then 12.5% over a period of months. From the deal history I could find, I think it is probably safe to assume that "large" would probably involve an investment well beyond that $10m figure, but the nature in which that holding developed might give us an idea of what to expect when he starts with a small position in a publicly traded company. Interestingly enough, a $10 million investment at what would likely be a VWAP for Blyth over the last few weeks would result in a stake just below 5% of Blyth's shares outstanding, which is what I suspect we will soon learn that CVSL now owns.
Yesterday's CVSL call was very helpful in allowing BTH shareholders to confirm that there is a new and very important factor to consider in the Blyth equation. We know there is no longer a question of whether an investor with institutional sized pockets is buying up the remaining unshorted float of BTH. CVSL is buying BTH shares on the open market and the only question is will they become a "large shareholder" over a period of weeks (causing a parabolic move higher) or will they become a large shareholder over a period of months (short sellers take a bath, but a long and slow one). Regardless which approach they choose, for CVSL to get enough shares beyond their current position to even "move the needle" (not to mention what it would take to become a "large shareholder") it appears that they will have to cut deeply into the part of the float that is currently sold short assuming they have not already. A such, it appears that CVSL might end up being Blyth's Porsche after all, or at least cause BTH shareholders to be able to buy one.
Disclosure: I am long BTH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: My intent in publishing this article is to inform investors about developments related to Blyth. I did not and do not intend to suggest any specific action by any investor or shareholder and strongly suggest that any decision made to buy or sell shares of this stock be made after consultation with an investment advisor as to the suitability of such an investment. I currently own shares of BTH and consider my investment in Blyth a trade that could turn into a long term holding depending on marketplace developments and the company's execution of its growth plan. I may buy or sell shares at any time based on market conditions and the trading price of BTH.