In his book The Aggressive Conservative Investor, Martin Whitman discusses the advantages of investing in a company which is majority-owned by a single entity. Such advantages appear to be coming to the forefront for Qiao Xing Mobile (QXM), which may offer an opportunity for a strong profit for the value investor.
QXM is majority-owned by Xing Resources (XING), a company in a completely unrelated field to QXM. Xing has made it clear that it wants to wind up QXM's business and deploy its assets (mostly cash) towards Xing's mining concerns. This is where the opportunity comes in for the minority investor, as any cash that comes out of QXM has to be shared pro-rata with minority shareholders of QXM. Since QXM trades at a large discount to its cash balance, such a transaction would result in great returns for investors.
To get at the cash, Xing first tried to buy out minority shareholders for a song. But Xing couldn't get the votes needed from minority investors to achieve quorum, so the deal fell through. Just a month later, however, it looks like Xing is looking at another way to pull out the cash, as per the following release:
We...are currently considering options to divest of our remaining telecommunications business. We expect to formalize and announce our final decision in June 2011...Upon filing of its 2010 Annual Report on Form 20-F with the SEC and announcements of its final decision regarding the telecommunication business, the Company will hold a conference call with investors to discuss both items.
Considering we are already in June, the potential timeline for any transaction announcement (e.g. a sale or significant dividend) is almost upon us. Despite this, the company continues to trade at a large discount to cash and net current assets. But because of the motivated position of QXM's majority-owner, a catalyst to unlock value may be only a few days away.
Disclosure: Author has a long position in shares of QXM.