Arbitrage Opportunity In Kaiser Group Holdings

Kaiser Group Holdings, Inc. (KGHI.OB) is an extremely interesting situation. KGHI is a holding company that owns 100% of Kaiser Group International. Kaiser Group International owns 50% of Kaiser-Hill Company and 100% of Monument Select Insurance Company. The company currently trades below liquidation value. Much of the company’s liquidation value is in cash yet how does one know if they will use the cash wisely. The answer is you simply don’t.

Luckily for the small time investor there is a catalyst. The company has recently decided to go private therefore not having to deal with listing fees, etc. The company recently announced a 1 for 20 reverse stock split which will reduce the shareholder base to less than 300, which is the requirement for non-reporting companies.

According to Kaiser’s Preliminary Proxy Statement:

No fractional shares will be issued. Instead, the Company will pay, in lieu of fractional shares, $36.00 for each share of the Company’s Common Stock held by a holder immediately before the Effective Date of the Reverse Split and not converted to whole shares of Common Stock of the Company after the Reverse Split.

Therefore if one buys 19 shares, he or she will get tendered out at a price roughly 40% higher than the current share price. This is arbitrage at its finest. It is also interesting to note that Warren Buffett made about half of his profits in his early partnership from arbitrage.

Disclosure: Author is long KGHI.OB

KGHI 1-yr chart

Comments

[jbs:]

"Proceeding with a 1-for-20 reverse split requires that we amend the Company’s Certificate of Incorporation, which requires stockholder approval. The Company intends to submit the charter amendment for approval by the Company’s stockholders at the Annual Meeting of Stockholders scheduled for June 27, 2007." - 10Q

"Kaiser Group Holdings, Inc. (the “Company”) has postponed its 2007 Annual Meeting of Stockholders (the “2007 Annual Meeting”), which had been scheduled for June 27, 2007, because definitive proxy materials are not yet available." - 8K

They've been talking about this split for 2 years now... hopefully it actually happens this time.

2007 May 30 08:50 AM

[ryah hlkiaafs:]

Are you able to covert more than 19 shares? For instance if I own 300 shares am I able to convert all of them if I do not wish to own the "new" shares?

Any insight would be helpful as I am just an ordinary guy- who doesn't understand what is going on... But it seems like a bad idea for regular guys bc the company won't be registered with the sec

2007 Jun 01 07:25 PM