Atlantic Coast Entertainment Holdings: Liquidating Dividend Offers a Profit

Atlantic Coast Entertainment Holdings (ACEH) (a bulletin board stock), ceased operations and sold its operating subsidiary and Sands Casino in Atlantic City back in late 2006. The cash proceeds from the deal amount to some $21/share, around the current book value of the company. This cash remains in an escrow account accruing interest and should be released as unrestricted to the company in 10 months if all goes smoothly, which I predict it will.

Since the company has no operations, and no intentions to revamp any going concern business, this $21 in cash will likely be distributed as a liquidating dividend within the next year,, or so. The stock, though, trades for a mere $16.45, which effectively offers a cool 25% profit. Given the tax treatment of liquidating dividends as capital gains, the after tax profit still represents a very respectable annualized gain by my estimates.

There is a time-value risk that the funds sit in escrow for a while longer than expected, as well as a risk the firm runs into liabilities that it must cover with the escrowed cash. Someone with more legal expertise than I could probably better size up these risks by checking the escrow and acquisition agreements.

ACEH 6-month chart: