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KIT Digital (OTC:KITD) is a leading infrastructure player in the major ongoing shift from broadcast to broadband video. Though KIT Digital is a leading player in this rapidly-growing space its shares are significantly undervalued due to ongoing management and board transitions. Long-term investors have not seen the value materialize with ongoing board and management changes at the company. The recent acquisition of a 5% stake in the company by a respected activist hedge fund is a vote of confidence in KIT Digital's upside potential and a positive step toward unlocking the value for shareholders.

The Schedule 13D filing.

An SC 13D was filed by the company on April 27, 2012, on behalf of Costa Brava Partnership III L.P., Roark, Rearden and Hamot (RRH), LLC and Seth W. Hamot. "Seth W. Hamot is the president of RRH, which is the general partner of Costa Brava. The principal business of Costa Brava is to make investments in, buy, sell, hold, pledge and assign securities. The principal business of RRH is to act as general partner of Costa Brava." The entities are based in Boston, Massachusetts.

Who is Seth Hamot and what is RRH and Costa Brava Partnership III LP?

Coast Brava Partnership III LP is an "activist hedge fund" intent on making sure shareholders get a fair deal. Seth Hamont's fund has performed well through multiple recessions, returning an annualized 17% to investors net of fees through December 2009.

Here is a list of RRH holdings, which include KIT Digital. With this filing, Seth Hamot has increased his combined holdings to 5% of KIT Digital shares. This was done through buying over 1.2 million shares in the March and April 2012 in the open market. These are the share purchases:

Date

Shares

Price

Amount

1-Mar-12

25,000

$9.91

$247,750

2-Mar-12

40,000

$9.84

$393,600

7-Mar-12

15,000

$9.14

$137,100

18-Mar-12

35,000

$9.23

$323,050

12-Mar-12

2,700

$9.03

$24,381

13-Mar-12

1,500

$8.93

$13,395

16-Mar-12

50,000

$9.00

$450,000

16-Mar-12

50,000

$8.77

$438,500

20-Mar-12

50,000

$8.51

$425,500

20-Mar-12

50,000

$8.49

$424,500

21-Mar-12

50,000

$8.43

$421,500

21-Mar-12

50,000

$8.54

$427,000

22-Mar-12

25,000

$8.45

$211,250

22-Mar-12

50,000

$8.20

$410,000

23-Mar-12

100,000

$6.23

$623,000

26-Mar-12

100,000

$6.70

$670,000

26-Mar-12

100,000

$6.72

$672,000

27-Mar-12

70,800

$6.85

$484,980

27-Mar-12

100,000

$6.93

$693,000

9-Apr-12

25,000

$6.89

$172,250

9-Apr-12

25,000

$6.95

$173,750

16-Apr-12

50,000

$7.17

$358,500

17-Apr-12

75,000

$7.41

$555,750

17-Apr-12

50,000

$7.69

$384,500

18-Apr-12

20,000

$7.60

$152,000

1,210,000

$7.68

$9,287,256

These purchases were made at an average price over 20% higher than the today's closing price of $6.38. Clearly Seth Hamont felt the shares were a good value even a month ago at higher prices.

A Google search of Costa Brava Partnership III L.P reveals that it is not content being a passive shareholder. It has taken on positions such as forcing a vote for an independent board that would "hold management accountable for its stated initiatives to strengthen its internal controls and enhance shareholder value."

Seth Hamont's intent with KIT Digital

From the SC 13D:

"Seth Hamot has expressed concerns to management and directors of the Issuer regarding leadership and corporate governance of its business, and in a conversation with a current director on April 22, 2012 recommended certain individuals to be nominated for election to the Issuer's Board of Directors. Mr. Hamot expects to continue sharing his views with management and directors of the Issuer."

The filing also reveals that Mr. Harmot owns 74,000 shares directly in his IRA account and 52,000 shares are held in two trusts for the benefit of Mr. Hamot's children. This is a vote of confidence and a very positive step for KIT Digital longs to have an independent activist shareholder on board who is personally vested in maximizing the value of the company.

Source: Activist Hedge Fund Increases KIT Digital Stake To 5%