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Saj Karsan, Barel Karsan (300 clicks)
Long only, deep value, value, contrarian
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I recently spoke with the CEO of embattled firm Manhattan Bridge Capital (LOAN). Mr. Assaf Ran and his company have been discussed on this site before, mainly due to the large discount at which the company trades relative to its book value. The firm has had a tumultuous couple of years, involving a rejected buyout offer from a disgruntled shareholder, large restricted share grants to its majority shareholder, and shareholder lawsuits over some of the company's actions. Assaf Ran and I discussed these topics and more.

From my vantage point the company's share price discount is entirely fixable, as it has to do with the company's lack of buybacks. Every day that the stock trades for less than half of its book while management chooses to lend money out at low rates of return rather than buy back shares sends a signal that shareholder value is not a concern.

Ran argued that with the company's liquidity situation, buybacks cannot be done on a reasonable scale thanks to restrictive SEC regulations. The company can only buy back 25% of its average daily volume (and on many days, no shares trade at all), and there are severe restrictions on how high it can bid for its shares.

I pressed on, providing two examples of companies with lower liquidity than that of Manhattan Bridge which have successfully implemented such programs. Ran agreed to bring this issue up with the board, and promised a public announcement of the results of the board's discussion.

On the subject of shareholder value, Ran was clear in stating that it is his number one priority. He has secured cheaper funding for the company's lending operations thanks to personal guarantees he has now made of up to $4 million. He offered that the new line of credit from Sterling Bank (which he has personally guaranteed) "is expected to significantly enhance our performance as soon as in the third quarter."

Ran also wished to respond on the subject of the large restricted share grant that has irked some shareholders. The restricted shares cannot be sold for 15-17 years, making him a long-term shareholder. Ran traded in a number of options in return for this share grant, using an "independent executive compensation expert (one of the nation's most prominent) in order to calculate the option-restricted stock conversion ratio".

While I agree the restrictions on sales is positive for shareholders, I don't put a lot of faith in the compensation expert's report. The expression "Whose bread I eat, his song I sing" may be pertinent here. One thing I never liked about the conversion is that it was the options with the highest exercise prices (some of which are far out of the money, and may have expired worthless) that were traded in by Ran.

To his credit, however, Ran notes that he has not sold a share since the company's IPO in 1999, and has continued to buy them every time the company has needed help securing its Nasdaq listing. (Note that the company may once again need help with this, having been served a recent notice).

Regarding the buyout offer that was turned down, Ran believes the offer was not credible. "The board replied to the potential buyers by a letter requesting some trivial basic due-diligence items," he said. "They didn't respond."

Ran ended by stressing his commitment to shareholders. "Shareholder value is my top priority," he said. "I invested 23 years in this company and intend to continue until we achieve our goals." Since buybacks will be difficult, however, he believes the best way to deliver shareholder value is through growth. He also left the door open for a dividend as an alternate means of providing returns to shareholders.

Ran also wanted readers to be informed of the company's history so that they may assess his capabilities as the manager of this company. Here's a brief rundown:

  • The company was established by Ran in 1989 with no investment of capital. Initially, he operated from a basement in Flushing Queens that was also his residence.
  • By 1999, the firm became a multi-million dollar, profitable Yellow Pages publisher with no capital investment required.
  • In May 1999, the company went public, raising a net amount of $6.4M.
  • During the year 2000, the company bought back its own shares for about $400K.
  • In 2003, due to industry dynamics (Google), the company decided to sell its printed directories and develop a more suitable operation for a public company.
  • Approximately $3.5M in cash dividends were distributed to shareholders between 2003-2005.
  • In 2006, the company started two internet related companies, Next Yellow and Shopila, in an effort to capitalize on the shift from print to the internet.
  • Those two investments were unsuccessful and discontinued in 2007.
  • That same year, the company started its current operation.
  • In 2008 the company bought back additional shares. This time significantly fewer shares were purchased due to the lean trading of the stock and SEC restrictions.

Disclosure: No position.

Source: Interview With The CEO Of Manhattan Bridge Capital