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Buying Cash At A 35% Discount

|Includes:Bexil Corp. (BXLC)

It is not often you can pick up cash on sale.  Especially 35% off, but that is exactly the opportunity Bexil Corporation (OTCPK:BXLC) is currently offering to potential shareholders.  BXLC currently resembles what is referred to as a Special Purpose Acquisition Company or SPAC.  Typically a SPAC is a company that goes public to raise capital with the intent to acquire an operating company.  This is not exactly how BXLC ended up looking like a SPAC.  To better understand the BXLC situation, a little company history is in order.  

BXLC was originally Bull & Bear US Government Securities Fund, Inc. and primarily invested in government and corporate bonds.  The company changed its investment policy January 1, 2002 to a less restrictive investment criteria.  Also in January 2002, the Company announced its acquisition of 50% of York Insurance Services Group, Inc.  BXLC paid American International Group, Inc. $3 million cash and provided loan guarantees of $3 million.  In January 2004, BXLC ceased to be an investment company and became a holding company continuing to trade on the American Stock Exchange.  In April 2006, BXLC sold its 50% interest in York Insurance Services Group, Inc. for $39 million in cash.  I can’t argue with the results of that investment.  In a move to trim costs, the Company filed to delist its common stock from the American Stock Exchange and the stock was listed on the Pink Sheets shortly thereafter.  

Since the Company received the proceeds from the York Insurance Services Group sale in 2006, it has been seeking to acquire and/or develop one or more businesses.  To date, the Company appears to be being very methodical regarding acquisition candidates as it has not materially committed any capital to an acquisition.  The Company’s acquisition parameters are as follows:

  • A proven track record with demonstrated earning power
  • A seasoned business with solid customer relations
  • Good return on equity, with little or no debt
  • Solid management
  • Audited financial statements
  • Particularly interested in a “spin-off” from a larger company.
While this methodical approach is appreciated, time is becoming an issue as negative cash flows continue to eat into the cash balance as the Company currently does not have a source of revenue.  BXLC recently reported a net loss of $351,136 for the three months ended June 30, 2010 and a net loss of $522,003 for the six months ended June 30, 2010.  Many investors are calling for the Company to simply liquidate its assets.  However, the Company made it very clear during its June 2, 2010 conference call that it has no intention to liquidate in the short-term. 

As of June 30, 2010, BXLC had net cash of $36,629,550 or $36.21 per share.  With the last trade of the shares and current bid price of $23.50, that represents a 35% discount to net cash.  The current ask price on this thinly traded stock is $25.75 representing a 29.9% discount to net cash.  

The primary risks are the Company either continues to deplete its cash balances with continued losses or they make a poor decision for the deployment of the cash.  An investment in this Company also carries the additional risk of being a very small capitalization company whose common stock is very thinly traded.  This can make it difficult to buy or sell shares at a desired price.  There is typically a large spread between the bid and the ask price.  It is very important to only use limit orders when attempting to acquire or dispose of shares.  Only very experienced investors with a long-term time horizon should consider an investment in BXLC.

Disclosure: Disclosure: The author is long Bexil Corporation (OTCPK:BXLC) at the time of this writing.
Stocks: BXLC