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Chris DeMuth Jr.
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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • Monarch Is As Cheap As Cement And As Boring As A Cement Plant In Kansas 48 comments
    Aug 29, 2014 4:00 PM | about stocks: MCEM-OLD, MCEMB-OLD

    Monarch Cement Co (OTCPK:MCEM), Humboldt, Kansas

    It will not shock you to learn that Monarch makes cement. Specifically, they make Portland and masonry cement in the above factory and sell it in the various flat squarish states in the middle of the US.

    The flat rectangularish Humboldt within the flat rectangularish Kansas

    On Friday December 5, 2014, Monarch plans to hold a special shareholder meeting to approve a reverse stock split. Owners of fewer than 600 shares will receive $30 per share. One can buy up to 599 shares for $29 or less and receive a quick profit of at least $599 per brokerage account registration.

    The risk is extremely low because the transaction is likely to close and the assets are worth over the $29 cost. Book value is about $29.90.

    There isn't much else to add, so for all of my readers who are demanding a bit of Humboldt trivia, Walter Perry Johnson (November 6, 1887 - December 10, 1946) was born and raised on a farm four miles west of the city. Nicknamed "Barney" and "The Big Train", to this day Johnson is the all-time career leader in shutouts with 110. He was a great ball player and a great man. Ty Cobb described the first time that he saw Johnson,

    On August 2, 1907, I encountered the most threatening sight I ever saw in the ball field. He was a rookie, and we licked our lips as we warmed up for the first game of a doubleheader in Washington. Evidently, manager Pongo Joe Cantillon of the Nats had picked a rube out of the cornfields of the deepest bushes to pitch against us. ... He was a tall, shambling galoot of about twenty, with arms so long they hung far out of his sleeves, and with a sidearm delivery that looked unimpressive at first glance. ... One of the Tigers imitated a cow mooing, and we hollered at Cantillon: 'Get the pitchfork ready, Joe-your hayseed's on his way back to the barn.' ... The first time I faced him, I watched him take that easy windup. And then something went past me that made me flinch. The thing just hissed with danger. We couldn't touch him. ... every one of us knew we'd met the most powerful arm ever turned loose in a ball park.

    Disclosure: The author is long MCEM, MCEMB.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

    Stocks: MCEM-OLD, MCEMB-OLD
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Comments (48)
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  • Oliver Rowe
    , contributor
    Comments (53) | Send Message
     
    Thanks for the heads up, love these simple ideas.

     

    Timing is the tricky one here, I really don't want to tie up $17K until 2015 for 3.5% (more appealing annualized).
    29 Aug 2014, 04:28 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » I agree 100%. These often stay wide until the last few weeks (since large holders who don't want to own a private company will be selling) so you can wait.
    29 Aug 2014, 04:36 PM Reply Like
  • aretailguy
    , contributor
    Comments (1932) | Send Message
     
    Chris, great find. Sometimes these tender offers will result in the stock price coming up to or surpassing the tender price. CBS had one of these recently that was very profitable. One downside is always that the tender offer is pulled before a vote. These are not totally risk-free.
    29 Aug 2014, 05:09 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » Thanks. I did ten bucks of the (NYSE:CBS) and was happy with how that went. I agree that they are not risk-free, but I like this at sub-book value anyways with or without the event.
    29 Aug 2014, 05:16 PM Reply Like
  • Darren McCammon
    , contributor
    Comments (3804) | Send Message
     
    How do you find these obscure special situations?
    29 Aug 2014, 04:46 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » It is just how I spend my time.
    29 Aug 2014, 05:17 PM Reply Like
  • aretailguy
    , contributor
    Comments (1932) | Send Message
     
    Come'on Chris, I look hard for these deals and this was nowhere I ever look. Without disclosing fatal (for me) information, where in the world do you come up with these?
    29 Aug 2014, 11:38 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » I follow ideas on Value Investors Club such as this one: http://bit.ly/1qpxYeg and track SEC filings, especially transactional filings including Schedule 13E3s such as this one: http://bit.ly/1rFNshS
    30 Aug 2014, 07:09 AM Reply Like
  • drew111
    , contributor
    Comments (514) | Send Message
     
    aretailguy, to add to what Chris said about SEC filings, you can search at SEC website under filing type SC-TO. There are others, but I don't have access to my list at the moment. I'll look tonight and post the other filing types if you like.
    30 Aug 2014, 09:37 AM Reply Like
  • bazooooka
    , contributor
    Comments (3684) | Send Message
     
    drew,

     

    Please do post the "others" if possible. Thanks for the tip.
    30 Aug 2014, 08:21 PM Reply Like
  • aretailguy
    , contributor
    Comments (1932) | Send Message
     
    Drew111, much appreciated!!! Thanks
    31 Aug 2014, 01:04 AM Reply Like
  • drew111
    , contributor
    Comments (514) | Send Message
     
    Sorry for the delay, the wife confiscated the laptop last night ie. did her best to reduce our net income lol.

     

    Odd lot tenders or tender offers overall:
    SC TO-I
    SC TO-C
    N-23C3A (closed end funds)

     

    Going Private Transactions (official nomenclature)
    This the one Chris mentioned:
    SC 13E3

     

    I may be missing other ones, but these are the most common. You guys are most welcome. Happy hunting.
    31 Aug 2014, 11:04 PM Reply Like
  • floppity2
    , contributor
    Comments (22) | Send Message
     
    Great discussion. Thanks for the insight!
    2 Sep 2014, 02:47 PM Reply Like
  • Time & Model
    , contributor
    Comments (149) | Send Message
     
    FYI:

     

    You will also be able to do the searches noted by drew11 and DeMuth in my Android app after the next release (a couple weeks). The tablet medium is very comfortable for research, imo.

     

    That said, I know most of you are iOS users!! But... I couldn't help but plug my software.
    2 Sep 2014, 02:58 PM Reply Like
  • foretherecord
    , contributor
    Comments (18) | Send Message
     
    MCEMB is a different share class? Can you do 599 of each symbol?
    29 Aug 2014, 05:12 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » Great question... Let me check.
    29 Aug 2014, 05:18 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » You would only be able to buy and retain Class B shares if you had a family member from whom the shares could be transferred.

     

    Class B shares have restrictions on transferability, so if you were to buy Class B Shares and you were not a permitted transferee (basically a family member), they would automatically convert on a share-per-share basis to Capital Stock when the transfer was effected.
    29 Aug 2014, 07:23 PM Reply Like
  • tuliptown
    , contributor
    Comments (1561) | Send Message
     
    why do finance folks get renowned architects to make their buildings but cement (grain elevator, or even harbor side gravel yards) hire more functional grade architects.

     

    shame.
    29 Aug 2014, 06:26 PM Reply Like
  • connellybarnes
    , contributor
    Comments (551) | Send Message
     
    Good question. Why do kings, casinos, and famous people in finance and law buy up all that fancy indoor space? Whose money are said people spending, and who do they hope to impress?

     

    Who generally adds more to the economy, the above parties, or owners of cement factories?

     

    http://bit.ly/1vVL9oR
    30 Aug 2014, 12:38 AM Reply Like
  • Time & Model
    , contributor
    Comments (149) | Send Message
     
    Their discussing between being public and private is interesting:

     

    http://bit.ly/1n94Owf
    30 Aug 2014, 10:23 AM Reply Like
  • Oliver Rowe
    , contributor
    Comments (53) | Send Message
     
    That is interesting.

     

    "Management believes that there is little or no benefit to the company for all the effort spent to stay in compliance with ever growing SEC rules and reporting requirements"

     

    Management sees a lot more pros to being private than public.
    30 Aug 2014, 12:19 PM Reply Like
  • foretherecord
    , contributor
    Comments (18) | Send Message
     
    I think we are forgetting that they are often the same person. "Finance" guys usually payed for the cement yard. The reasons they don't use a certain type of architect would probably stem from the fact they will be using heavy machinery and techniques/materials that could damage less durable infrastructure. It seems you are trying to make it a more pernicious motivation or some sort of symbol for a caste system. Truth is a great deal of finance folks live and work in relatively(to their income) modest environments and often the more luxurious accommodations are actually there to impress clients. Believe it or not clients prefer the perception that the finance folks that are asking for my money have made money before and a classy joint can help invoke this impression.
    30 Aug 2014, 12:41 PM Reply Like
  • connellybarnes
    , contributor
    Comments (551) | Send Message
     
    @foretherecord: I should have specified Wall Street instead of finance. Wall Street/lawyers/kings/ casinos in most cases are playing zero sum games and consequently cannot add to aggregate profits. In contrast, concrete workers typically are adding to profits. Essentially it goes back to that Adam Smith chapter I linked -- many esteemed jobs actually add little economic value in aggregate (although obviously it's possible to win at zero sum games!).

     

    One can certainly find counter-examples, e.g. activist investors can work with companies to optimize capital structure, take beneficial corporate actions, and improve tax efficiency.

     

    Clients of Wall Street are frequently unreasonable people with a speculative mentality, and Wall Street is frequently selling unrealistic dreams, so it's a natural marriage. Luxurious environments are certainly rational given the client base.

     

    Note that I work in academia and consider myself to be part of the unproductive capital, and my spouse works in finance. So I'm not claiming to be a saint here.
    30 Aug 2014, 02:38 PM Reply Like
  • Biological
    , contributor
    Comments (1817) | Send Message
     
    Indeed....however, many wealthy/trusts/univers... build horrible looking structures, in the same spirit as cement plants, I guess to be (then) "progressive."

     

    Take a look at architectural brutalism, a term that is spot on: http://bit.ly/W1wGuT

     

    Warning: pictures can be graphic and distasteful.

     

    Most universities in USA that build buildings in the 1950's - 1970's now have to live with the horror, every day. Kind of like/having to live with permanent bell bottoms made of rayon or polyester, metaphorically speaking.
    31 Aug 2014, 09:54 PM Reply Like
  • connellybarnes
    , contributor
    Comments (551) | Send Message
     
    @Biological: Interesting. I've been in similar ugly campus and government buildings -- mostly from the 1970s -- but didn't realize there was a "philosophic" movement behind the look.

     

    Speaking of concrete I recently saw this architectural disaster, Digital Beijing, used for the Olypmics:
    http://bit.ly/1rJw4J4
    http://bit.ly/1rJw7og
    I like how 15 out of 16 sides of its 4 buildings are near-windowless concrete or have a view that is entirely filled by the adjacent concrete building.

     

    But for an overpriced USD 20 tira misu you can get a sunset view from a nearby hotel restaurant of the other beautiful Olympics buildings:
    http://dailym.ai/1rJw7oi
    1 Sep 2014, 04:36 PM Reply Like
  • jaginger
    , contributor
    Comments (803) | Send Message
     
    My goodness, Biological. Some of those are rough on the eyes!
    1 Sep 2014, 09:01 PM Reply Like
  • Biological
    , contributor
    Comments (1817) | Send Message
     
    Greetings, Chris. Thank you for sharing. It seems a safe place to put some cash. Quick question: Will company go private as a result of reverse split and thus shares become illiquid? I did not catch the full concept. Or, if you could link me to a site that explains. Thank you.
    31 Aug 2014, 09:46 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » Yes, it will become illiquid if you have 600 or more shares. If you have $599 shares or fewer, it is plenty liquid as you will probably be cashed out.
    1 Sep 2014, 07:01 AM Reply Like
  • Biological
    , contributor
    Comments (1817) | Send Message
     
    Thanks for the $599. Some of it will end up at the coffee stand/lemonade outdoor parlor one way or another....; just a suggestion > buy green beans and roast them over a gas fire (kind of full blast), in a clay pot, continuously moving the beans. They crackle twice: at about 5 mins and then at 12 mins or so. After the second crackle, turn off gas flame and keep stirring (use a wooden spoon). Total time, about 15 mins. Then, the beans will be fresh roasted (all should be beautiful dark brown, but not black), smelling divine, and ready to be ground and made into coffee. You may need to have local police keep neighbors from stampeding the stand...
    1 Sep 2014, 08:36 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » Thanks for the advice! Much appreciated.
    1 Sep 2014, 09:29 AM Reply Like
  • czosnek
    , contributor
    Comments (251) | Send Message
     
    love these tender arbs. thanks for the idea
    1 Sep 2014, 02:00 PM Reply Like
  • Philip Mause
    , contributor
    Comments (4229) | Send Message
     
    The Big Train would start 40 games a year, complete almost all of them, make a dozen or so relief appearances, pinch hit every so often, and, once in a blue moon, play a game or two in the outfield. It would take three or four modern pitchers to equal this output.
    4 Sep 2014, 01:30 AM Reply Like
  • erpichtauf
    , contributor
    Comments (276) | Send Message
     
    At least one warning flag spotted so far.
    Page 9. The answer to the question:"What if I hold all of my shares in street name?"
    http://bit.ly/1t4x06K
    4 Sep 2014, 01:08 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » I have not had this problem in the past; however, one can avoid any risk by holding physical shares (which is what I tend to do). -C
    4 Sep 2014, 01:10 PM Reply Like
  • mjflack
    , contributor
    Comments (11) | Send Message
     
    Chris, How does one go about holding physical shares in general and MCEM in particular?
    16 Sep 2014, 05:46 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » I just ask for them from my brokers, they are sent in the mail, and I keep them in a safe deposit box.
    17 Sep 2014, 10:12 PM Reply Like
  • Jim Rivest
    , contributor
    Comments (23) | Send Message
     
    Chris, this arb won't be working for stockholders who hold their shares at brokers.

     

    The company originally stated, "If a nominee holds shares for stockholders that individually beneficially own less than 600 shares of either class of our Stock and such nominee collectively holds in excess of 600 shares of such class, it is possible that such shares may not be exchanged for cash in the Reverse/Forward Stock Split."

     

    Quite a few played this one, so in a thinly-traded stock, if they all head for the exits at the same time, look out below. The company's applying Rule 12g5-1 literally, not many still do that anymore. So if brokers such as Fido, TDA, Merrill, etc. hold more than 599 shares at their firms, the company will not be buying those shares. They are counting each individual broker as ONE shareholder, regardless of how many beneficial holders of the stock own shares at the broker.

     

    The rule was written decades ago - it's archaic and should be changed.
    29 Dec 2014, 04:31 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (10638) | Send Message
     
    Author’s reply » Great heads up; thanks. I hold physical certificates which simplifies things somewhat.
    29 Dec 2014, 05:05 PM Reply Like
  • erpichtauf
    , contributor
    Comments (276) | Send Message
     
    Thank you
    4 Sep 2014, 01:24 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1232) | Send Message
     
    At Fidelity,no shares held in street name were paid the $30. Looks like there will be some more long term buy and holders of Monarch stock. At least there is a 3% dividend.
    29 Dec 2014, 10:32 PM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
     
    I'm confirming with Scottrade- I believe we're in the process of getting cashed out. I would be surprised that they were able to get shareholders of record below 300 if they interpreted the rule that way.
    fd:long
    30 Dec 2014, 10:31 AM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
     
    I've confirmed with Scottrade backoffice that Monarch is interpreting all held in Street name as a single shareholder.
    30 Dec 2014, 01:14 PM Reply Like
  • George Spritzer, CFA
    , contributor
    Comments (1232) | Send Message
     
    Clint:

     

    I think shareholders of record may be below 300 BECAUSE they treat all Fidelity accounts as only one shareholder. (Same applies to Scottrade). The SEC should change this rule to count all shareholders even if shares are held in street name.
    30 Dec 2014, 05:21 PM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
     
    Yep, you're on point
    30 Dec 2014, 05:33 PM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (350) | Send Message
     
    SW: What's the status for MCEM cash out?
    IB: Our corporate action group says they are just waiting for the DTC to pay it out.
    IB: No estimated timeframe.
    6 Jan 2015, 02:09 PM Reply Like
  • Squeeky Wheel
    , contributor
    Comments (350) | Send Message
     
    I asked again today:

     

    IB: Customers who held less than 600 shares of MCEM now own the contra security MCEM.CSH in which there is no eta on payment date yet. Not sure when or how much they will receive.
    SW: that's not particularly comforting. Is there a definite payment without eta or no definite payment?
    IB: the payment appears to be definite but the timing of the payment there is no time line for it.
    SW: Hopefully not "forever"
    14 Jan 2015, 11:49 AM Reply Like
  • blades
    , contributor
    Comments (20) | Send Message
     
    Ouch, got caught on this also. Should have been alert to the need to hold physical shares as it was discussed in September.
    7 Jan 2015, 01:37 PM Reply Like
  • erpichtauf
    , contributor
    Comments (276) | Send Message
     
    Got out yesterday.

     

    I am still displeased with my broker, though on the bright side this one was more profitable than I thought it would be and it had lessons to teach me.
    27 Jan 2015, 11:53 AM Reply Like
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