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SWSH - Swisher Hygiene Inc.


Guest MarkS
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Is anyone looking at this liquidation. You have 17.6m shares trading trading at about .93 per share. The company has a bit over 25m in cash with no debt. The final trading date is May 27, 2016.  I have no position. Just saw the press release.

Thanks

Mark

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Hey Deepsouth,

Yeah.  Management sucked.  Good news: the business is gone as well as most of the prior management. In fact, it seems that only a couple of people are left to close the place up. Moreover, a couple of funds have positions.  Hopefully, they will keep an eye on them. I started a small position this morning.  Thanks

Mark

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It seems like this is a pretty big discount to the cash.  Other than the size of the company, do you think this is the result of concern around them burning through the cash while they wind things down or other potential off-balance sheet liabilities? 

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Hi hooplaer23,

 

You're probably correct.  I would also add that we are working with a somewhat dated cash estimate.  The 25.2 estimate at this point is nothing more than  a guess. I doubt that they will burn a lot of cash as they have no assets left. But you never know...

 

BTW - welcome!

 

Thanks

Mark

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I would also add that we are working with a somewhat dated cash estimate.

 

SWSH management did give a long-term cash flow forecast out to 2019 (!) for their liquidation in the def. proxy they filed to get shareholder approval for a liquidation/dissolution.  I'm not sure how much I trust that forecast given they missed their cash balance forecast for end of 2015 -- but it gives some dimensions to what their costs would look like.

 

The biggest contingencies might still be some outstanding litigation against them given the Company's and predecessor Cdn public shell's  checkered past (though much legal risk has been resolved).  This affects both final value as well as timing.

 

wabuffo

 

 

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That's a really good point wabuffo.  The board looks like they could milk things for awhile - judging by the proxy.

Thanks

Mark

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Looked at this and find it difficult to get comfortable with how the legal contingencies may impact the timing of the distribution to shareholders.  Time impacts both the "n" in IRR as well as the ongoing legal fees + CEO/CFO "Consulting" fees associated with the holdco sticking around.

 

Here's some brief notes I took:

 

5/21/2012 - Arsenault v. Berrard - related to 2011 FS restatement.  Unclear in latest 10k if this is resolved or ongoing.  This doesn't seem like a big deal to me and might be finished - but I don't know.

 

9/8/2015 - Paul Berger v. Swisher Hygiene Inc. - "On October 6, 2015, Defendants filed a motion to dismiss the Illinois action given that a substantially similar action, Raul, was pending in North Carolina.  On December 15, 2015, the parties agreed to hold defendants’ motion to dismiss in abeyance until the court in the Raul action ruled on the pending motions to dismiss in that case, described below."  Given that the Raul case has been dismissed - it seems like this will be rehashed.  Once again I think the timing and how long this process takes is more important than the unlikely loss contingency.

 

10/28/2015 - Gerardo Jimenez Pacheco v. Service Puerto Rico, LLC - Ongoing case.  Defendants filed motion to dismiss in feb 2016 and that's the last update

 

2/29/2016 - Honeycrest/Coolbrands - "The litigation involving Honeycrest and Integrated and/or Coolbrands spans 17 years, has been episodically dormant with periods of extended discovery, motion practice, mediation, attempted settlements and other activities.  In January 2016, Honeycrest filed a motion to amend the Coolbrands complaint to add Swisher Hygiene Inc. as a defendant in that case. Swisher Hygiene Inc.'s opposition papers were served on February 29, 2016. "   

So basically Swisher has some indirect association with this lawsuit that has been dragging since 1990....

 

In October 2015, they entered an agreement to pay $2mm to the United States Attorney’s Office for the Western District of North Carolina (“USAO”) for what sounds like securities fraud for the 2011 FS statements.  This seems to be finished.  But, the Atlanta Regional Office of the SEC is still currently reviewing them (began in 2012) and there's no indication this has finished.

 

The company paid $1.6mm "other fees" to BDO for what sounds like consulting outside of the scope of auditing - "costs incurred by BDO associated with certain government agencies' ongoing inquiries and request for information related to the Company."  Obviously this will tail off with the USAO agreement finished - but unclear how much is related to SEC investigation.

 

 

Other things to consider

-The CEO/CFO left in February and a new CEO and a new CFO were onboarded.  New CEO - $200k salary through December 2016 but can be re-entered.  New CFO - Greater of $60k salary or $150 per hour (which comes to about $300k if he's working 8 hour days x 250days).  Thinking in terms of incentives - these guys are fully incentivized to take their sweet time (they own immaterial stock).  Further, the board received $420k comp in aggregate in FY15. 

 

- 6% of NAV is in "Other Assets" of $1.5mm.  There is no discussion of what "Other Assets" are comprised of in the 10k.  Given this companies general history of integrity - I'm skeptical - new management or not. 

- If you remove the "Other Assets" and you assume NO expenses at all in FY16, NAV is a 27% premium to current market price.  For every $1mm in expenses, that figure is reduced 6%.  The company prepared a "potential distribution analysis" in the proxy statement filed 9/3/2015 - a) the company estimated themselves $2mm in expenses just for 2016 b) the company has estimated out to 2019 which is consistent with the likelihood of the distribution not happening for a while.

 

Happy to hear other thoughts - I'd love to buy $1 cash for less than a $1, but it seems probable that the value of the $1 is going to deteriorate before you see it. 

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I've been going through the material myself this morning. Although things could work out for the best, I'm not sure that I want to trust management over the time frame necessary to bring this to a close. Thanks Wabuffo and snarkypuppy.

Mark

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