Sardar Going After CCA Industries

[Parsad]

Sardar has written to the board of CAW and requested that he and Phil be added.  They currently own only about 2.3% of the outstanding shares, so I don't know if it will work, as the officers and directors seem to own close to 22%!  Cheers!

 

http://www.sec.gov/Archives/edgar/data/721447/000095012311006083/c11523exv1.htm

 

http://www.ccaindustries.com/

[ragnarisapirate]

Interesting.

 

Did anyone else notice that in the exhibit showing the purchase history of CAW stock, all purchases were  (more or less; the first was off by a share) split evenly between The Lion Fund and Biglari Holdings?

[goldendad]

Thanks for posting.  Very interesting as I hadn't read this yet.  A few points:

 

(1) if he gets two board seats for having 2% of the company, I guess that means I should get one;

(2) seems like an odd target for an activist, since the Class A holders control the board (4 of 7 seats) and the one family operates the company;

(3) if officers and directors own 22% (sounds about right), I can tell you right now that at least 23% will be voting against Biglari;

(4) his basis is higher than mine -- it looks like his purchases started (Mon 11/1) the day that mine stopped (Fri 10/29) when it crossed back over $4.50 pretty much for good;

(5) if he gives up and decides to sell that could be ugly because the volume is so anemic with CAW.

 

I like this one on valuation.  Smoothed/normalized earnings are probably somewhere between 40-80 cents (call it 50 cents).  Last time I checked they had no debt and a little over $2 in cash (currently trading around $5.75).  They've had some bumps this past year settling a deceptive advertising case and dealing with a toothpaste recall (ineffective whitener, I believe it was).  They've dealt with losing WalMart as a customer on some items, but considering that sales haven't been bad.  Oh, and the very generous compensation packages for the two founders finally expired at the end of 2010 and were replaced with consulting agreements at half of the previous compensation.  Assuming the company doesn't hand the difference over to the kids, that should translate into another 10-15 cents in earnings, 50 cents normalized might really be more like 60 cents.  Also currently paying a 28 cent dividend, so a 5-7% yield depending on your purchase price.

 

If it weren't for the class A issue (founders & family control the board) and the fact that the kids are taking over from the parents who were "overpaid," I'm pretty sure I would have gone over 5% on this one.

[Guest Bronco]

Interersting - seems like a crappy business but at a reasonable price and with a fantastic b/s relative to market cap.

[QLEAP]

Isnt $BH earnings expected today ?

[Frozen Tundra]

Yes - BH is scheduled to release after market close today.

 

CAW appears to be a company that used to generate stable free cash flow but has significantly decreased over the past two years.  I would assume Biglari views this as another turn around opportunity similar to SNS.

[Guest Bronco]

Where did you find the earnings release date?  I went on to the company website and you are lucky to get the annual reports.  Talk about bare bones.

[COYS]

The BH earnings release dates are in the annual letter to shareholders.

 

CAW is a tough one.  I looked at it several years ago after the proposed buyout fell through (price was $9.00, I think).  Apparently, the buyers were unable to obtain financing (which gave me a little pause, since the financing markets were as good as they could be in 2006 though this is a very small company).

 

My main concern was the sales concentration with WalMart.  Seemed that a WalMart cold could be lethal to CCA. 

[OracleofCarolina]

Looks like Biglari is up to 6.3% of ownership now

[Ballinvarosig Investors]

http://www.prnewswire.com/news-releases/cca-industries-inc-announces-corporate-action-115665169.html

EAST RUTHERFORD, N.J., Feb. 9, 2011 /PRNewswire/ -- The Board of Directors of CCA Industries, Inc. (NYSE Amex: CAW) (the "Company"), to provide protection to stockholders and enable the Board to discharge its duties to all stockholders, today adopted a Stockholder Protection Rights Plan (the "Rights Plan") and declared a distribution of one Right on each outstanding share of common stock, par value $0.01 per share and each outstanding share of Class A common stock, par value $0.01 per share, of the Company to stockholders of record at the close of business on February 22, 2011.

 

Each Right entitles the holder to purchase a fraction of a share of the Company's participating preferred stock having terms nearly equivalent to the Company's common stock at an exercise price of $18.00 per Right.  The Rights Plan is designed to cause dilution to a person or group that acquires 20% or more of the Company's common stock and/or Class A common stock, and will expire on February 9, 2012, unless it is supplemented or amended pursuant to the terms of the Rights Plans.  Until the Rights become exercisable, they will not be evidenced by separate certificates and will trade automatically with shares of the Company's common stock.

 

The Rights Plan was adopted by the Company to allow it to consider its strategic options in response to (i) the purchase by Sardar Biglari, Biglari Holdings Inc., Biglari Capital Corp., The Lion Fund, L.P. and Philip L. Cooley, as reported on their Schedule 13D with a report date of January 25, 2011, of 381,506 shares of common stock, which the Schedule 13D states as constituting 6.3% of the Company's outstanding common stock, and (ii) their stated intention, reported in their Schedule 13D, that they "may acquire additional shares of the [Company's] capital stock or dispose of shares, in the open market or otherwise, or may formulate other purposes, plans or proposals regarding the [Company] or its shares."

 

Ira W. Berman, Chairman of the Board of Directors, stated, "The Rights Plan is intended to promote the fair and equal treatment of the Company's stockholders and deter any potential coercive takeover tactics that could be used to deprive stockholders of the full value of their investment.  The Board is committed to acting in the best interests of all its stockholders."

 

Biglari really shot himself in the foot with this attempt.

[Partner24]

Thank you for posting it again. Terrific post.

 

Cheers!

[Frozen Tundra]

Have there been any new developments with CAW?  Last I heard Sardar was supposed to meet with CAW management on 2/11.

[gfp]

buying a little more

 

http://www.sec.gov/Archives/edgar/data/93859/000092189511000440/xslF345X03/form407428007_03032011.xml

[Gopinath]

Here we go.. somehow he finds a way to get in :-)

 

http://www.prnewswire.com/news-releases/cca-industries-inc-announces-the-nomination-of-two-new-directors-and-the-retirement-of-two-directors-122684188.html

[OracleofCarolina]

https://www.otcmarkets.com/filing/conv_pdf?id=13187200&guid=h2TtUeO9abr5H3h

Interesting that Sardar extends the agreement for one year for $200,000.

 

Is he that bullish on CCA Industries or was there some other reason??

[gfp]

Funston probably convinced Sardar that he was going to sell the company by April 2020 and really didn't want to come up with the money to buy BH's shares at $6.  I'm surprised Sardar agreed to it, but the implication is that they will get more than $6 when they sell.  I had $6.50 penciled in as a high end in my notes, so personally I would have taken the $6 and moved along.  But I guess if they are confident they will get more than $6 Sardar is willing to work with Funston for $200k...  We'll see..  Maybe Funston will hire a second "millennial" to help him out.  He's hilarious on the conference calls

 

 

https://www.otcmarkets.com/filing/conv_pdf?id=13187200&guid=h2TtUeO9abr5H3h

Interesting that Sardar extends the agreement for one year for $200,000.

 

Is he that bullish on CCA Industries or was there some other reason??

[Kuhndan]

Check out this link.

 

https://www.sec.gov/Archives/edgar/data/721447/000120919116128259/xslF345X03/doc4.xml

 

Sardar really doesn’t care, he already made his money on CCA back in 2016. The Lion Fund transferred the shares to Biglari Holdings at $5.75 (see bullet point number 3). Is this a conflict? At the time, CCA was selling for significantly less. The move enabled him to book a gain at the Lion Fund, meanwhile Biglari Holdings shareholders have been waiting to be paid. My guess is Funston doesn’t have the money and he isn’t getting any bites on selling the company any where close to $6.00 a share. Only thing they can do is wait. Not a good look.

[Foreign Tuffett]

Check out this link.

 

https://www.sec.gov/Archives/edgar/data/721447/000120919116128259/xslF345X03/doc4.xml

 

Sardar really doesn’t care, he already made his money on CCA back in 2016. The Lion Fund transferred the shares to Biglari Holdings at $5.75 (see bullet point number 3). Is this a conflict? At the time, CCA was selling for significantly less. The move enabled him to book a gain at the Lion Fund, meanwhile Biglari Holdings shareholders have been waiting to be paid. My guess is Funston doesn’t have the money and he isn’t getting any bites on selling the company any where close to $6.00 a share. Only thing they can do is wait. Not a good look.

 

Thanks for these smart thoughts. I suspect you are exactly right.

 

I believe you used to follow Biglari Holdings closely, your current thoughts about the company would be much appreciated.

 

 

 

 

[Kuhndan]

The final straw for me was when they changed the administrative fees for The Lion Fund. Basically mimics a 2 and 20 payment plan. He has really only purchased two stocks, Cracker Barrel and BH, which does’t seem to warrant $6 - $7 million a year. Throw in all of the conflict issues, royalty agreement, incentive comp agreement at BH, the CCA deal, the rights offering at a much lower price to buy back stock at a much higher to gain control and I lost faith.

[Foreign Tuffett]

The final straw for me was when they changed the administrative fees for The Lion Fund. Basically mimics a 2 and 20 payment plan. He has really only purchased two stocks, Cracker Barrel and BH, which does’t seem to warrant $6 - $7 million a year. Throw in all of the conflict issues, royalty agreement, incentive comp agreement at BH, the CCA deal, the rights offering at a much lower price to buy back stock at a much higher to gain control and I lost faith.

 

Thanks.

[OracleofCarolina]

Wow..stock was down 25% on delisting news.

 

CCA Industries, Inc. Announces Plan to Delist from NYSE American and Deregister Its Common Stock $CAW https://seekingalpha.com/pr/17402726

[gfp]

Yeah - who knows why people think it's worth $17 million on an exchange and $13 million over the counter, but I got really interested today.  I still think this company gets sold by next April.  And I think they sell it for $50 million give or take.  I wonder if they will quantify how much they believe SEC reporting is costing them beyond what publishing simple financial statements on their website will cost.  SG&A is $2million a quarter so there may be a material savings.  I owned some going in to today at $2.20 average cost.  But I own a lot more coming out of today.

 

7.46 million shares outstanding.  CEO has a bunch of his family's capital tied up in it and is getting old and tired.  Sardar's put extension buys them a bit over a year of time. 

 

Wow..stock was down 25% on delisting news.

 

CCA Industries, Inc. Announces Plan to Delist from NYSE American and Deregister Its Common Stock $CAW https://seekingalpha.com/pr/17402726

[Foreign Tuffett]

Yeah - who knows why people think it's worth $17 million on an exchange and $13 million over the counter, but I got really interested today.  I still think this company gets sold by next April.  And I think they sell it for $50 million give or take.  I wonder if they will quantify how much they believe SEC reporting is costing them beyond what publishing simple financial statements on their website will cost.  SG&A is $2million a quarter so there may be a material savings.  I owned some going in to today at $2.20 average cost.  But I own a lot more coming out of today.

 

7.46 million shares outstanding.  CEO has a bunch of his family's capital tied up in it and is getting old and tired.  Sardar's put extension buys them a bit over a year of time. 

 

Wow..stock was down 25% on delisting news.

 

CCA Industries, Inc. Announces Plan to Delist from NYSE American and Deregister Its Common Stock $CAW https://seekingalpha.com/pr/17402726

 

Would you be willing to share the thought process behind the ~$50 million # ?

[gfp]

Just every time the CEO talks about his exit strategy for his investment, which is practically every earnings conference call, he mentions the comps that he looks at as acquisition candidates are all valued at 3-3.2x net revenues on an enterprise value basis.  He convinced Biglari to hold off on forcing the Put deal at $6 until April next year.  $6 per share is $45 million.  Sardar isn't a charitable guy.

 

Here's a recent one, but there are several like this one.  Also mentions by the CEO that he's not getting any younger and 'doesn't want to be hanging around this place forever.'  He's old, rich, and running this company is no fun.  He's going to sell it.

 

Now, most of these calls, I look a lot at the interim performance as much as I look at the macro issues that affect enterprise value. We continually to look for acquisitions and every time I look or bid or do due diligence, I keep coming back to valuation numbers that is 3 to 3.2 times net sales and we think we’ll end the year at one level and we’ll see how would we -- what we expect the year end net sales. Net sales went up. What we came with let’s see?

 

Stephen Heit

 

Now, we expect net -- our expectations of net sales for the year, is about approximately $17 million.

 

Lance Funston

 

Okay. So if you want to do to math -- if you do the math that 3.2 seems to be the current multiple of $17 million you should use for total enterprise value and that’s well above any stock price we’ll have in the interim. But that gives me a lot of comfort, but may not give you comfort, I feel like I'm in a good investment, I'm happy with it.

[Kuhndan]

My guess is they will save $400,000-$500,000 by going dark.