January 22, 2010 - 7:34pm EST by
2010 2011
Price: 6.00 EPS $0.21 $0.40
Shares Out. (in M): 2 P/E 28.6x 15.0x
Market Cap (in $M): 13 P/FCF 28.6x 15.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 7 TEV/EBIT 15.7x 8.0x

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Boss Holdings was written up about two and a half years ago as a long idea at about $7.50 per share. In essence, it is a very simple old world company which sells apparel for protective wear. It also sells promotional and pet supplies -- collars, leashes, etc.

The company has struggled since that initial writeup, though it has managed to avoid sinking into debt -- essentially the company has done a bit better than breaking even in recent quaters. This is a consequence of the difficult economic environment, tempered by the company's simple, stable lines of business.

You can see this fact pretty clearly from the company's September 10-Q. Revenues were down by about 15% from 2008, and the company's sales to auto companies were significantly hurt by the instability at GM and Chrysler.

Still, management has kept the company profitable, and it has more than $5M in cash with no debt.

Of more import to this writeup, though, is the company's August announcement that they plan to take the company private.

The company plans to use some of its cash to do a buyout of all shareholders with fewer than 100 shares, at a purchase price of $7.65 per share. So, a trivial way to make money off this company is just to buy 99 shares, which would net you a couple hundred bucks minus whatever commission you pay.

But, I think the more interesting play here is to go ahead and buy in at current prices and let the company go private under the expectation of a liquidity event on down the road. Here's why:

1. Even in this terrible economic climate, the company has earned about $450k on a TTM basis, with essentially no interest expense. That's against an enterprise value of only $7.1M when you net out the cash, for a EV/EBIT of around 15.7.

2. Management holds a very significant stake in the company, which will only be increased by the buyout. According to the most recent proxy, the CEO owns about 30%, other directors own about 10%, and a company controlled by the CEO controls another 25% of the company.

3. One of the company's major expenses currently is the auditing and SarbOx expenses associated with remaining a public company. Conversations with management suggest these costs are in the $600k range annually. Adding an after-tax increment of $400k to earnings from eliminating these expenses offers a EV/EBIT more like 8.

Obviously the biggest risk to the investor is the lack of transparency associated with a company that is going private. I believe this risk provides much of the explanation for the company's persistently low stock price since the announcement. Given this and the company's thin trading volume, I believe it offers a significant return for an investor looking to put a relatively modest amount of money to work -- so long as that investor is willing to wait for some sort of liquidity event down the road.


* Going-private transaction

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