CADUS CORPORATION 3KDUS
June 03, 2011 - 2:27pm EST by
macrae538
2011 2012
Price: 1.42 EPS $0.00 $0.00
Shares Out. (in M): 13 P/E 0.0x 0.0x
Market Cap (in M): 19 P/FCF 0.0x 0.0x
Net Debt (in M): -24 EBIT 0 0
TEV: -5 TEV/EBIT 0.0x 0.0x

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Description

Cadus is a tiny company that barely trades, so this is purely an idea for (small) PA's. 

Cadus Corporation (OTC: KDUS) is a tiny shell company trading at a 21% discount to its cash, net of all liabilities.  This highly illiquid stock is trading for $1.42 per share while it has $1.80 per share of net cash, in addition to patents and drug discovery technologies that I'm assuming are worthless, as well as $2.13 per share of net operating loss and research and development credit carryforwards that could potentially be valuable.  The company has been looking to make an acquisition ever since it sold its primary drug discovery assets to OSI Pharmaceuticals ("OSI") in 1999.

Yes, Cadus has been a looking for an acquisition for over a decade.  In 2009, a special committee of board members was formed to evaluate a potential acquisition that ultimately fell through.  Carl Icahn is the largest shareholder, but it is clearly not a high priority for him, considering its small size.  Carl's son, Brett Icahn, replaced Carl on the board last year.

Cadus was actually the subject of a Wall Street Journal article last year in which Carl Icahn was quoted.

"We've been looking assiduously for three years for opportunities," he told me this week. "But I don't want to make a bad acquisition and lose the cash." He added, "I strongly believe that in today's type of market we will find a company [to buy] fairly soon."

Furthermore, Mr. Icahn says, if Cadus distributed its cash to shareholders, it would have no money for an acquisition, losing the opportunity to use its tax benefits directly. "I don't want to waste $25 million," he says. Of course, Cadus could still be acquired by another firm that could make use of the tax break.

http://online.wsj.com/article/SB10001424052748704913304575371370117600364.html

So, take that for what it is worth.  If or when an acquisition is announced, I would expect the stock price to approach at least net cash, or perhaps a bit more if the tax assets can be utilized.  Cadus could also be acquired or finally decide to liquidate.  The cash burn rate is about $0.03 or $0.04 per share annually.  The company has no employees and even the CEO is a consultant.  His salary is $25,000 per year.  Board members earn $3,000 per year.  Clearly, milking the company for cushy board seats or lavish perks is not the reason why an acquisition has not occurred for so long.

Carl Icahn owns about 5.3 million shares or 40% of the company.  He bought about 298,000 shares in early 2009.  Moab Partners and GlaxoSmithKline own 13% and 5%, respectively.  A board member purchased 50,000 shares in December for $1.35 per share.

Risks

The most obvious risk is that the board never finds an acquisition and the modest cash burn continues for several years.  The board could also make a terrible acquisition and squander the cash and/or tax assets.  The IRR on this investment may not be great, but it also should not be negative.  The stock is also entirely uncorrelated with the market.

Catalyst

An acquisition announcement by Cadus, or of Cadus, or a liquidation.
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    Description

    Cadus is a tiny company that barely trades, so this is purely an idea for (small) PA's. 

    Cadus Corporation (OTC: KDUS) is a tiny shell company trading at a 21% discount to its cash, net of all liabilities.  This highly illiquid stock is trading for $1.42 per share while it has $1.80 per share of net cash, in addition to patents and drug discovery technologies that I'm assuming are worthless, as well as $2.13 per share of net operating loss and research and development credit carryforwards that could potentially be valuable.  The company has been looking to make an acquisition ever since it sold its primary drug discovery assets to OSI Pharmaceuticals ("OSI") in 1999.

    Yes, Cadus has been a looking for an acquisition for over a decade.  In 2009, a special committee of board members was formed to evaluate a potential acquisition that ultimately fell through.  Carl Icahn is the largest shareholder, but it is clearly not a high priority for him, considering its small size.  Carl's son, Brett Icahn, replaced Carl on the board last year.

    Cadus was actually the subject of a Wall Street Journal article last year in which Carl Icahn was quoted.

    "We've been looking assiduously for three years for opportunities," he told me this week. "But I don't want to make a bad acquisition and lose the cash." He added, "I strongly believe that in today's type of market we will find a company [to buy] fairly soon."

    Furthermore, Mr. Icahn says, if Cadus distributed its cash to shareholders, it would have no money for an acquisition, losing the opportunity to use its tax benefits directly. "I don't want to waste $25 million," he says. Of course, Cadus could still be acquired by another firm that could make use of the tax break.

    http://online.wsj.com/article/SB10001424052748704913304575371370117600364.html

    So, take that for what it is worth.  If or when an acquisition is announced, I would expect the stock price to approach at least net cash, or perhaps a bit more if the tax assets can be utilized.  Cadus could also be acquired or finally decide to liquidate.  The cash burn rate is about $0.03 or $0.04 per share annually.  The company has no employees and even the CEO is a consultant.  His salary is $25,000 per year.  Board members earn $3,000 per year.  Clearly, milking the company for cushy board seats or lavish perks is not the reason why an acquisition has not occurred for so long.

    Carl Icahn owns about 5.3 million shares or 40% of the company.  He bought about 298,000 shares in early 2009.  Moab Partners and GlaxoSmithKline own 13% and 5%, respectively.  A board member purchased 50,000 shares in December for $1.35 per share.

    Risks

    The most obvious risk is that the board never finds an acquisition and the modest cash burn continues for several years.  The board could also make a terrible acquisition and squander the cash and/or tax assets.  The IRR on this investment may not be great, but it also should not be negative.  The stock is also entirely uncorrelated with the market.

    Catalyst

    An acquisition announcement by Cadus, or of Cadus, or a liquidation.

    Messages


    SubjectPosted in 2003 at $1.45
    Entry06/03/2011 03:32 PM
    Memberjohn771
    Doesn't seem like the story has changed.  Hope it works out better for you than aidan819.  Here's what he wrote 8 years ago:
    ---------------------------------------------------------------------------------------------------------------------------------------
    Cadus Corporation is a cash shell plus the remains of a drug discovery company. It is trading at a discount to cash and net current assets. Market value is 19M which is 73% of Net Current Assets (which include over 24M of cash), which would allow for about 35-40% upside if it were sold for around Net Current Asset value (26M). In addition, the company runs at a small profit and has other assets (licenses and patents) which may be worth something.

    Although this is clearly not the world’s most exciting investment there would seem to be little downside.
    I see no immediate catalyst, but the company is controlled by Carl Icahn (who owns over 37% of the stock). So I don’t think this is one of those cases where a company will continue to return a low ROE indefinitely because the owner has an emotional attachment to the company. I presume that Mr Icahn will make rational decisions here. As I see it, either the company will be sold, liquidated, or an acquisition will be made, so worst case (for me) would be investing alongside Carl Icahn, but at a useful discount.
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