|Shares Out. (in M):||24||P/E||0||0|
|Market Cap (in $M):||224||P/FCF||0||0|
|Net Debt (in $M):||-18||EBIT||0||0|
I believe that Crimson Wine Group is a prime candidate to be taken private or sold to a strategic buyer at a substantial premium. With a very cheap valuation supported by high-quality assets, a cash-rich balance sheet, substantial recent programmatic insider buying taking each primary owner up to 10% (20% total stake) and 3+ years post-spin, the stars appear to be aligning for CWGL. I consider downside protection to be solid, and believe upside potential is likely 50-100% in a sale, depending on the type of buyer, should a transaction occur.
Based in Napa, CA, Crimson Wine Group, Ltd. (“CWGL”) is an owner and operator of boutique, estate-based wineries that produce in the finest wine growing regions of California, Oregon and Washington. The company’s wineries include Pine Ridge Vineyards, Seghesio Family Vineyards, Archery Summit Winery, Chamisal Vineyards, Double Canyon Vineyards and Seven Hills Winery. Founded in 1991, CWGL was for years a division of well-known conglomerate Leucadia National Corporation (NYSE: LUK). In 2013, in conjunction with Leucadia’s acquisition of investment banking firm Jefferies LLC, LUK leadership Joseph Steinberg and Ian Cumming believed value would be better realized for LUK shareholders through a tax-free spin-off of CWGL to LUK shareholders, which was completed in February of that year when LUK common shareholders received one share of CWGL for every ten shares of LUK owned.
Keys to the Thesis
In summary, I believe that the downside risk in owning CWGL shares is low, as the business is very conservatively capitalized and with highly valuable tangible assets. The aggressive recent insider share purchases caught my attention, and particularly so since the principals are known for being extraordinarily savvy investors. It would not surprise me if these purchases were an attempt to buy in as much inexpensive stock as possible in advance of a take-private bid or outright sale to a strategic buyer, but that is pure speculation. In that case, I would not be surprised to see a valuation 50-100% above the current price, in the $14-18 range.
Disclaimer: The author of this idea presently has a long position in securities of this issuer and may trade in and out of these positions without notice. The data contained herein are prepared by the author from publicly available sources and the author's independent research and estimates. No representation or warranty is made as to the accuracy of the data or opinions contained herein. Please do your own research.
|Subject||re: Asset value vs earnings power|
|Entry||12/22/2016 02:17 PM|
How do they match up? NAV (adjusted for intrinsic land value + intangible asset value less taxes) vs an adjust cash flow yield?
|Entry||12/26/2016 04:51 PM|
Why is there 50-100% upside? I don't quite follow how you triangulate that value...
Why do you think this is timely now? This has been out there for some time...anything other than the insider buying?
Why do you think this is being run to maximize value for minority shareholders? Sure the Leucadia guys have a greal track record in that vehicle, but a vineyard is pretty different. Guys of their weath and social status have a long track record of winemaking as a family vanity project...one could argue that this is exactly what this looks like...
|Entry||12/29/2016 10:02 AM|
Re: your third aquestion - if the Leucadia guys wanted to play with a vineyard as a vanity project wouldn't they keep it tucked away inside LUK as a P&L rounding error rather than place it front and center as a standalone public company?
|Subject||Re: Re: Questions|
|Entry||12/29/2016 10:23 AM|
Yeah, they already had effective control of the company with their collective stake at the spin, plus the CEO slot. It would be pointless for them to buy millions more in stock if it were not a strategic investment decision, particularly after the 2-yr anniversary of the spin via a 10b5 program.
|Subject||Re: Re: Re: Questions|
|Entry||12/29/2016 01:22 PM|
According to the proxy, Jeffries management forced the spin because they (who are professional valuers of assets) felt it was worth no more (and potentially less) than book value:
Shares of Crimson stock will only be distributed to Leucadia shareholders of record on the Crimson record date, because the Leucadia winery business spin out is a condition to Jefferies’ obligation to consummate the transactions. Jefferies management deemed Crimson as less strategically relevant than Leucadia’s other subsidiaries, ascribing a value to Crimson no greater than approximately its book carrying value. As such, in assessing and negotiating the terms of the transaction with Leucadia, Jefferies management viewed the pre-transaction divestiture of Crimson through the Leucadia winery business spin out an efficient and desirable method of divesting Crimson, as compared with a post-transaction sale or other divestiture. It was therefore agreed that that the spin out occur prior to consummation of the transactions, without reducing the book value of Leucadia by more than $197 million and that it be effected without Leucadia retaining any material liability with respect to Crimson.
Reading between the lines, it would appear that (a) Jeffries thought that Crimson was worth no more than BV, or (b) Jeffries thought that Crimson was worth no more than BV under Cumming's/Steinberg's operating plans (which may be as a family vanity project).
I recognize that the long-term plan may be to squeeze out minority shareholders and take the company private (for the families), but I don't see much evidence to suggest that this will be imminent or for a big premium (and you need both for this to work).
|Subject||Re: Re: Re: Re: Questions|
|Entry||12/29/2016 02:29 PM|
Not scientific, but I'm guessing Napa real estate (where much of the value lies) is worth a fair amount more today than when the spin decision was made in 2012. Maybe it doesn't sell for a huge premium or at all, but I'll go ahead and take my chances at this price. To correct one thing, there are no "minority shareholders" to squeeze out - the big shareholders are still in the minority themselves despite essentially having operating control. By the time there is the hard "evidence" of something good happening (beyond, I guess, the timing, large 10b5-1 purchases, and historical sales at a premium to book), the stock probably won't be available for book value. Who knows, maybe it appreciates on a standalone basis first?
Just part of my portfolio, trying to skate where the puck might end up, hope for a good bounce. Nothing glamorous about it. Kind of feels like a DGT Holdings or Dole type of situation, both ideas worked out well, though I only made money on DGT.
Happy new year.
|Entry||12/29/2016 08:45 PM|
A year or so ago, I was seated at a table with a former member of handler's team at the time of the LUK merger. I asked him specifically why they spun out CWGL and he indicated that they (Jefferies) just didn't want the asset.
|Subject||Pretty big insider buys|
|Entry||04/07/2017 02:19 PM|
I don't know what to make of it, but the volume of these purchases was unusually large compared with their prior buys (though these guys are unusually rich). Maybe the latest vintage is tasting particularly good. If so, that 20% shareholder discount will come in handy.
CUMMING JOHN D.
2017-03-29 Buy 10,600 $9.38 $0.10M 113,880 10.26% View Filing
CUMMING IAN M.
2017-03-27 Buy 68,838 $9.25 $0.64M 2,431,349 2.91% View Filing
STEINBERG JOSEPH S
2017-03-27 Buy 18,837 $9.25 $0.17M 2,485,925 0.76% View Filing
STEINBERG JOSEPH S
2017-03-23 Buy 47,418 $9.16 $0.43M 2,467,088 1.96% View Filing
STEINBERG JOSEPH S
2017-03-22 Buy 2,582 $9.23 $0.02M 2,419,670 0.11% View Filing
DELONG PATRICK M
2017-03-20 Buy 500 $9.07 $0.00M 11,000 4.76% View Filing