April 29, 2017 - 5:21pm EST by
2017 2018
Price: 2.80 EPS 0 0
Shares Out. (in M): 3 P/E 0 0
Market Cap (in $M): 8 P/FCF 0 0
Net Debt (in $M): -7 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

Sign up for free guest access to view investment idea with a 45 days delay.

  • Personal Account Idea
  • NOLs
  • Steel Partners


This is a very tiny one, so suitable only for PAs. However, this type of situation has been a very consistent way to make a bit of money, so it's worth a writeup.

iGO is one of Steel Partners's (SPLP) NOL shells. Steel Partners has been written up on VIC before. It's Warren Lichtenstein's holding company, a hedge fund that backed into being a public holding company. Their investing record is a bit mixed, but they are very aggressive about not paying taxes, and they have been successful with that so far. The investing record is irrelevant here anyway, since if it plays out, shareholders will be taken out at a premium.

Here is the way the game works: Right now, tax law (sec. 382) allows NOLs to be carried forward unimpaired as long as an owner doesn't change ownership by more than 50 percentage points within a 3 year testing period. (It's actually a little more complicated than that, but that is the only important thing to know for this maneuver).

Here's how Steel plays the game:

1. Identify a failed, publicly traded company that has accumulated a ton of tax losses and has no real value besides the remaining cash on the balance sheet.

2. Tender for slightly less than half of the shares outstanding at a small premium to cash. This leaves a publicly traded stub.

3. Sell off any remaining assets and businesses, leaving just a pile of cash.

4. Wait three years, so the clock resets.

5. Initiate another transaction or set of transactions whereby Steel downstreams a valuable business into the shell, or acquires a valuable business, and increases ownership to over 90%. Note that they can put a very large business into the shell in this stage - they can trade an operating business for like 90%+ of the stock, and still increase ownership by less than 50 percentage points because they already owned something like 48% before the transaction. They can supplement common stock with preferred stock and debt so that they can get a business of virtually any size in there.

6. Do a final transaction to delist the stock and take out non-insider shareholders. They can't own 100% of the stock because that would trip 382 (unless they've already waited 3 years since the last transcation), but as long as they have some insiders who are willing to hold restricted stock, they can get rid of the public listing.

They've played this game with CoSine (which I wrote up a couple of years ago), DGT, and a couple of other shells I can't remember the names of right now. CoSine went from $2 to being taken out for $4.40 within a year or two. The publicly traded stub is so miniscule in all of these transactions, they seem to be willing to pay a reasonable price to take out stub shareholders to avoid any hassle.

iGo has about $7.5 million in cash and liquid assets, and federal NOLs of over $180 million (so about $70 million of theoretical value, albeit less if the Trumpster gets his way with the corporate tax rate). There are 2.9 million shares outstanding.

Steel Excel (SXCL) tendered for 1.3 million shares of iGo in August 2013, for $3.95 per share. They did a forward/reverse split for $3.35 in July 2014, to clean up some of the smaller shareholders.

The stock trades at $2.80 today, and there is about $2.50 a share of cash on the balance sheet. The big asset is the NOL, which can now be accessed since the 3 year waiting period was up by August 2016. The public stub is only 1.6 million shares, or about $4.5 million, and I expect they will have to allow allow a few million dollars of value from the NOL leak into the public stub to make sure they can tap the NOL in a timely and efficient manner. Steel has never been particularly generous with the public stubs, and they won't be here, but the potential nuisance cost from lawsuits or delays in transactions is well worth avoiding when there's so much at stake.

SPLP has about $800 million in assets and that will grow by a couple of hundred million, as they recently tendered for the public stubs in Handy and Harman (HNH) and Steel Excel, which are two of their larger subsidiaries. HNH recently ran out of NOLs and should do well over $60 million a year in pretax income and would be a good match for iGo's $180 million in tax assets. Once they own 100% of both SXCL and HNH, which they will shortly, they can set up a transaction where iGo "buys" HNH from Steel for newly issued iGo stock and preferred stock or debt. HNH will avoid taxes for the next 3 years and Steel will still own virtually all of HNH by virtue of the ownership of nearly all of iGo post transaction. They did this with CoSine and WebFinancial recently - you can see that as a case study.







I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Steel closes its acquisition of HNH and downstreams it to iGo; alternatively, Steel downstreams other assets to iGo.

    show   sort by    
      Back to top