R TWMC - so you are buying essentially an ownership in a management controlled company with a tangible book of $170M for $100M. Now, if they liquidate next year, you will be fine, but if they liquidate in 10 years, the returns discounted back will be quite low annualized.
Also, I would discount the value of the inventory by ~30% at least, which would be another $35M hit to equity, so adjusted book value would be $135M, reducing the safety margin even more. The issue that I see is that TWMC is not very likely to generate a return on their equity going forward, much less earn their cost of capital. With the slow motion liquidation, management avoids taking a huge one time hit, but pushes the liquidation date further out and it's not clear to me that it's a good deal for the shareholders if you discount this back using a reasonable discount rate (I would go with 10% for a risky business like RYE).
I would pass, because I think the expected return does not justify the risk here. |
