these MHC companies are hard to understand, but blankmind is right about the net effect of the second step conversion, if it takes place...i think his figures on book value are off a bit, but there is no doubt that the book value is higher than stated by yahoo, as long as the second step eventually takes place
i had to read through the information on various banks which have completed both steps of the process to understand and verify what blankmind was saying, and even then it took me a while to digest it all
i'm not even sure these banks are that great of an investment, in comparison to other things you can buy that may pay off sooner, but the inherent book value is unquestionable, once you understand the dynamics of the MHC structure
perhaps blankmind will post the example of the company which did this type of second step conversion recently, he mentioned it a while back on the thread, and it was the one whose filings i read through in order to understand the process...i then found several others which were similar, and in every case, when the second step conversion was announced, the stock price went up substantially, between 50 and 100% in every case from what i remember
the reason for all of this, as blankmind has posted several times, is that the MHC shares are sold as a secondary in the second step of the process, and the proceeds from that secondary go to the company...because the secondary also involves issuing all new shares, and existing shareholders get enough of those shares so that their percentage of ownership of the converted entity remains constant, they continue to own the same percentage of an entity which is now worth a lot more money, because it has received the proceeds of the secondary
essentially, in step 1, X number of shares are issued to the MHC and Y number of shares are sold to the public (some also go to a charitable foundation and some to the ESOP, but these are immaterial amounts)...now fast forward to a time when the stock is trading at price A, any particular shareholder owns H number of shares (their part of Y), and the company decides to do the second step...in step 2, the same number of shares as X are sold to the public but in Z form, usually at 10 bucks, so the company receives 10X dollars for these new shares...at the same time, a holder of the Y shares receive (A/10)*H shares of the new Z shares...the MHC shares now do not exist, nor do the Y shares, and there are now X + (Y*A/10) shares of Z outstanding, the new and only shares at that point...the MHC no longer exists at this point, it isn't bought out, it just ceases to exist...the new company now has more shares outstanding than it did prior to step 2, but it has 10*X more dollars in its coffers, so the process improves the book value of each resultant Z share substantially...of course, it also gives the company greater earnings power, once it is able to deploy the additional capital
as such, whenever you look at one of these companies, rather than figuring it based on the MHC shares not existing or "counting," figure it as the company having 10*X more dollars in total book value, and then divide by the total outstanding shares, including the MHC shares...as such, in the example of CSBK, as of 12/31/04, the stated book value was 202M...add 168M for the MHC shares, and divide by 30.5M shares outstanding, and you get a book value of about 12 bucks
again, the easiest way (though it is still very complex) to understand this is to go through the filings of a company which has completed the full process...i certainly wouldn't blame you if you decided the whole thing wasn't worth it, and avoided these stocks altogether <g> |
