Kaiser Group going private?

KGHI just released their 2006 10k. It contained the following interesting tidbit.

"Proceeding with a 1-for-20 reverse split requires that we amend the Company’s Certificate of Incorporation, which requires stockholder approval. The Board adopted resolutions at a special meeting held on March 19, 2007, which, among other things, set forth the proposed amendment, determined that the reverse split is advisable, and called for submission of the amendment for approval by the Company’s stockholders at the Annual Meeting to be held on May 30, 2007."

It's not surprising that KGHI wants to go private as they have only four employees and it should save a significant amount of administration costs. Is this a good thing for investors? I think so. Once the company officially announces the reverse split they'll affix a price to each fractional share. For example, if you own 23 shares, you'll get one new share plus cash for the extra three "fractional" shares. Current book value is about $36.92 per share, so it's reasonable to expect the price they'll set to buy back fractional shares to be near book value. This won't drive the price up to book value, but there will be some arbitrage occuring as small investors try to buy 19 shares in each of their accounts to take advantage of the discount knowing they'll be cashed out in full.

For example if the cash out price is $37, then I would expect KGHI to start trading over $30, possibly closer to $34. Of course this only benefits those who want to sell the stock pre-split, and there may not be enough volume to sell a large number of shares. After the split I still expect the new shares to trade, but with less information released by management and even less liquidity (if that's possible). Holding may be still be a good investment as I believe the controlling shareholders still see more value in KGHI, but I have no idea how long it will take to unearth it.

Good luck, which ever path you decide to take here.

Hurray For Naked Shorting!

After thinking more about the melt-down at Novastar, I realized the catastrophe had some obvious heroes. The shorts, and not just the "legal" shorts, but also the evil, illegal, conspiring naked shorts. According to "Bob O'Brien" and others, a conspiracy by naked shorts kept Novastar's stock price substantially lower than it should have been the last few years. That means those secretive "Sith Lords" (as OSTK CEO Patrick Byrne calls them) helped save Novastar's investors millions upon millions of dollars during the meltdown.

Think about it. One of the few events worse than having a $30 stock plummet to $8 is owning a $60 stock that plummets to $8. That lower purchase price is the difference between having 26% of your investment left, vs. only 13%. So NFI investors may have twice as much of their NFI invesment left in todays world, than they would in a world where illegitimate "bashers" didn't sniff out Novastars overstated financials and find any means possible to short it.

So repeat after me. Hip, hip hoorary for naked shorts and naked shorting!!!!