Description

Situation Overview:

This is an illiquid nanocap idea only suitable for PA’s. Wright Investors’ Service Holdings (“IWSH”) has a long and interesting history (see its Wikipedia article/sources for a good read), but today there is a short list of relevant factors:

1.      IWSH is a cash shell trading at a ~40% discount to net cash and ~60% discount to net cash + 50% of the value of its deferred tax assets.

2.      Harvey Eisen (longtime Chairman and CEO) has been a recent buyer at prices at or above the current share price

3.      More importantly, Bill Miller (longtime friend of Harvey) got involved in 2019 and has been a recent buyer at prices at or above the current share price (avg cost basis ~38c/share)

4.      Current negative TEV of ~$3mm (ignoring DTA) and cash burn of ~$320k/quarter implies over two years of cash burn to get a deal done (significantly longer giving credit to the DTA).

5.      In other words, at its current valuation IWSH is a free 2 year option on Bill Miller doing something interesting with this vehicle.

($ in thousands)

Recent History:

In July 2018, IWSH completed the sale of its operating business for $6mm cash consideration and has been a cash shell evaluating strategic alternatives since that date. In 2019 Cove Street bought 13% of the company and mounted what seems to be a half hearted activist campaign to oust Harvey and install their own board. Cove Street failed and sold their shares a couple months later to Harvey, Bill, and Joe Moglia for 42c/share. Joe ended up selling his shares to Bill and Harvey in December 2020 at 20c/share.

Cash Burn:

Run rate cash burn is exorbitant at ~$1.3mm/year (~$320k/quarter). Harvey is paying himself $300k/year salary. He has a CFO helping out for ~$80k/yr and pays the board $100k/year in stock. In addition, somehow they are burning $800k/year in Office Rent + Professional services. Audit is $150k, rent is ~$45k. The remaining $600k is consultants and legal fees for evaluating strategic alternatives.

  TEV + cash burn sensitivity:

Despite the exorbitant cash burn, at the current share price we have a very long runway for Bill to do something interesting here. Even at meaningfully higher share prices, there is a lot of time to get something done providing a large margin of safety at 20c/share and potentially meaningful upside even before a deal gets done.

 Ownership and Insider Buys:

Catalyst:

1.      Bill Miller’s involvement is the reason why this is interesting. Harvey has destroyed a lot of value at this company, but Bill’s involvement increases the probability of an outcome that creates value within a reasonable period of time.

Risk:

1.      The biggest risk is that nothing happens and Harvey continues to pay himself a comfortable salary until the money runs out. Bill and Harvey are friends. Bill’s investment is not material relative to his net worth. Bill may just be willing to write this one off for his friend if an interesting opportunity doesn’t present itself.

a.      This risk is attenuated by the current valuation already building in a meaningful probability of this highly unlikely outcome.

Catalyst

1. Announcement of a transaction