Description

SALIENT 3 COMMUNICATIONS (STCIA-$13 3/4) - MAKE 90%+ IN YOUR P/A!!!

Salient 3 just announced a whopping $12 liquidating distribution on its $13 3/4 stock. The distribution, payable on September 8th, is treated as a "return of capital" for stockholders - not a taxable event.

Buying the STCIA "stub" here for $1 3/4 looks like an excellent, safe and un-correlated value investment. By the company's own numbers the stub is worth $3.34, or 90% higher. (Beware however that the post-distribution the stock will likely be delisted and very illiquid.)

Use 6.5mm fully diluted shares to account for some stock appreciation rights granted to employees. So the remaining market cap is a measly 11.375 mm. After the distribution, the company will have at least $11 mm in cash, which must be held in escrow until 7/30/01 against potential imdemnity claims on a business sold to Agilent.

They recently sold 2 of their 3 business units for $160mm cash. The remaining business held for sale, called XEL, is being shopped by Baird & Co. and the sale process seems to be fairly advanced. Its unclear what value the company placed on it for purposes of their liquidation analysis, but the company's accounting assumptions appear to be conservative generally.

On the positive side, the aggressive $12 distribution reflects management's confidence in a successful liquidation. (I was expecting $7-8). Hopefully the company has also been conservative in estimating obligations for taxes, bankers fees, etc. Basically, the escrow cash covers your investment and you have a call on upside from the sale of XEL and any upside variance to the company's liquidation assumptions.

They caution that the complete liquidation could take up to three years, but it seems to be in every one's best interest to make distributions as soon as practicable. I would expect a second distribution after a sale of XEL and and a near-final distribution after the release of escrow in 8/01.
If XEL is unsalable or worth $0, you're still likely to make a shekel or two.

Best of luck,
gary9

Catalyst

A $12 liquidating distribution payable 9/8/00.