Vulcan International Corporation VULC
September 11, 2020 - 10:09pm EST by
david101
| 2020 | 2021 | ||||||
| Price: | 145.00 | EPS | 0 | 0 | |||
| Shares Out. (in M): | 1 | P/E | 0 | 0 | |||
| Market Cap (in $M): | 132 | P/FCF | 0 | 0 | |||
| Net Debt (in $M): | 0 | EBIT | 0 | 0 | |||
| TEV (in $M): | 0 | TEV/EBIT | 0 | 0 | |||
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- Liquidation
- None found
Description
Vulcan International Corporation is a liquidation play that should return 11% in short order, as I think the stock is worth $161/sh. The opportunity exists because the company went dark 15 years ago and getting information from the company is difficult. The stock is thinly traded and a micro-cap and is best suited for personal accounts and small funds.
Recent Developments: Two news items indicate that the liquidation will be completed shortly and distributions made to shareholders. An article on September 1, 2020 indicated that a deal for the last property will close by the end of September:
https://www.theleafchronicle.com/story/news/local/clarksville/2020/09/01/clarksville-growth-hand-family-set-buy-vulcan-site-college-street-mixed-use-redevelopment/3456174001/
This was received by Nate Tobik from a board member:
Background: The company history is colorful due to Benjamin Gettler who was a lawyer who got involved with buying up companies and had a long association with Lloyd Miller II. Old proxies show that Benjamin became a director at Vulcan in 1960. In 1972, Vulcan bought the footwear division of B.F. Goodrich. Around that time, Miller was Chairman of Vulcan. In the 1980's, the flood of cheap competition started from Asia, decimating the company and forcing the company to close various plants across the country. The two seemed to switch roles and I don't have the exact sequence but in 1988, Gettler became chairman of Vulcan. Miller was CEO at the time and continued until he died in 1990, at which time Gettler assumed both positions.
Gettler was noted for working the gray areas of the law, suing and often being sued, as evidenced by a contentious battle with Lloyd Miller III. Another misadventure involved a joint venture with the bowling equipment company AMF/Brunswick that resulted in lawsuits. Despite all this, there were a number of
successes. The company ended up with a pile of money and Ben invested the money in stocks. The one remaining foam and rubber manufacturing plant was in Clarksville, TN. A rational operator would have shut that last plant down long ago but Ben saw a diamond loophole in the rough. The plant allowed the company to be an investment fund while masquerading as a manufacturing company.
The Gettler family controls a majority of the shares but the exact amount is not known. In 2005, the company deregistered from the SEC and the family owned 49.6% of the shares. Since then, the number of shares has been reduced from 983K to the current 910K.
The company went further in not providing any financial information to shareholders. The only way to obtain the financials is to send a Section 220 Demand letter, preferably by a form of registered delivery as regular mail seems to go to a black hole. Even that is not a guaranty, which may require an attorney drafting and submitting the letter. Once you get past that, you have to sign a non-disclosure agreement (NDA).
Ben Gettler was married three times and has four children. He had a daughter Jorian with his first wife. He had a son Tom and daughter Gail with his second wife. He had a son Benjamin (not a junior so I will refer to him as Young Ben) with his third wife Deliaan, who has a son John Gabriel from her first marriage. When Ben, who was CEO and Chairman of the Board, died in 2013, a large portion of the shares were put in trust. No one replaced the positions as the family is very dysfunctional. Tom, Young Ben, John Gabriel, and Deliaan are on the board of directors. Tom is the corporate counsel for the company and also oversees the family trusts, which gives him Machiavellian control. John Gabriel is the president of the company and runs the day-to-day operations. He also is the one who periodically releases information about the company. Deliaan was younger than Ben and is now about 79 years old. Young Ben lives in Florida and was/is involved in real estate and building homes. It appears that he had a small joint venture with Vulcan.
The obvious reason for company keeping the company financials under lock and key is to avoid the onus of being an investment company. This became more challenging in recent years because the investment portfolio crossed the magical $100 million reporting threshold that requires filing a form 13F-HR with the SEC, even for dark companies. It seems the company hit two homeruns in buying USB and PNC.
Financials: Since I signed an NDA, I can't provide details on the financials that I have from 2016 to 2018 but I can provide a road map to a valuation. You can also do some internet searching on an odd ball stock like this and find some details that have leaked out over the years. On 10/2/2018, Vulcan announced that it would shut down operations at the Clarksville plant and begin the liquidation process (which has to be completed within 3 years). Shortly thereafter, the stock traded to $140. For illiquid buyouts, my opinion is that a 5% discount is not uncommon. I am going to assume that most of the buyers at that time were investors who had access to the financials. Let's say book value at the end of 2018 was $140/0.95 or $147.37/share. Let's also assume that a rational liquidation would begin with the most liquid assets and work through the less liquid. Let's assume most of the stocks were sold right after the announcement and that the proceeds were invested in something liquid and safe, such as Treasuries. That is what a reasonable fiduciary would do. The remaining value consists mainly of four properties, three of which were bought many years ago. The hidden value is the gain on sale (GOS), minus the friction from expenses and taxes, that gets added to book value. The main properties are:
1. 9316 Union Centre Blvd, West Chester Town Center, Ohio - This was bought in 2017 for $3.8 million and sold for $3.9 million on 5/21/2019, per Butler County real estate records. Assuming commissions and an offset for depreciation, I am going to call it a wash.
2. 30 Garfield Place (Cincinnati Club Building) Cincinnati, OH - This is the headquarters for Vulcan and has a complicated history that I am going to skip. The building consists of two commercial condo units, one for the first three floors and the other for the upper 7 floors. Vulcan owns both units, one valued at $2.8 million (condo "B" or the upper floors + land) and the other at $550K (condo "A" or the lower floors).
https://wedge1.hcauditor.org/view/re/0770003014900/2019/summary
https://wedge1.hcauditor.org/view/re/0770003014800/2019/summary
Vulcan bought the smaller condo on 5/4/2018. We can learn some of the details behind this property from a lawsuit filed in 2005:
https://casetext.com/case/bi-properties-v-vulcan-blanchester-realty
The building and land are owned by Vulcan Property Management, a subsidiary of Vulcan International Corporation and John Gabriel is president of both. The company can sell the subsidiary in lieu of selling the physical building. This may have already been done, as I can find no record of a property sale. I am going to
assume no GOS on the smaller condo. For the main condo, I am going to be conservative. It is assessed for $2.8 million but let's say it was sold for $2.4 million and further assume $400K carrying value resulting in a $2.0 million GOS.
3. 1151 College Street, Clarksville, TN - This consists of three tracts totaling 31 acres that are being sold together.
https://mcgtn.org:8443/County/assessor/webpro/parcelsummary.aspx?id=1434354&card=1&search=p
https://mcgtn.org:8443/County/assessor/webpro/parcelsummary.aspx?id=1437162&card=1&search=p
https://mcgtn.org:8443/County/assessor/webpro/parcelsummary.aspx?id=1401912&card=1&search=p
The building was torn down in 2019 and there were EPA issues that had to be addressed before a sale could take place.
If you scroll down on the previous article link on the purchase, there is an item about the City of Clarksville paying $1.0 million for the partial demolition of an old meatpacking plant near the Vulcan site. Here is a video of the plant before it was torn down to give some perspective on the size of the plant:
https://www.youtube.com/watch?v=W4OF8Qrw2lc
In the 55 - 58 second track, you can see the red bricks of the Frosty Morn plant and part of the smoke stack in the upper left-hand corner of the screen. While the Vulcan plant is much larger, I think there is scrap value to the machinery and metal structure, which is easier to tear down than concrete and brick. I am figuring a net cost of $2 million for demolition, which would likely be expensed in the year incurred (2019).
Looking at land for sale in the area, it varies considerably. However, the tract is near the center of Clarksville, and not far from the Austin Peay State University (hence the College Avenue address). Small lots (< 1 acre) near the site are selling for over $300,000. Go out further, and there are a few commercial land parcels around $100,000/acre. I am going to use $200,000/acre, $0 carrying value, but assume commissions and remediation drop the GOS to $4.0 million.
4. 14,306 Acres of Michigan Timberland - This is where the bulk of the hidden value resides. This property was sold on 12/17/2019 but the transaction details were sealed. Reviewing timberland for sale in the area, the base prices are around $700/acre for low quality/recently harvested land. Rumor has it that although Vulcan derived yearly income from timber sales, the lumber was being culled at a low level to what the land can produce. Put another way, it was well stocked with ready to cut trees that an active manager would pay up for. My guess is that the net sale was around $1,000/acre (buyer pays the auction commission which can be as much as 10%) and that the GOS is $13.6 million.
Although I cannot disclose actual figures, there is nothing preventing me from developing estimates of what the 2019 and 2020 financials might be. This provides us with the upside.
The estimated interest income is for T-bills held by the company using 1.65% interest rate. The most nebulous estimate is for expenses. Even though the plant was shut down in 2018, I am assuming that 2019 general expenses are much higher due to wrapping up pensions and 401k's, the administration of the liquidation, the demolition of Clarksville, and overseeing the remaining properties. Tom Gettler bills his legal work to the company and John Gabriel is still working as president.
On taxes, the rate has been around 20% in recent years. Part of that stemmed from NOL's which I expect were largely used up when the company sold the investment portfolio. I am assuming 25% for state and local taxes.
Putting it altogether, I get over $161/share. I put the one standard deviation range at +/- $3, two standard deviation at +/- $5, and three standard deviation at +/- $10.
My understanding is that the 2019 financials might be available in September 2020 but that may not matter if the liquidation is completed soon.
Risks:
- Illiquid
- Family controlled
- Liquidation is not completed within three year limit (10/2/2021) and assets are placed into a liquidating trust.
Disclaimer: The content of this post is solely for informational purposes. It is critical to perform your own independent analysis and consult with a financial professional prior to making any and all investment decisions.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.
I and/or others I advise hold a material investment in the issuer's securities.
Catalyst
Liquidation is completed.
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