Thanks for the writeup. I agree with your assessment of the intrinsic value of the company and I've owned COWN for some time now. Ramius is clearly doing very well, with almost $900mm of net
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<div>Thanks for the writeup. I agree with your assessment of the intrinsic value of the company and I've owned COWN for some time now. Ramius is clearly doing very well, with almost $900mm of net inflows in 3Q, and decent performance. COWN has been an incredibly frustrating investment for me because the asset value is pretty clearly evident, and yet the market will not recognize it. The reason for this, in my opinion, is that management has been consistently shareholder unfriendly since taking over in November 2009. First, in December 2009 they had the company sell primary shares at $5 when book value was over $7 I believe. Then they did it again when they bought Labranche using COWN stock earlier this year. At the time COWN BVPS was $5.96 and LAB was $5.09, so this was essentially a second dilutive capital raise (Peter Cohen even described it as a capital raise since Labranche didn't really have a business anymore and therefore mostly what they were buying was capital). As a result of this behavior, I don't think they'll get new shareholders to buy the stock until they either 1) commit to a large share buyback, or 2) demonstrate consistent profitability so that the company can be valued on earnings. With regard to the first possibility, they have a small buyback authority, $20mm, of which they have used less than half. On the call this morning Peter Cohen gave a bogus answer to this question of why not do a massive buyback with the stock trading at 50% of book value. His response was first that if you announce it there is the question of how much you can actually buy since the stock price would rise (isn't that ultimate goal?) and two he said you have to balance short term gains with long term business-building considerations. Why not announce an opportunistic $100mm authority and buy stock slowly and opportunisitically? At the current price it would be 20% accretive to TBVPS. Regarding point 2 above, the investment bank will not be profitable any time soon, according to management on today's call, which makes consistent profitability more difficult given this volatile investing environment.</div>
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<div>Since Cohen and Co (Cohen, Strauss and Solomon) collectively own almost 33mm shares of COWN stock, one would think they would be motivated to get the stock price higher. But this doesn't seem to be the case. My guess is that they are more interested in building a mini-empire than in maximizing their net worths. In the near-term (measured in years since they've been in control 2 years now) the stock price doesn't matter too much to them. I think they are already pretty wealthy. As a result I don't actually think incentives are that well aligned here. It seems to be a case of good assets in the hands of bad or at the very least shareholder unfriendly management. Without one of the catalysts above or an activist getting involved I think the stock unfortunately will continue to trade at a significant discount to TBV. P/B has ranged from about 50% to 95% and averaged 70% since management took over, and is now near the bottom of that range. But if they dilute BVPS again, then the true P/B is higher than it seems. I think that is how prospective and current investors are assessing the situation right now. In the right hands this company is certainly worth more than $5/share. I would appreciate your thoughts on the matter, thanks.</div>
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