Buy Price
Holding Type
Investment Theme
Trade Date
July 7, 2016

Pendrell (PCO)… (July 7, 2016)

I purchased this today at $0.514 per share. This is an optionality-type bet, similar to what Lakes Entertainment (LACO) was before they merged with Golden Gaming to become GDEN. No real operating business to speak of but a significant amount of cash and NOLs to try and utilize through an acquisition.

Pendrell is a $140m company with $170m in cash (no debt) so roughly a negative $30m enterprise value. This is a pure Ben Graham net-net. They own a few patents which they had been trying to monetize in the past (trailing revenue ~$30m). After a few trials lost, it sounds like management is abandoning the IP-monetization effort in favor of finding a suitable acquisition to use up the NOLs making this an NOL-shell. These NOL shell companies have had mixed results: RELY, MLNK, PARR, ALJJ, SCMR, WMIH, etc. So we will have to wait and see how this plays out. NOLs total $2.6bn ($980m fully-reserved tax asset) which makes it 7x the current market cap.

The holders list is great: Craig McCaw (telecom billionaire) controls the company, Highland Capital + Jim Dondero (behind the NHF/NXRT situation) own ~25%, and Ariel Investments owns 15%.

I will give this a few quarters to see what the company does with the cash. If an excellent acquisition is made, I’d be happy to double down on this one. Cash burn is minimal right now ($2m outflow in 2015 and $4m inflow trailing 12-months) but should be monitored.

UPDATE: I sold the last of this position on July 3, 2017 at $7.14 per share for a ~31% gain. The company announced it would conduct a second reverse split and go private (i.e. cease reporting financial information) until it found an acquisition. A large shareholder (Highlands/Dondero) sold their stake back to the company at $6.55/share which made the sale price >$7 more desirable.