Watch Activist Deep Value Investing in Action

by JT McGee

I’ve always believed the best way to learn is experience and disagreement. Some of you have emailed me expressing interest in the activity in tiny stocks. This is your chance to watch something unfold.

The market is giving you the chance to see how active investors can change a company in Solitron Devices. Yes, this company was a topic just last week and in the 2013 stock picking selections. However, I really think it’s important that if you have any interest in the markets, especially as it relates to how proxy battles work, you stay tuned to this one.

Recently, Ancora Advisors filed their 13D to get in the middle of another shareholder, Furlong Partners, which intends to sue the company to make changes to the board of directors. Ancora Advisors says it will vote with management and its board IF the company makes good on a few of its own requests, including a $1.50-$2 special dividend per share (40%-57% of the current per-share price). Basically, Ancora Advisors is coming in as a white knight, but only if management is willing to be Ancora’s friend against Furlong.

If management doesn’t want to work with Ancora Advisors, then this 5%-plus shareholder will consider working with Furlong on a costly proxy and legal contest. This is a strong positioning move. The CEO owns more than one-fourth of the company. Should a costly proxy battle ensue, the CEO and major owner stands to lose millions of dollars.

Notice: either management works with Ancora’s aggressive requests (huge cash dividend) or it finds itself on the wrong end of costly legal notices. The choice is a shareholder-friendly move, or mutually-assured destruction.

This is how proxy battles and corporate disagreements should be solved. Someone makes their first move and then other shareholders make the next. In between, common ground is found, hopefully for the benefit of everyone.

If you have any interest in deep value stocks, Solitron Devices is an easy stock to follow.

{ 2 comments… read them below or add one }

William @ Bite the Bullet March 22, 2013 at 00:03

What an interesting angle! I’m not interested in micro-caps (yet) but it will be interesting to watch this play out.

How do you find out who else these active investors are investing in?

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JT McGee March 22, 2013 at 09:15

There’s one way to do it with a simple Google search: “site:sec.gov 13D Ancora Advisors.” I’m not sure if there’s an easy way to pull 13Ds from the SEC’s EDGAR.

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