Back in May, I had mentioned that Urbana’s discount to its net asset value had decreased to 32% from 37% and that management had continue to buyback lots of shares. As of today, the shares are trading at 88 cents while the NAV is at $1.76 for a massive discount of 50%. With the discount wider than ever, it’s important the buyback continues, however shareholders are looking for more value enhancing activities.
The recent widening of the discount to 40% of NAV prompted a number of value investors (including myself) to write a letter to Urbana’s President, Thomas S. Caldwell, hoping to have a dialogue about increasing the buyback. Also, we hoped to address the ways in which the buyback could be financed (debt vs selling their exchange holdings and rationalizing the business). As BarelKarsan.com wrote Urbana was very polite in discussing the large discount and mentioned they have no plans to significantly shrink the business, but will continue with the buyback:
“We do plan to build this company and our goal is significantly above its current size. I would not like to run our size down too much.”
This is convenient given Mr. Caldwell’s fee structure for managing Urbana, but with the further widening in the discount to 50% and the ample liquidity in Urbana’s main holdings (CBOE, NYSE Euronext) a substantial issuer bid would dramatically add value for all shareholders.
It is unknown if Urbana will move beyond the existing buyback for a substantial issuer bid but when you are an investment manager with enough experience like Mr. Caldwell it’s hard to resist taking bold, value enhancing actions that would further demonstrate Urbana’s full commitment to shareholders and growing net asset value.
Disclosure: Long urb, urb.a
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