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American Capital: The Perfect Share Repurchase Program

I’ve owned this since $2.95, continue to hold and expect to hold for some time. The company will continue to cannibalize itself (reduce shares outstanding) over the next year. Last quarter they repurchased 4% of the stock and I expect there will be little if any reduction in that rate of activity going forward.

Wilkus is following the playbook of the “Outsiders” to perfection and it will result in additional significant gains down the road. In addition to the repurchases the company has also delevered the balance sheet and is continuing to make additional investments to grow earnings/cash flow.

The obvious questions that will come is “why is the stock below BV then?”. It is pretty easy really. American Capital Ltd. (NASDAQ:ACAS) is a BDC. BDC’s are typically owned by income oriented investors. Since American Capital Ltd. (NASDAQ:ACAS) pays no cash dividend currently, is small, under followed and typical BDC investors are avoiding it, shares are below BV. Interestingly enough they are still outperforming the market but they are doing so at far less a spread than they could be. So, the company keeps gobbling up their shares and building their balance sheet. There are also some corporate actions they could take (consolidating their EU division, spinning off others) that could create significant value for shareholders and I suspect we may see one or some of them announced in late 2014.

This will eventually return to paying a cash dividend down the road but I suspect that will be after over another hundred million shares or more are repurchased and several dollars in share price appreciation

Eventually folks will notice……

November 8, 2013

Dear American Capital Stockholders:

About a year ago, I wrote to you about the American Capital Ltd. (NASDAQ:ACAS) Board of Directors’ decision to implement a share repurchase and dividend program. Since August 2011, we have purchased 83.8 million of our shares for a total cost of $924 million, at an average price per share of $11.02. This represents 24% of our shares outstanding at the start of the program. Purchases through September 30, 2013 added $1.69 to our $19.54 book value per share as of the end of the third quarter of 2013. The per share impact of the $1.69 increase in our book value per share is equivalent to $469 million of additional retained earnings. Since the $924 million purchase price represents only a portion of the $1.6 billion American Capital earned during this period, these purchases were funded from earnings and not capital.

Since we implemented the share repurchase and dividend program in August 2011, we have increased our book value per share by $6.38 or 48% as of September 30, 2013. In addition, since July 31, 2011, we have increased our stock price by 42%, an 18% annual return as of September 30, 2013. Over the same time period, this compares favorably to the 13% annual return of the S&P 500 (INDEXSP:.INX), the 11% annual return of the Dow Jones 30 Industrials and the 15% annual return of the S&P 500 Financial Sector.

We are writing this letter to provide the notice required by law that we may be repurchasing additional shares over the next six months. Our share repurchase and dividend program extends through the end of 2014, so we may provide additional notice of further purchases during that period.

Under our share repurchase and dividend program, American Capital will consider setting an amount to be utilized for stock repurchases or dividends, quarterly through 2014. Generally, the Board of Directors will authorize that this amount be utilized for stock repurchases if the price of American Capital’s common stock represents a discount to NAV, otherwise the amount is to be utilized for cash dividends if the price of American Capital’s common stock represents a premium to NAV. When American Capital Ltd. (NASDAQ:ACAS) purchases its stock at a discount to NAV, it increases the per share book value of the remaining shares.

Shares may be purchased in the open market, including block purchases, through privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. American Capital does not intend to repurchase any shares from directors, officers or other affiliates of American Capital.

The repurchase and dividend program may be suspended, terminated or modified at any time for any reason. The program does not obligate us to acquire any specific number of shares, and all repurchases will be made in accordance with SEC Rule 10b-18, which sets certain restrictions on the method, timing, price and volume of stock repurchases.

We appreciate your support and investment in American Capital and want you to know that we are working hard on your behalf to increase shareholder value.


/s/ Malon Wilkus

Malon Wilkus
Chairman and Chief Executive Officer

Via: valueplays