If you're a value investor who likes to buy companies undergoing liquidation, Global Railway Industries (GBI) may be for you!
After undergoing a few strategic sales in the last couple of years, Global Railway is down to owning just one operating unit. Two weeks ago, shareholders approved the sale of this remaining unit to management. (The unit will be taken private, saving a bunch of fees in the process.)
With no operations (as will be the case once the sale closes), the company will liquidate and return capital to shareholders. In the company's latest quarterly release, management breaks down what the assets and liabilities of the company would look like after the sale. Apparently, the company will have cash of about $25.5 million to distribute. But Global Railways trades for barely over $21 million, for an upside of 19%.
Before shareholders go rushing in, it's worth noting that there are some caveats. First, it will likely be a few months before the payment is made, as the latest transaction doesn't close until the latter part of the 3rd quarter. Second, the assumed cash distribution does include receivables from previous sales that are held in trust. As long as the buyer of those segments is happy that the transaction closed in good faith, that money will end up in Global's account; but it's possible those buyers will ask for some of it back. Finally, the distribution amount includes a number of estimates for transaction, legal and wind-up expenses that could turn out to be low. When the margin of safety is thin, there isn't a whole lot of room for error!
If everything goes according to plan, Global Railway's current shareholders should see a terrific annual return at the current price. However, investors should understand the risks before jumping in.
Disclosure: No position