Wednesday, September 14, 2011

Global Railway's Liquidation

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


Anonymous said...

I'm betting that shareholders will be very lucky to break even.Any bets?

Anonymous said...

Barel - do you post contact information on your blog anywhere? Would like to email you. Thanks.

Saj Karsan said...

Hi Anon,

Yes, there is a "contact us" button on the right frame.

Anonymous said...


Sorry that this is totally off topic, but I can't think of where else I would ask this question:

Seeing as your first name seems to be Saj, why is this blog called "Barel Karsan"? I've been wanting to ask that question for a long time! :-)

- aagold

Anonymous said...

Halted today. The company's suggested liquidation value is $1.67. They said there would be 2 liquidation dividends. The one thing that cought my eye was managment is buying CADRI for less than book value.

Saj Karsan said...

Hi aa,

Because value investing is like shooting fish in a Barel?

Ha! Actually, I started the site with another guy and that was his name!