I promise, this will be the last one of these posts for a while. P.S. please read how my Danier Leather investment didn’t end up being a total disaster despite the company entering bankruptcy protection.
Let’s recap. I purchased 3,500 Automodular shares back in 2013. Here’s where I wrote about it. Long story short, I bought 3,500 shares at an average cost of $2.25 per share.
The company eventually lost its only customer (don’t worry, I knew that going into the investment) and languished as a zombie company. It just sort of existed and didn’t do anything. Shareholders were slowly losing out because it was maintaining its listing on the stock exchange and paying top execs to still work, albeit at a greatly reduced salary. Still, money was going out the door at a slow pace, which is never good.
The main reason for not just shutting down and returning money to shareholders was an outstanding lawsuit launched against General Motors after that company severed its parts agreement back in 2012. AutoModular was seeking $20 million for breach of contract. These things move slowly. The original lawsuit was filed back in 2015 and it didn’t actually get settled until a few months ago. More on that, later.
So what happened?
Let’s start back in 2015, when the company announced a tender offer for up to $15 million worth of shares. That was about a third of the market cap at the time. The company offered to pay between $2.55 and $2.65 per share. It would buy all the shares at $2.55 first, then move onto the ones offered for $2.60. If there were any left after that, it would pay $2.65. This is a dutch auction type of buyback. The other kind is when the company just offers to pay a set price.
I was enticed by this offer, so I placed a call to my broker. I won’t say directly which one it was, but it rhymes with Wu Braid. I connected with a very helpful rep who informed me there was no record of any such tender offer.
I couldn’t believe it. I gave the guy specific directions on how to find the offer online. He didn’t care, telling me that if his system didn’t have record of it then it might as well not exist. Fuming, I hung up and abandoned the whole exercise. Yes, I am a moron.
Aside: Not all of my shares would have been tendered in the auction, but most of them would have been. I probably would have sold the few stragglers in the open market shortly afterwards. I’m guessing my sale price would have averaged $2.60 or so.
So I held onto my shares and watched them slowly sink down to what I paid. I remember trying to sell for $2.45 at one point but couldn’t find a buyer.
Then, at around this point last year, news. Automodular announced it had agreed to a reverse takeover from a company called HLS Therapeutics, which looked to me like a miniature version of Valeant or Concordia Health Care. Basically it acquires drugs from existing pharmaceutical companies and milks that sweet cash flow. It then uses that to take on debt and buy more drugs.
Note this might be wrong. This shows how much I researched this new company.
The terms of the agreement were that every Automodular share turned into 0.165834 share of this new company. Automodular holders would also get one preferred share for each existing common share, which would be their share of any winnings from the GM lawsuit. I ended up with 586 shares of the new company and some preferred shares which as far as I can tell have a par value of $0 and don’t trade on a stock exchange. In other words, I’m stuck with them.
Then, more news. Earlier this year (again, I’m too lazy to look up exact dates), Automodular announced a settlement with GM. After lawyer costs and whatnot, Automodular shareholders would be getting $6.3 million from the GM lawsuit. There would also be $0.7 million placed in an escrow account to cover any potential unforeseen costs. This money will be given to preferred shareholders in 2020 if there’s any left.
This translated into a $0.65 per share payout for your’s truly. Now we’re getting somewhere.
Finally, there was the matter of selling my HLS shares. I waited patiently for months for a good time to sell, but they kept trending a little downwards. Let’s throw up a chart. Note the end of the chart, when SEXY TIMES started to happen.
I wish it was up 545%.
You can ignore the first half of that chart. That was from when the shares were still Automodular. You can see the big spike, when the new company started to trade. The shares trended downwards until a couple of weeks ago, when they went sharply higher. I sold into that strength, getting out at $14.80 per share.
The best part? I still don’t know what caused the big spike. I’m not going to find out, either. That’s how regret happens, people.
Remember, each Automodular share was about 1/6th of a current HLS share. The result isn’t nearly as good as it looks.
Let’s break it down. I got:
- $0.18 per share in dividends
- $0.65 per share in lawsuit proceeds
- $2.45 per share from the sale
That works out to a total of $3.28 per share. I paid $2.25 per share, giving me a profit of $1.03 per share. In total, I made a 46% profit.
The only problem? It took five years to get there. That works out to a little over 8% a year. That’s not a disaster by any means, but it’s not great either.
The bottom line
Automodular is the perfect example why I don’t do special situations stuff much anymore. Sure, it worked out, it just took a long-ass time to get there. I’d rather buy boring stocks I don’t have to keep an eye on. These days I mostly just log into my accounts every few weeks and reinvest dividends. It’s a much nicer existence, even if it doesn’t provide blog fodder like this.