Empire Resources Announces 1 Million Share Tender Offer

Empire Resources has been a disappointment since I wrote about the company back in late March. Despite posting solid earnings since, the company’s total return has trailed the market. At a bid/ask midpoint of $2.80, the company trades at just 70.6% of fully diluted book value and a trailing P/E ratio of 6.2.

Today the company announced a tender offer for 1 million shares at a price of $3.00. If the offer is fully subscribed, fully diluted book value per share will increase by 2.4% and the trailing P/E ratio will fall to 5.6.

More interestingly, the company would become majority insider-owned. As of the last available proxy statement, the Kahns and other insiders owned 4,375,000 shares outright. Insiders are also the beneficiary of 416,000 in-the-money options, and own $4 million of the company’s convertible subordinated debt, convertible into 876,200 common shares. If insiders converted and exercised all of their options and debt, they would own somewhere around 54% of basic share outstanding.

I continue to view Empire Resources as attractive at this valuation.

I own shares in the company and may add more soon.

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9 Responses to Empire Resources Announces 1 Million Share Tender Offer

  1. b says:

    would you recommend buying at $2.80 and tendering at $3

    • otcadventures says:

      Unfortunately, I can’t provide investment advice through this website for legal and professional reasons. All I can do is present ideas for your own evaluation and due diligence.

      I would recommend carefully considering the risks of participating in tender offers in general, which also apply in this specific instance.

      1. The tender offer may be over-subscribed, in which case you may be left holding shares that may decline in value.

      2. The tender offer may be withdrawn, leaving you holding unwanted shares.

      As always, be careful any time you consider purchasing a very illiquid security.

  2. stepbaroutlet@hotmail.com says:

    One of the large vendors (PT Alumindo from Indonesia) for Empire Resources has been denied a CNL (Competitive Needs Limit) waiver and Empire will have to pay duty (3%) on all Indonesian Aluminum Flat Rolled imports beginning in July 1, 2012. Once off the GSP, Indonesian aluminum flat rolled products will be subject to duty for the foreseeable future. This event will have an material adverse effect on Empire’s financial performance (disclosed in Risk Factors within Empire’s SEC filings). Not sure why you would buy this stock when they will be struggling going forwards?

  3. stepbaroutlet@yahoo.com says:

    One of the large vendors (PT Alumindo from Indonesia) for Empire Resources has been denied a CNL (Competitive Needs Limit) waiver and Empire will have to pay duty (3%) on all Indonesian Aluminum Flat Rolled imports beginning in July 1, 2012. Once off the GSP, Indonesian aluminum flat rolled products will be subject to duty for the foreseeable future. This event will have an material adverse effect on Empire’s financial performance (disclosed in Risk Factors within Empire’s SEC filings). Not sure why you would buy this stock when they will be struggling going forwards?

    • otcadventures says:

      I appreciate the input, and in fact I was not aware of this development. However, Empire Resources made plenty of money before their investment in PT Alumindo and I don’t think a 3% increase in the wholesale cost of aluminum is going to hurt the company beyond repair. Furthermore, the fact that the company trades around 80% of tangible book value provides an additional margin of safety.

  4. stepbaroutlet@yahoo.com says:

    Ok thanks — 3% is a big deal because Empire’s GP has been about 4-5% in recent quarters and net income margin is usually 1-2% only. PT Alumindo is a major vendor for Empire (40%) so this development may not kill Empire but will certainly hurt its profitability materially (unless of course they can be successful in raising prices by 3% but I do not think market conditions would allow such a price hike).

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