ALJ Regional Holdings Sells Kentucky Electric Steel – ALJJ

Today ALJ Regional Holdings announced an agreement to sell its sole operating subsidiary, KEC Acquisition Company,  to Optima Specialty Steel for $112.5 million. After paying off all debt, ALJ Regional Holdings will have about $51 million in cash, or $0.86 per share.

This is an extremely impressive accomplishment for the company and a great result for shareholders. In Mr. Ravich’s own words:

“I am very proud of what we have accomplished today for our stockholders. When the current members of the board joined ALJ, it had no operating business, less than one million dollars in cash, liabilities of over $14 million and an accumulated deficit of over $340 million. Through the hard work of the board, the support of our lenders and the amazing job of our employees and management company, Pinnacle Steel, LLC, pro forma for the merger, ALJ will have over $50 million in cash, no debt and stockholders’ equity of over $50 million.”

I first wrote about ALJ Regional Holdings back in August, when the company was trading at 43 cents per share. At that time I made the case for ALJ being significantly undervalued under even the most pessimistic assumptions. Under the scenarios I laid out, a simple continuation of the deleveraging process and a gradual re-rating to a market average multiple would result in an IRR north of 20% over the space of a few years. Turns out investors won’t have to wait that long and will instead see a huge return on their investment in just a short time.

In addition to announcing the sale of its operating company, ALJ Regional Holdings unveiled plans to tender for 50% of shares outstanding at a price of 84 to 86 cents per share. Mr. Ravich, owner of more than 23% of shares outstanding, will not be tendering his shares.

Following the tender offer, ALJ intends to use its remaining capital to seek another acquisition target. The company will still possess millions in valuable tax loss carryforwards. The company cautions that finding a viable acquisition candidate may take a while, or may not happen at all. Investors must decide if they want to stay invested under Mr. Ravich’s leadership, or take the cash and look for another opportunity. I am willing to bet Mr. Ravich can repeat his success.

The sale transaction is scheduled to be completed in December, after which the tender offer will executed. Optima Specialty Steel still must line up deal financing, but ALJ Regional Holdings does not seem to view this as a big risk.

I will be transferring ALJ Regional Holdings to the “Inactive Ideas” section of the blog, where it will join Abatix Corp. as an example of an OTCBB/Pink Sheets that has produced market-beating returns for investors.

Disclosure: I own shares in ALJ Regional Holdings, but not as many as I wish I did! I am still assessing whether or not I will tender any or all of my shares.

This entry was posted in Uncategorized. Bookmark the permalink.

6 Responses to ALJ Regional Holdings Sells Kentucky Electric Steel – ALJJ

  1. Eric says:

    how big did you size it out of curiosity? I thought the last time you posted you said you didn’t have a position

    • otcadventures says:

      I picked up shares in mid-October when a large distribution from another investment gave me some excess liquidity. When I started the position it represented 4% of my portfolio’s total value.

  2. Matt says:

    What is your source for the tax carry forwards remaining after the transaction? I don’t see any in the financials, and regardless, wouldn’t they go with KES to the new owner?


    • otcadventures says:

      In its 2011 annual report, ALJ Regional Holdings reported having $259 million in NOLs. These NOLs are at the holding company level, not with KES, so they will remain even after the KES sale has been completed.

      These NOLs are lost if an “ownership change” occurs. ALJ has structured its tender offer to ensure the NOLs are not affected.

      • Matt says:


        I also found Deffered Tax Asset in the financials that differ substantially from the tax loss carry forwards (even before DTA valuation allowance). what is the difference between the 2? Finally, how would you go about valuing this tax “assets” going forward as the shell company starts looking for an acquisition?

Leave a Reply

Your email address will not be published. Required fields are marked *