CIBL’s Asset Sale Widens Gap Between Price and Value – CIBY

It’s good to be back! I spent a few weeks in Europe, centered around my brother’s wedding in England. The celebration and the sightseeing were great, but I really missed scouring the daily flow of filings and news items from obscure companies for opportunities. As luck would have it, a news item revealed an attractive opportunity just an hour after my return to the States yesterday.

CIBL, Inc. is selling its interests in two Iowa TV stations. The company has signed a definitive contract with Nexstar Broadcasting, Inc. to sell its stake in WOI-TV and WHBF-TV for proceeds in excess of $21 million, pre-tax. The transaction requires FCC approval and is expected to close in the first quarter of 2014. Details are available here.

Note: Subsequent to the posting of this article, CIBL updated its press release, changing the pre-tax gross sales figure from $21 million to $24 million, but noting this figure is before recalculation of alternative allocation of proceeds, working capital adjustments, and payment of debt. 

This transaction is so significant because the sale price is much higher than the market was expecting. Prior to the announcement, CIBL’s market capitalization was $22.59 million, with $17.44 million in cash and short-term investments. The whole of CIBL’s investments (the two TV stations and some shareholdings) were being valued at $5.15 million. Clearly, the sale price of $21 million is materially higher!

Let me back up for a minute and provide some general information on the company, its history and what it has accomplished so far. CIBL was spun off from LICT Corp. (another favorite of mine) in 2008. At the time of the spin-off, CIBL held a collection of broadcast and telecom assets, all in small, mostly rural markets.

Since the spin-off, CIBL has taken steps to monetize most of these assets. Giant Communications, a cable operator, was sold back to LICT in 2010. CIBL’s interests in two New Mexico wireless partnerships were sold to Verizon in 2012. Nate Tobik had a good analysis of the value of the wireless assets over at Oddballstocks.

Once the sale of its TV interests closes, CIBL’s remaining assets will include substantial net cash, a 40% stake in ICTC Group (ticker: ICTG), an interest-bearing note issued by LICT Corp., and a 1.36% stake in a private company, Solix, Inc. The sum of these assets is substantially greater than the current market cap, even after today’s increase.

Cash and short-term investments account for the majority of CIBL’s pro forma value. Assuming a 35% tax rate, CIBL will reap $13.65 million from its TV assets, resulting in liquid assets of $31.09 million. CIBL owns 161,552 shares of ICTC Group, worth $3.65 million at the last trade price of $22.6o. The LICT note is for $600,000, but the balance is used to offset ongoing management fees owed to LICT. For that reason, I ascribe it no value.

The value of CIBL’s investment in Solix, Inc. is more difficult to determine. I was able to find a 2012 revenue figure of $91 million for the company, which seems to be healthy. Depending on Solix’s margins, a value of somewhere between 0.5x and 2x revenues seems warranted, which translates to between $0.62 million and $2.48 million for CIBL.

These assets total to between $35.36 and $37.22 million, or between $1,605 and $1,689 per CIBL share. Today’s closing price of $1,150 represents a discount of 28% to the low end of the valuation.

Question is, what will CIBL do with all its excess cash and its ICTC Group stake? Through a voting agreement, CIBL controls ICTC and is free to direct its operations. ICTC owns rural wireless assets much like CIBL did that could be hiding considerable value.

In my view, a large special dividend or tender offer is likely. Even if CIBL were to buy the rest of ICTC Group, it would still have substantial excess capital. The company is not exactly tripping over investment opportunities, and all that capital will eventually have to find a home or be returned to shareholders.

An account I manage owns shares in CIBL, Inc.

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9 Responses to CIBL’s Asset Sale Widens Gap Between Price and Value – CIBY

  1. Nate Tobik says:

    Dave,

    Great post, thanks for the heads up on this one as well as the shout out. I was able to buy back in at an irrationally low price today. The irony of this is I read their quarterly filing a few days ago and was thinking as I read it ‘I wonder if they’ll ever sell the TV assets..”

    Nate

  2. Kevin says:

    Dave,

    Did you leave out the $2.927 in deferred income taxes? I’m coming up with a book value of $14,415 excluding the tv proceeds, solix, $600k note, and ICTG. If I add the $13.65 proceeds from the tv sale, and the $3.65 value of ICTG, I end up with a $31.72 million book value. Adding in your low value for Solix gets me to $32.34 million, or about $1,500/share.

    I’m assuming the deferred taxes are not affected by the sale of the tv station. Are you looking at it different?

    Thanks,
    Kevin

    • otcadventures says:

      I did leave out the deferred taxes because the majority are associated with ICTG, which is consolidated with CIBL’s financial statements. Because of the consolidation, CIBL’s financial statements are somewhat misleading. I think it makes more sense to evaluate the company on a sum of the parts basis.

  3. Tomfernandez says:

    Thanks for the tip about the value of Solix. I’ve been kicking the tires on CIBY and was scratching my head about Solix.

  4. Tomfernandez says:

    I’ve been digging around the internals of ICTC Group (ICTG). In reading the financials, I noticed that ICTC is a member of a cooperative called NISC, and this investment is carried on ICTC’s books at $78,869 for years 2011 and 2012.

    NISC was a merger of NISC and Central Area Data Processing Cooperative (CADP) in 2000. I wonder if this investment is carried at original cost.

    NISC appears to be somewhat similiar to Solix, in that it is a private corporation (Sub-T co-op corp) that provides back-office services to members. I haven’t found any information about NISC.

    It makes me wonder if Solix, and NISC (via ICTC) have a greater value to CIBL tan we might think.

    The following is from NISC’s website….

    “NISC was formed July 2000 as a consolidation of Central Area Data Processing Cooperative (CADP) and North Central Data Cooperative (NCDC). Both predecessor organizations were formed in the mid 1960s and had a rich history of serving energy and telecommunications cooperatives with information processing services and accounting and billing software.”

    NCDC was (is) located (I believe) in Mandan, ND. For some reason, I recall that the US Government contracted with a company in the early-middle 1960’s to build and operative a data center in Mandan, with enough capabilty to handle the voice and data needs of the US Air Force ICBM and the US Army ABM missile sites.

    NISC has a picture of the building in Mandan on their website (www.nisc.coop/index.htm.

    • otcadventures says:

      Really interesting information! Thanks! The more I learn, the more hidden value I believe there is in the LICT/CIBL/ICTG complex.

      • Tomfernandez says:

        One more thing about ICTC. Sunshine PCS purchased ICTC LLC (aka inter-Community) and adopted their name.

        About Inter-Community

        Inter-Community was founded in the 1940’s by John Nilsen and Harry Snyder and was at one time the CONUS AUTOVON (Continental United States Automatic Voice Network) Switching Center in Wheatland as a part of the U.S. Department of Defense worldwide defense communications network which was the basis for what is now the Internet. ICTC operates a regulated facilities-based incumbent local exchange carrier (“ILEC”) in nine exchanges including Nome, Alice, Hannaford, Dazey, Buffalo, Hope, Page, Sanborn and Tower City. Inter-Community offers a full suite of circuit-switched, facilities-based telephone services including local dial tone and Internet service. Additional information about Inter-Community can be obtained from http://www.ictc.com.

        – See more at: http://www.prairiebizmag.com/event/article/id/10744/#sthash.YoMQtBXP.dpuf

        I’ve just got to wonder if ICTC owns a hardened facilty in Wheatland. There were 150 Minuteman III ICBMs in Grand Forks, and 150 in Minot, not to mention the Army ABM site north of Grand Forks. There was a massive amount of data being transmitted for the missile operations, not to mention the always operational B-52 forces at both USAF bases.

        A massive amount of voice and data had to be occuring. ICTC was sitting right in the middle of it, and had to be making a bundle building and operating the switching center.

  5. Tomfernandez says:

    100 shares of ICTG traded today at $21.25. The new share prices are $20.75 Ask/$24.62 Bid. Here is some historical information from the original website (pre-merger w/Sunshine).

    History of Inter-Community Telephone Company
    In the early 1930′s, John Nilsen went to work as a lineman for the Nome Telephone Company, a small stockholder-owned company serving Nome and many of the surrounding farms. He had also been servicing the exchanges at Dazey and Hannaford for a few years, when on April 21, 1943, he purchased them from Dakota Automatic Telephone Co.

    A young man by the name of Harry Snyder had begun working for Dakota Automatic Telephone Co. on May 1, 1942. John and Harry met in the fall of that year and became good friends. Harry became a partner in ICTC when he and John pooled resources and on December 21, 1945, purchased the Fingal, Wheatland, Alice and Buffalo exchanges from Dakota Automatic Telephone Co.
    On July 10, 1947, Inter-Community Telephone Company, then operating six exchanges, became a corporation. The Nome Telephone Co. merged with ICTC on August 1, 1956 and all stockholders in the Nome Telephone Co. were able to exchange their stock for stock in ICTC.

    In 1957 ICTC applied for and received approval of its first REA loan. The $949,000 loan was used to upgrade ICTC’s entire system to modern dial service. On March 1, 1959, the Nome exchange became the first to be cut over to modern dial service. The exchange at Fingal was discontinued at that time and the subscribers were then served by the upgraded Nome exchange. The Dazey exchange was cut over on May 15, 1959 and the Hannaford exchange on August 1, 1959. The Buffalo exchange was cut over on September 21, 1960, at which time, the exchange at Wheatland was discontinued and the subscribers were incorporated into the Buffalo exchange. The Alice exchange was cut over on October 1, 1960.

    Sometime in 1964, John Nilsen learned from a friend on the West Coast that a military switching center was to be located near Wheatland. Nilsen then contacted the Defense Department about the possibility of ICTC servicing the switching site, as it would be located within the company’s franchised area. At the same time, Northwestern Bell was making plans to service the site and obtained an option to purchase ten acres of land just outside Wheatland. Northwestern Bell would be providing toll service for the switch no matter who serviced the site.

    The decision as to who would service the site was long and painful. The North Dakota Public Service Commission determined that either company could service the site since it would be in ICTC’s service area and Northwestern Bell would be providing the toll service. The final decision would have to be made by the contractor, the United States Government.

    During the next two years, Nilsen made several trips to Washington, D.C. to appear before Congressional committees and finally, to testify at a Justice Department hearing. In pleading his case, Nilsen had to convince his listeners that ICTC, although small, was just as capable of providing service to the site as a larger company.

    ICTC was awarded the contract, and on April 4, 1971, the CONUS AUTOVON (Continental United States Automatic Voice Network) Switching Center was put into service as a part of the U.S. Department of Defense worldwide defense communications network. The Wheatland Autovon remained operational until February 28, 1996, just one month short of 25 years of service.
    ICTC received approval of its second REA loan on October 1, 1974. The $2,800,000 loan was used to upgrade ICTC’s system to buried plant and one-party service. The Buffalo-Wheatland exchange was cut over in November 1975 and the four remaining exchanges were cut over by October 1976.
    In 1986 and 1987, ICTC upgraded its network to digital switches connected by fiber optic cable.

    On April 2, 1991, ICTC was purchased by the Lynch Corporation of Rye, New York.

    On June 1, 1996, ICTC purchased the Hope, Page, Sanborn and Tower City exchanges from US West Communications. Later that year these four exchanges were tied into ICTC’s existing network.
    In April 1997, internet service was offered to customers of ICTC. In May of 2010 Inter-Community Telephone was acquired by ICTC Group formerly known as Sunshine PCS. The company currently offers internet service as a local call to all exchanges and the Valley City exchange. At the end of 1999, there were nearly 700 customers on-line. Today ICTC also offers Digital Subscriber Line (DSL) service, providing high-speed internet connections.

    Inter-Community Telephone Company currently employs 14 people and maintains over 2,600 access lines.

  6. pietje says:

    Dave, what’s your take on the SPAC registration?

    http://ciblinc.com/2015/10/27/cibl-announces-filing-of-its-spacs-registration-statement/

    I don’t quite understand why they would raise money through CIBL. Though, if I understand correctly, if a deal goes through CIBL ends up with a stake in founder shares and warrants to purchase more stock at $11.50. On the flipside they are liable to refill the trust account.

    Is this a tax thing? Not sure I understand.

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