It must be noted that the three major unitholders of Terravest comprise of close to 50% of outstanding units. The largest of them being Clarke Inc which commands ~33% of the votes (which includes George Armoyan, CEO's units).
As of my original post on Terravest, the company has paid two special dividends totaling $1.65. These dividends were categorized as return of capital, which are taxed very favorably.
Based on my 2009 purchase price, if I were to tender my units at $2.75, it would represent about 83% profit
Decision Time
On the surface this sounds like a great deal, but digging slightly under the surface reveals more.Based on the company's Q1 numbers, the book value is 3.27/unit and tangible book is 3.11/unit. The business is profitable and is regularly producing a nominal profit. Based on very modest estimates, I computed that the intrinsic value of this very simple business is between $3.6 and $3.8.
The tender offer is at a 11.5% discount to tangible book, which is akin to the management buying a dollar for 88¢. This is an accretive buyback decision for the business, but not a very good one for the unitholder who tenders their shares below book value.
What would you do if you find yourself in this position?
I look forward to comments or messages on twitter.
[EDIT (July 13, 2012): After above announcement, the stock jumped a sizable amount and very close to the offered tender price. I sold all my units today for a nice profit. Total gain: 77% (over 3 years). Annualized gain: 21%]
