April 28, 2008
Knobias Clip Report (4-25-2008)
By admin
Submitted By Knobias ClipReport
JLN: Plans to Delist from the Amex through Reverse Split
Friday’s session began with another rally in oil following a reported confrontation between US forces in the Persian Gulf and Iranian boats. The report sent oil soaring to another all time high with the fallout being a partial selloff of Thursday’s gains.
In the small cap space, one company announced an interesting corporate action which could provide small investors with an interesting opportunity.
Jaclyn Inc (JLN) and its subsidiaries are engaged in the design, manufacture, distribution and sale of women’s and children’s apparel, leather and fabric handbags, sport bags, cosmetic bags and related products. With over 75 years in business and as a publicly-held company with sales of over $100 million on the American Stock Exchange, Jaclyn is a worldwide resource in the fashion industry. Jaclyn’s quality products are sold through many of the country’s most respected department, specialty and chain retailers.
The Company is a typical small cap company that is being straddled with exuberant costs to remain a public, reporting company. Being a public company normally gives management a way to cash out some of their holdings to diversify their portfolios. Public companies also have the ability to value themselves instantly through the trading of their stock on open exchanges.
Jaclyn obviously isn’t seeing these benefits. The stock traded at $8.30 in 2005 and has seen little change in the way of price appreciation since then. The Company also doesn’t use the equity market much to finance its growth as there are only 2.5 million shares outstanding.
With a low outstanding and low float, the Company announced that it didn’t feel the need to remain a public entity. The costs, which average around $500 thousand a year, far outweigh the benefits to the Company. On Friday, it announced that it would reverse that cost benefit.
The Company reported to the American Stock Exchange of its intention, subject to meeting certain conditions, to withdraw its shares of common stock from listing on the American Stock Exchange.
To do this, the Company would need to reduce the number of stockholders to a number below 300. To accomplish this, the board approved a reverse/forward stock split ratio of 1-for-250 shares. As a result, and assuming this ratio is used, record holders owning less than 250 shares of common stock will receive a cash payment of $10.21 per share, and record holders owning 250 or more shares of common stock will retain their current numbers of shares of common stock without change.
Assuming an investor buys 249 shares of the Company, the cost would be $2164, not assuming transaction fees. The Company would then buy those shares for $10.21 a piece for total proceeds of $2,542. The profit would be $378, not assuming transaction fees.
Of course, there are always risks, and the risks here are that the Company scraps the plan, shareholders vote against the plan on May 7th, or the board adjusts the ratio of the stock splits. But with the assumption these risks are limited, the small investor is presented with a very small arbitrage type opportunity while this Company takes itself from the costly spotlight of public market to the less costly, less transparent Pink Sheets. Investors would be wise to watch.
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