Saturday, October 18, 2008

ACAS' DRIP Pops Price

On October the 14th, when ACAS issued its dividend, the price of the shares popped past $17 during the day. As ACAS paid a couple hundred million dollars in the form of a cash dividend, shareholders participating in the company-offered dividend reinvestment program (DRIP) had their millions plowed into the shares. Unless the shares trade at such a premium to the net asset value that the reinvestment shares are issued by the company rather than being bought on the open market, the plan administrator has the authority to spend up to thirty days making open-market purchases for DRIP participants. Based on the DRIP reinvestment price of $15.936 and the fact these shares are already in participants' accounts, it's clear the administrator didn't wait long at all to buy the shares -- but immediately rushed out to make purchases, and bid the shares up materially in the process. The $17 price hit Tuesday wasn't seen again since. Over the rest of the week, they slid below $15 again.

Myself, I didn't observe this. My broker TD Ameritrade, which has silently dumped me from the ACAS-run DRIP before, did it again. I only learned about the ACAS reinvestment price from a friend with shares in two accounts -- one in the ACAS-run DRIP, and one in a Schwab-run DRIP. The Schwab-run DRIP systematically purchases shares the day following the dividend, and makes all these purchases at ten o'clock in the morning. You can see the share price flicker up a bit as the buy order hits. This so irritated my friend that he started signing up accounts for the ACAS-run DRIP, having seen that I got a slightly better price.

Well, in the past, anyway. When ACAS trades at a 10%+ premium to NAV, ACAS doesn't buy back shares at the market but issues shares to DRIP participants at 2% below the market price (which is above NAV, and is accretive rather than dilutive to existing owners' net asset value). Below this level, ACAS has a plan administrator buy shares for DRIP participants. At market, ACAS can obviously make purchases at better prices than Schwab's 10AM purchase system (as in the past), or worse (as this time; $15.905 < $15.936). This difference seems immaterial, though -- it's less than 1% of the purchase price. Below NAV, where the bet is that returns on higher-than-trading-price NAV will result in outstanding returns, this slight difference doesn't seem likely to move the needle on shareholder returns. Above NAV, the 2% discount to market value seems small but likely to add up over time. I've bought above and below NAV, and when I have to buy above NAV I enjoy getting at least a little discount to market value. With TD Ameritrade having mucked up my DRIP participation, I will be manually entering trades in my regular account and a series of tax-advantaged accounts -- and will be unable (due to whole-share purchases) to invest the exact amount of the dividend. In tax-advantaged accounts (to which I am limited in making at-will capital additions), this means I'll end up with some "extra" money earning a slight fraction of a percent in a money market account. Ugh. The only silver lining is that the current per-share price, being about $2 cheaper per share, may allow me to get a bigger bite for the same invested funds. I will be looking to turn the DRIP back on, but I'm worried that TD Ameritrade has dumped accounts from ACAS' DRIP before. When TD Waterhouse merged with Ameritrade, I was told the problem was due to the switch to the new systems. This current problem can't be attributed to anything so easily understood. Further, getting these accounts all set up on ACAS' company-run DRIP -- the only opportunity for below-market reinvestment -- takes a lot of time on hold with the reorganization department, or folks talking to them. I'm thinking I need to find a broker with more consistent service. The upside here is (a) TD Ameritrade has credited me a trade to cover the manual purchase of shares that should have been bought automatically, and (b) my reinvestment price will be better, so I will get extra shares for the money -- shares that will be paying me a dividend for years to come. Since these dividends are not only growing in per-share amount, but are reinvesting, I take consolation in the discount. Other note: shorts seem to have reduced their ACAS exposure to about 16%; short interest has dropped from 39 million shares to less than 34 million. Maybe actually paying these dividends will start to hurt after a while :-) The money made as ACAS plummeted from $44 to $14 may make a good cushion, but from the perspective of prospective returns, I'd think that folks short now are betting not on mere price erosion but on the complete failure of the firm. The folks short now -- when the dividend amounts to nearly 30%, and not the under-10% yield offered over a year ago -- seem to be playing chicken with a management team with a track record of strong execution and the ability to make deals happen in nasty environments. Indeed, the ability of ACAS to make lucrative deals seems to have been aided by the cash crunch: selling Contec Holdings for 10x EBITDA seems to have been aided by ACAS' ability to both raise senior debt from third parties who trust its due dilegence, and its willingness to hold subordinate (high-yield) debt to show it believes in the company it's selling. ACAS seems, in short, to benefit from good due diligence twice: first, on buying a good growth prospect, and second, on disposing of it to firms relying on ACAS' willingness to hold debt as an indicator of quality.


Anonymous said...

Computershare (, serves as a DRIP manager for many stocks, including ACAS. You might want to check them out and see what the terms and fees are, and if it is worthwhile to use them for your ACAS drip. I also have a retirement with TD Ameritrade that holds my ACAS shares. I have not even bothered with trying a drip through them, I just let the divy get deposited and either reinvest in ACAS or let it sit. I like doing it this way as it gives more flexibility with regard to timing and/or investment choices.

Anonymous said...

I saw the decrease in short position on, but I am wondering how up to date those numbers are. I think the free information may only be updated monthly. That would mean the most recent figures are indicative of a Sept decrease in the short position as the dividend approached, and also as the no-short-rules prevented big players from naked-shorting companies into a death spiral. ACAS has never left the REG-SHO list throughout this entire period, and I for one would really like to see some transparency in these short positions... I want to know who is naked shorting acas, when, and how many shares. I think the October short numbers will show a huge increase.

Jaded Consumer said...

I used my brokerage's allegedly-up-to-date (within a day) short interest measurement, and it says that short interest (as of now) is up 0.1 million shares from 38.9M to 39.0M, for a short interest equal to 19.16% of the float.'s current claim of ~16% was what this source reported a while ago, but isn't what is currently reported.

From what I can tell, shorts are back to their prior position, as bearish on ACAS as they were last month -- and no more likely to deliver shares to buyers, either.

The reason I like the ACAS-run DRIP is that when price exceeds NAV -- as it has most of the time I've held it -- I get to buy below market. If I buy in multiple accounts other than through a drip, I end up multiplying my commissions, which is irritating.

If TD Ameritrade keeps botching my reinvestment, I will have to move my accounts. This is an irritation I don't need, and I can't think of anything TD Ameritrade does for me that another broker wouldn't love to do in its stead. I originally opened that account because Waterhouse Securities offered a flat 1% cash back deal at a time Discover was the leading cash-back deal, and didn't pay 1% until you'd spent several thousand dollars; Waterhouse paid the cash back every month. That deal is dead, and I have a better deal from American Express (5% back on groceries, fuel, and a few other things; 1.5% on other expenses) after crossing a threshold I cross every year. Looking at all the inaccurate information and poor service I've gotten so far, TD Ameritrade hasn't got much to distinguish it.

The problem is finding someone I think sucks less. Any thoughts?