Wednesday, July 8, 2009

ACAS Makes Another Cash Sale

IAC/Interactive's has agreed to buy ACAS portfolio company People Media in an $80 million all-cash deal. According to ACAS' May-filed 10-Q, its interests in People Media had a FAS-157-compliant "fair value" of $51.5 million, and ACAS' holdings in People Media had a cost basis of $42.1 million. Unfortunately, we can't simply subtract to find an overnight increase in ACAS' value by $28.5m, a profit of about $37.9m, or a liquidity improvement of $80m. This is because (a) ACAS' interest in People Media took the form of senior debt, subordinated debt, and convertible preferred shares, (b) this interest didn't include any of People Media's common stock, and therefore (c) the purchase of People Media for $80m probably included payments to equity holders (that don't include ACAS), and the share of the $80m that ACAS received may be limited to the funds needed to eliminate ACAS' preferred shares convertible to common. Assuming that ACAS' convertible preferred represent an opportunity to become a controlling shareholder in the event of default, ACAS' payment under the buyout may have been substantial.

UPDATE: ACAS received $57 million of the $80m purchase price, for total realized gains of $26 million including $15 million this quarter; the ACAS' sale this quarter represents an 11% premium ($6 million) to the prior-quarter "fair value" of the holdings.

This isn't the first recent sale at above the "fair value" ACAS must report to the SEC under FAS 157. ACAS' sale of Piper Aircraft was 33% above its supposed "fair value". How "fair" is "fair value" if it doesn't give notice of likely realization upon sale? Valuation difficulties facing ACAS investors may be skewed in favor of longs.

American Capital's bottom line may also get a boost from the recent registrations of American Capital Agency to issue shares -- which at current market prices would be above AGNC's NAV, and which would increase the size of the funds managed by ACAS and therefore ACAS' monthly cash receipt of its management fee.


Camilo said...

But isn't it true that ACAS didn't own all of people media? Is it possible that the amount they will receive in this sale is lower than $80 million?

Jaded Consumer said...

It's possible the press release was less than adequately informative on this point. However, ACAS need not have arranged for to buy 100% of all outstanding interests to be able to transfer its controlling interest in People Media. My impression -- and I admit the possibility of making an unwarranted assumption -- was that was acquiring from ACAS what ACAS held.

It's also possible that bought only the equity (leaving ACAS with an interest, though not control), and/or that the deal included equity coming from parties other than ACAS (in which case ACAS wouldn't be the only payee). Usually I notice ACAS' exited company page get updated within a few weeks of a release like this -- look at the Piper update timing -- so we'll know relatively soon what's up.

Thanks for thinking carefully about what it all means -- careful reading and thought is something from which we can all benefit :-)

Camilo said...

Hey Jaded,

I'd love your take from both AGNC's and ACAS's perspective on today's sale of half of ACAS's holdings in AGNC. Thanks!