Last night, a buddy texted me. (I’m going to paraphrase a bit as this is a family site)
FRIEND: Kuppy, you won’t believe what those assholes did!!
ME: Wait!! What?? Who??
FRIEND: They robbed us!!
FRIEND: Read that press release from AT…
ME: Holy Shit!! Who else do we know that owns this??
FRIEND: Dunno… You wanna rally the troops and get a better price?
ME: We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets… We shall never surrender…
If I know that Churchill quote well, it’s because I’m a value investor who’s used to getting screwed by conflicted boards, management teams and Private Equity (at least it isn’t Brookfield once again doing it to me). Sometimes, it’s worth fighting back. Sometimes it isn’t. Maybe the board is right to sell the company here and maybe they’re leaving a few dollars a share on the table. However, this article isn’t about the Quislings over at Atlantic Power (AT – USA). I bought my AT shares very recently at roughly $2.00. I’m pissed to get $3.03 when it is worth a whole lot more, but I’m also up 50% in a hurry. (And yes, AT was flagged in the “Left for Dead” section of KEDM.Com)
Instead, this article is about something different. For the last few years, I’ve been hearing about how “value is dead” because “value companies” keep getting sold down out of ETFs and value managers keep getting redeemed, leading to more selling. On one side of the debate, are people looking at fund flows, telling me it’s hopeless to invest in companies trading at under 2x TTM FCF as they’ll only get cheaper. On the other side of the debate is my portfolio, where cheap companies keep getting stolen from me at healthy premiums to market, but dramatic discounts to private market values. I remain steadfast in my view that if something stays cheap for long enough, eventually someone will do something about it and as an investor, you’ll get paid.
Sure, it’s hard to time this. The charts tell you little before a deal is announced and you rarely get as lucky as I just did on the timing. I just know that as value names have continued to get cheaper, this seems to happen more often to me. In a world where everyone is focused on fund flows, grouping companies into tradable factor baskets, people forget that these are also real businesses, with real people, with real incentives. Value will get unlocked. The pace of this unlocking is often random, making it hard to fit into models. Quants will remind me that this is a “one-off situation.” I’d counter that after a dozen of these, it stops being such a “one-off.” Instead, it’s a pattern. If you buy cheap companies and the market won’t reward you, someone else will. Ironically, as AT gets acquired, it leaves the data-sets. Yes, there are a lot of value companies still struggling at multi-year lows, but if you ignore all those that got acquired at big premiums, you’re missing the other half of the story.
As for AT, I haven’t decided what I’m going to do with my shares. Maybe I’ll find some guys looking for a fight and maybe not. Looking at the Page 1 list this morning, I mostly see ETFs, not the sort of partners I’d want in my foxhole. At the same time, I wouldn’t be surprised if someone comes in with a topper bid here. I mean, it’s getting acquired at like 2.5 times TTM FCF. That’s cheap in my book—even if there are plenty of forward PPA renewal risks over at AT.
Disclosure: Funds that I control are long AT
If you enjoyed this post, subscribe for more at http://adventuresincapitalism.com