CIBL's Asset Sale Widens Gap Between Price and Value - CIBY

It's good to be back! I spent a few weeks in Europe, centered around my brother's wedding in England. The celebration and the sightseeing were great, but I really missed scouring the daily flow of filings and news items from obscure companies for opportunities. As luck would have it, a news item revealed an attractive opportunity just an hour after my return to the States yesterday.

CIBL, Inc. is selling its interests in two Iowa TV stations. The company has signed a definitive contract with Nexstar Broadcasting, Inc. to sell its stake in WOI-TV and WHBF-TV for proceeds in excess of $21 million, pre-tax. The transaction requires FCC approval and is expected to close in the first quarter of 2014. Details are available here.

Note: Subsequent to the posting of this article, CIBL updated its press release, changing the pre-tax gross sales figure from $21 million to $24 million, but noting this figure is before recalculation of alternative allocation of proceeds, working capital adjustments, and payment of debt.

This transaction is so significant because the sale price is much higher than the market was expecting. Prior to the announcement, CIBL's market capitalization was $22.59 million, with $17.44 million in cash and short-term investments. The whole of CIBL's investments (the two TV stations and some shareholdings) were being valued at $5.15 million. Clearly, the sale price of $21 million is materially higher!

Let me back up for a minute and provide some general information on the company, its history and what it has accomplished so far. CIBL was spun off from LICT Corp. (another favorite of mine) in 2008. At the time of the spin-off, CIBL held a collection of broadcast and telecom assets, all in small, mostly rural markets.

Since the spin-off, CIBL has taken steps to monetize most of these assets. Giant Communications, a cable operator, was sold back to LICT in 2010. CIBL's interests in two New Mexico wireless partnerships were sold to Verizon in 2012. Nate Tobik had a good analysis of the value of the wireless assets over at Oddballstocks.

Once the sale of its TV interests closes, CIBL's remaining assets will include substantial net cash, a 40% stake in ICTC Group (ticker: ICTG), an interest-bearing note issued by LICT Corp., and a 1.36% stake in a private company, Solix, Inc. The sum of these assets is substantially greater than the current market cap, even after today's increase.

Cash and short-term investments account for the majority of CIBL's pro forma value. Assuming a 35% tax rate, CIBL will reap $13.65 million from its TV assets, resulting in liquid assets of $31.09 million. CIBL owns 161,552 shares of ICTC Group, worth $3.65 million at the last trade price of $22.6o. The LICT note is for $600,000, but the balance is used to offset ongoing management fees owed to LICT. For that reason, I ascribe it no value.

The value of CIBL's investment in Solix, Inc. is more difficult to determine. I was able to find a 2012 revenue figure of $91 million for the company, which seems to be healthy. Depending on Solix's margins, a value of somewhere between 0.5x and 2x revenues seems warranted, which translates to between $0.62 million and $2.48 million for CIBL.

These assets total to between $35.36 and $37.22 million, or between $1,605 and $1,689 per CIBL share. Today's closing price of $1,150 represents a discount of 28% to the low end of the valuation.

Question is, what will CIBL do with all its excess cash and its ICTC Group stake? Through a voting agreement, CIBL controls ICTC and is free to direct its operations. ICTC owns rural wireless assets much like CIBL did that could be hiding considerable value.

In my view, a large special dividend or tender offer is likely. Even if CIBL were to buy the rest of ICTC Group, it would still have substantial excess capital. The company is not exactly tripping over investment opportunities, and all that capital will eventually have to find a home or be returned to shareholders.

An account I manage owns shares in CIBL, Inc.