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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Thursday, January 5, 2017

$ARIS Proxy Battle Comes to Its Expected Conclusion

Park City Capital filed this proxy today, a "concession" speech of sorts at the $ARIS annual meeting. It reads like a "last say" on the (unnecessary) proxy battle they brought and thankfully lost.

A few comments about the letter worth pulling out:

They wrote: "... I haven’t spoken with any shareholder that would be disappointed with receiving $8 to $10 per share in the next six months."

Who did they speak to? I did not speak with them (if you have nothing nice to say ...). Other shareholders told me they reached out to Park City and the calls went unreturned.

They wrote: "... we believe that our efforts have helped raise the profile of ARI in the investment community and its stock price. If we go away and ARI’s stock no longer gets the benefit of this premium, we believe there would be significant downside in ARI’s stock price."

This proxy battle robbed investors of about $250k in the costs to fight it, yet they tout the benefits this battle? That's crazy talk. It's like a crime wave raising the profile of a neighborhood.

The stock price will go down if they dump 1M shares onto the market. If they sell as mindlessly as they ran this battle, it will be a tough few months for shareholders, but I don't see how that benefits anyone.

They wrote: "Despite Roy Olivier and Will Luden telling me on multiple occasions that they would immediately accept an $8 per share offer, they have communicated to shareholders and independent proxy advisory firms a plan that they believe could result in a $15 stock price over the next five years."

Did the CEO really say this? I don't know. In an ideal world, a CEO spends zero time talking about its stock price and even less time thinking about it. Why think about things you can't control? Nobody knows the future, but we know what drives future share value, which falls into two general buckets:

1. management's ability to deploy capital in a way that generates usefulness for its customers in order to grow cash flow and profitability

2. the multiple investors are willing to pay for that cash flow and profitability, which itself is a reflection of the trust and confidence in its sustainability and growth.

If the CEO focuses on maximizing usefulness to its customers, and that results in growing cash flow and profitability, then investors will have more confidence in the company's sustainability and growth, and the stock price will go higher. He should do that and not talk about the stock price five years out.

I did not attend the meeting b/c travelling to Milwaukee in January just feels wrong. I know its a beautiful city - perhaps even underrated - with a nice new museum and some interesting neighborhoods. I've been there in January, I've been there in late winter, I've been there in summer. I prefer the latter, but I'll take late winter, when it's cold, but bright and sunny and you could sense the coming thaw and hope in the air.

In January, it just doesn't seem there is much hope yet. Just. More. Winter.

Happily, the winter of this costly proxy battle is over. Now the  company can get back to launching its new platform and the CEO can focus on taking steps to lower churn, grow the number of subscribers, the EBITDA per subscriber and generally getting back to the business of making the customers fat and happy. That will resolve all issues with the stock price today and in five years.

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