Wednesday, May 22, 2024

Asset Sale, Low cost RemainCo Doubtless for Sale


Enzo Biochem (ENZ) (~$65MM market cap) in July 2023, closed on the sale of their scientific laboratory division to Labcorp (LH) leaving their subscale however rising Enzo Life Sciences (“ELS”) division and a slug of money on the RemainCo.  Rhyming with different comparable setups (most just lately PFSW), the corporate is probably going dressing up the ELS division on the market to finish the two-step liquidation of the corporate.  The ELS section makes merchandise (picks and shovels for biotechs) for drug growth and scientific analysis, it does about $32MM in gross sales yearly making it an after-thought within the massive however mid-to-high single digit rising trade.  As we speak ELS is roughly breakeven earlier than company overhead, whereas that ought to enhance, after company overhead, ENZ as an entire, is burning money and has little cause to exist.

Comparables of comparable dimension (most are worthwhile mid-large caps) are a bit exhausting to return by for the ELS section (there may be apparent ones that I am lacking, if that’s the case, please level them out within the feedback), however they do personal the actual property for the enterprise (about 56,000 sq. toes of producing/analysis area in Farmingdale, NY), simply throwing a primary 1x TTM income a number of on the ELS enterprise itself and including the PPE, will get me a few worth of $45MM for the remaining enterprise.  Including within the present NCAV and accounting for additional money burn, I get a proforma worth of roughly $1.75/share.

In a bullish state of affairs, perhaps they’ll get upward of 2x income for the ELS section and it may very well be a close to double from present costs.  This is not a singular thought, however as I’ve mentioned earlier than, I feel traders are usually impatient with these setups, it takes longer than traders would suppose to unwind the operations of segments that on the floor look separate.  As we come up on the primary anniversary of the scientific labs sale, a second asset sale within the subsequent quarter or two is a extra affordable timeline.

Different random ideas:

  • Enzo’s former scientific laboratory section was topic to a ransomware assault final Could previous to the shut of their take care of Labcorp, plenty of delicate info was stolen together with a number of hundred thousand social safety numbers.  Enzo is dealing with some lawsuits, however hasn’t supplied any estimated legal responsibility at this level.
  • Enzo stopped doing earnings calls after the asset sale announcement, they have not returned to conducting earnings calls, pointing to their present construction not being the long run mannequin going ahead.
  • Steven Pully is the brand new Chairman of the Board, he is a associate/co-founder of Speyside Companions, an advisory store that focuses on companies in transition, he is served on 29 boards, together with a number of that ended up pseudo liquidating, much like ENZ’s presumed path.
  • What is the “ADES danger” right here?  Mentioned in any other case, what is the danger the corporate can be a purchaser slightly than a vendor?  I feel that is unlikely because the board and shareholder registry is full of worth and activist traders who’ve proven up within the final two years, usually are not emotionally tied to the enterprise like a former founder or CEO.
  • Bradley Radoff, a personal investor, owns 8+% of the inventory and is on the board of administrators.
  • CEO Kara Cannon was beforehand the COO, after the previous CEO stepped down 9/6 she took on the interim CEO title that was later graduated to the everlasting CEO.  Her contract pays her a 0.75% Transaction Bonus on the any sale incentivizing her to go together with the two-step liquidation technique.

Disclosure: I personal shares of ENZ

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