Strategic Review
Clark Street Value recently shared his thoughts on the freshly launched strategic review at CKX Lands. It is a tiny company that owns land in Southwest Louisiana and generates royalties from oil and gas producers as well as timber sales. Management thinks CKX is undervalued and the language in the press release suggests that management buyout is one of the options being considered.
The market currently values CKX at around $1400/acre. Looking at the land prices in Louisiana parishes where CKX owns land parcels, $1900/acre seems to be a more reasonable valuation and would put the stock at $15/share (21% upside). Some incremental value could come from the company’s residential ranchettes which are selling for $13k/acre. Management owns 11% of CKX and has a generous incentive package, most of which would vest at $15/share.
Note: The ‘Ideas Elsewhere’ section is intended to highlight interesting event-driven investment ideas by other authors. These ideas are not my own, and I am simply summarizing them to bring attention of SSI subscribers. I do not intend to actively follow the developments of these ideas, so you should expect limited updates or follow-ups in the comments section.
CKX updated in April that they:
(1) “solicited and received preliminary indications of interest from multiple parties related to the potential acquisition of the company or its assets”;
(2) are “working with a select group of these parties to provide them with additional information”; and
(3) do “not intend to make further public comment regarding the review of strategic alternatives until it has been completed”.
(April 18, 2024)-CKX Lands, Inc. (NYSE American: CKX) (“CKX”) today provided an update concerning its evaluation of strategic alternatives that it announced on August 21, 2023.
As previously announced, CKX’s board of directors determined to initiate a formal process to evaluate strategic alternatives for the company to enhance value for stockholders. The company is actively working with financial and legal advisors in this review process.
As part of this process, CKX, through its advisors, solicited and received preliminary indications of interest from multiple parties related to the potential acquisition of the company or its assets. CKX and its advisors are working with a select group of these parties to provide them with additional information. The board of directors has formed a subcommittee to provide oversight and management of the process.
CKX does not intend to make further public comment regarding the review of strategic alternatives until it has been completed or the company determines that a disclosure is required by law or otherwise deemed appropriate.
Is anyone still following this ? Would appreciate any thoughts on this from the August 12, 2024 10-Q.
“Also on July 15, 2024, all 196,900 unvested performance shares awarded to employees under the Plan lapsed without the performance criteria being achieved and were forfeited by the grantees”
Also, is the below a positive ? / Indication that we are in the final innings.. ?
“On July 15, 2024, the First Amended and Restated Executive Employment Agreement between the Registrant and its President, William Gray Stream, and the Executive Employment Agreement between the Registrant and its Chief Financial Officer, Scott Stepp, expired in accordance with their terms. Messrs. Stream and Stepp mutually agreed with the Registrant’s board of directors to continue their employment in their respective offices with the Registrant without written agreements. The compensation committee of the board of directors expects to meet on or before August 8, 2024, to determine the officers’ compensation from and after July 15, 2024.”
I have also noticed this strange announcement as well. It could potentially indicate that the company is in the final stages of sale negotiations. On the other hand, maybe the existing employment agreements expired and to renew them, the board had to meet. With summer schedules, the earliest day the board could meet was August 8.
It could also be a negative sign – the sale process is taking far longer than expected (unable to find buyers or potential buyer walked away), and due to pro-longed timeline the employment agreements expired. Also, I find it strange the board did not renew them on time (e.g. at least a month before expiration) – seems like bad planning or board does not care.
So, the bottom line – this announcement could be interpreted in a number of ways.
And on valuation front, I am struggling to figure out what price could the land owned by CKX fetch in a sale.
For valuation, Texas Pacific Land (TPL) can be a comp for CKX.
Anyway, “21% upside” doesn’t seem to be worth the effort, and for any valuation exercise, +20%/-20% is just within the margin of error.
thanks DT.
I think what is making this deal so difficult is that half of their land is partially owned (they own it through a 17% interest in a joint venture with multiple other holders). So all these parties have to agree to a sale in the first place, and have to agree on a price, or they have to do a convoluted land swap.
With that in mind, what caught my eye the past two quarterly earnings is that G&A is higher due to “an increase in land research advisory fees.”. My guess is that a deal is still in the cards but they are now in the process of untangling the joint venture, i.e. getting independent valuations to smoothen out that process.
Just a guess though. I would say the employment agreements expiring is, if anything, a good thing (but not very impactful). I’d argue that if a deal was about to close you might let the agreements expire; if no deal is in sight you’d be more prone to renew them.
I like your way of thinking about this. Thanks for the input.