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Best Long Opportunity for 2012

Best Long Opportunity for 2012

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Published by Chris DeMuth Jr
This is an update on Rangeley Capital's best long investment idea for 2012.
This is an update on Rangeley Capital's best long investment idea for 2012.

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Categories:Types, Business/Law
Published by: Chris DeMuth Jr on Dec 10, 2012
Copyright:Attribution Non-commercial


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Best Long Opportunity for 2012 Update on Ocean Shore Holding Co.

Monday, December 10, 2012

Our favorite long idea coming into 2012 was Ocean Shore Holding Co. (OSHC) which had last traded at exactly $10.00 per share. As we wrote at the time: “OSHC is a small bank that appears to be a promising acquisition candidate. We originally made a significant investment in this stable bank with solid credit quality by participating in the mutual conversion in which we paid $8 per share, representing 60% of book value. Despite a bad environment for banking, Ocean Shore has strong asset quality and steady growth. We anticipate that the bank will continue to grow book value while its market price will close some of the discount to that book value. By the end of 2012, they will be well-positioned to entertain any inbound interest from strategic buyers who may be interested in acquiring Ocean Shore for a significant premium to its market price. As of today, this is our largest investment.” As we near the end of 2012, an update is in order. Year to date, the shares are up over 40%, and it remains our largest investment and as well as our favorite long idea for the remainder of the year. Despite the appreciation in its stock price, we believe it is still quite undervalued. In our view, a deal for OSHC has always been less a question of “if” then “when” and the answer to when is “probably very soon”. While we waited, the bank has repurchased a significant number of shares and will be allowed to entertain inbound interest from strategic acquirers within this month. Throughout this process, management has appeared to be totally committed to maximizing value for shareholders and themselves.

One of the benefits of participating in mutual conversions is that they place management and shareholders on equal footing in terms of incentives. As a 5% owner in OSHC, we chose not to file as an activist investor with the SEC because we see no need for shareholder activism in this case. Based on conservative estimates of the business as well as historic precedent in similar transactions, we believe the price required for a strategic buyer to get shareholder approval for a transaction is about $18 per share. This appears to be a multiple bidder scenario, which we prefer because they tend to increase the eventual sales price as well as provide protection if one of buyers walks away. “Heads we win, tails we tie”. While we await a transaction, we own a well run, well reserved, overcapitalized institution with declining borrowing costs and few non-performing assets that pays a dividend of .5%.

THIS LETTER SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY WHICH MAY ONLY BE MADE AT THE TIME A QUALIFIED OFFEREE RECEIVES A CONFIDENTIAL PRIVATE OFFERING MEMORANDUM DESCRIBING THE OFFERING AND RELATED SUBSCRIPTION AGREEMENT. THESE SECURITIES SHALL NOT BE OFFERED OR SOLD IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL UNTIL THE REQUIREMENTS OF THE LAWS OF SUCH JURISDICTION HAVE BEEN SATISFIED. THIS PRESENTATION IS NOT INTENDED FOR PUBLIC USE OR DISTRIBUTION. An investment in the Partnership is speculative and involves a high degree of risk. Opportunities for withdrawal and transferability of interests are restricted, so investors may not have access to capital when it is needed. There is no secondary market for the interests and none is expected to develop. The portfolio, which is under the sole trading authority of the General Partner, will not be concentrated in any particular industry or strategy, resulting in higher risk for investors. Leverage will be employed in the portfolio, which can make investment performance volatile. An investor should not make an investment, unless it is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. The information contained herein (the "Information") is confidential. By accepting the Information, the recipient (which shall include its directors, partners, officers, employees and representatives) acknowledges that it will use the Information only for authorized purposes. The recipient further agrees that the Information will not be divulged to any other party without the express written consent of Rangeley Capital LLC ("Rangeley Capital") provided, however, that the recipient may make any disclosure required by law or requested by a regulator having jurisdiction over the recipient.

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