Kingsway Financial’s activist battle with Kobex Capital

(KXM is an illiquid Canadian stock with a market cap of $26M.)

Kingsway Financial’s plan:

1. Buy back shares because this company trades below NAV- roughly seventy cents a share in NAV trading at 50-55 cents currently.
2. Cut director’s salaries to $10k/person.
3. Not issue options below intrinsic value.  On August 19, 2015 Kobex issued options at $0.55/share.

The incumbents’ plan:

1. Waste shareholder money entrenching themselves against Kingsway Financial.

The incumbents do not actually outline a plan for creating shareholder value.  Because the incumbents know that they’re overpaying themselves and deserve to be fired, they are resorting to a smear campaign against Kingsway Financial.  Their side of the story can be found at:

rejectkingsway.com

The Kingsway side of the story can be found at

kobexupgrade.com

You can go to the respective websites and make up your own mind.

Who will win the activist battle?

Unfortunately, Sprott Inc. (SII.TO) has come out and said that they would support incumbent management.  (One of the Sprott-related entities got fleeced on Yukon Nevada / Veris Gold, a stock that I have covered on this blog.  I’ve ragged on them multiple times and bet against some of their holdings like Yukon Nevada.)  Sprott had:

• 8,417,935 shares (18.5%) according to the October 8, 2015 management information circular.
• Voting power over 7,919,249 shares (17.41%) according to Sprott’s October 18, 2015 press release.

I’m not sure why their share count went down and why I couldn’t find anything on Sedi.ca about it.

There will be roughly 20% of the vote in favour of the incumbents and 15% of the vote against.

On the pro-incumbent side:

1. Sprott with 7,919,249? shares or 17.41%?.
2. Altius Minerals (1,029,500? shares or 2.26%) may or may not support the incumbents.  Rick Rule (Sprott) was one of Altius’ initial backers.  Brian Dalton, Altius’ CEO, hired Paul van Eeden (current Kobex chairman) to manage some of Altius’ money.  That business relationship ended and Altius ended up with Kobex Capital shares.
3. Paul van Eeden (231,000 shares / 0.5% plus 500,000 options) in the chairman.  His name appears on Kobex’s fuck you letter to shareholders.
4. Philippus du Toit (0? shares with 450,000? options)

On the Kingsway side:

1. Kingsway has 6,761,500 shares (14.86%).  I believe that the poison pill / rights plan will cap their ownership at 15%.

I would like the activists to win, though it may not happen.

*Disclosure:  Long Kobex Capital.  Short Yukon-Nevada/Veris Gold (it is in bankruptcy and I haven’t figured out how to cover).

Links

Kobex Capital: A pile of cash, trading at a discount, with an impending catalyst