A curious case of ‘$ 100 million in delicatessens’ and part-time universities
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Duke and Vanderbilt University, some of the most prestigious study seats in the U.S., are among the largest shareholders in the company, which has a single sandwich shop in New Jersey and a $ 100 million stock market valuation, despite only $ 13,976 in recent sales. year.
The curiosity of Paulsboro, a town of a dust refinery on the banks of the Delaware River, is well-known on Wall Street, when Hometown International was named by hedge fund manager David Einhorn as an example of “near-anarchy”. take on financial markets.
“The pastrami must be amazing,” Einhorn said joking in a letter sent to investors a fortnight ago, citing a nine-figure assessment of Hometown as an example of how toothless financial regulators allowed destructive frantic feeding. “Small investors who are absorbed in these situations,” he wrote, “are likely to be affected.”
The hometown has presented its financial statements as a public company since 2015. Its shares are not listed on an exchange, and are much smaller than blue-chip shares; they trade through a network of brokerage dealers who negotiate transactions with potential buyers and sellers “without a counter”. On a typical day, home stock trading adds up to roughly thousands of dollars. However, the stock price has risen: from $ 1.25 in October 2019 to 13 this week.
Unlike GameStop and others “Meme stocks” For those who have sparked a flood of interest from home day traders, the birthplace valuation has been driven not only by amateur speculators but also by institutional investors. One of its key sponsors is a Hong Kong-based company founded by veterans of Och-Ziff Capital Management, which sees its investment as a potential change in profit. companies for special purposes they have recently helped bring corporate bargaining to a 40-year high.
Through reviews of securities records and public records and interviews with key insiders, the Financial Times has recounted one of the strangest episodes of an extraordinary period for the U.S. capital markets, which has terrified some experts. “[This] It’s a self-parody of a spac, “said John Coffee, a law professor at Columbia University who wrote about enemy purchases.” And I expected that at the end of a bubble. “
The hometown “has had limited success in exploiting the current delicatessen,” a company lawyer told the Securities and Exchange Commission in September. At the last noon rush, the three customers waited in a dining room with a bright light, while the staff cared for the iron and struggled with the warm credit card machine.
It’s a great company, though, for raising money. The hometown brought in $ 2.5 million in the location of private shares in April last year, despite the fact that the delicatessen’s order to stay at New Jersey Gov. Phil Murphy’s home was closed for six months. According to the financial statements presented in March, about $ 1 million has already gone to cover last year’s losses, loan repayments and other outflows. By December of last year, the kitchen was open again, with losses of about $ 70,000 a month and enough money for more than a year.
A large portion of that money came from the multi-million-dollar grants from Duke and Vanderbilt Universities, which together invested about $ 2 million. Both schools sent questions about their investments to an investment firm based in Maso Capital Hong Kong.
Now, Hometown plans to use what’s left of the money to fund a business acquisition that looks like it’s going to take a route that goes beyond Paulsboro. The company, which also has Paul Morina as its head coach, is also the head coach of the fight and the local high school director, who remains open-minded about what it will acquire.
“We will not limit the companies that may be our candidates to specific businesses, industries or geographical locations,” the hometown told investors in March. The phrase echoed the wording used by “white checks” companies or Spacs, who raise capital on the stock market as empty corporate shells and use the money to go buy deals.
They are spacs fuel The growth in U.S. mergers and acquisitions totaled $ 172 billion in U.S. corporate purchases in the first quarter, according to Refinitiv data, and convincing emerging technology companies, including Lucid Motors, an opponent of electric car maker Tesla and an eToro online agent. embrace public property.
Critics say the Spacs are a lightweight regulated stock market portal, which allows untested companies to make their way to the public when they do little testing, as vehicles are gaining widespread acceptance. However, experts say it is not uncommon for a business like Hometown to try to reinvent itself as an empty check company with existing operations a few years after it became a public company.
At the last noon rush, the three customers waited in a dining room with a bright light, while the staff cared for the iron and struggled with the warm credit card machine. FT ordered a cheese chop © Mark Vandevelde / FT
The plan to end the merger is the latest twist in the amazing corporate existence of the hometown. It started in 2014 when it was founded in Nevada. A little over a year later, the company requested an initial public offering, at the 2015 SEC presentation “the creator of a new concept of delicatessen”, “homemade sandwiches and other entrees, in a friendly and welcoming atmosphere”.
The pamphlet, which was presented before the doors of the Paulsboro delicatessen opened or even before the lease was “fully executed,” asked the SEC to write a letter to Morina: “We believe you are the pet company”. Morina backtracked that the company bought new carpet, tore down walls and doors, installed gas pipes and refrigerator cables, and bought an oven with six burners, among other burners. [a] great inauguration ”.
The hometown began selling sandwiches in October 2015, but it would take more time for the public to buy shares in the company it owned. Most of the stock was held by Morina and its director Christine Lindenmuth, who teaches mathematics at the institute where Morina is director.
Dozens of financial investors put $ 180,000 between the two in exchange for a roughly 5 percent stake in a private location that began in 2014. Among the first assistants were the state high court judge and his wife and several people appear. be relatives or associates of North Carolina businessman Peter Coker.
Large stock blocks have changed hands from time to time in off-market transactions. In March last year, shortly after becoming president, Coker’s son Peter Coker Jr. bought a 29 per cent stake in Lindenmuth and immediately sold the shares to the three buyers.
The following month, Hometown pushed the border with an investment firm.
Hong Kong-based Maso Capital is in many ways the opposite meme traders who have taken the stock markets on their wild walk. For much of the last decade, Maso has been looking for ways to help Asian-rich companies move to lighter balance sheets. Last year Maso also launched Spac, which was directed by Coker Jr.
“We are not afraid to tighten our sleeves and innovate,” said Masoko Manoj Jain, head of investment. “They see us as defenders of good governance in the region.”
Where Einhorn sees the overpriced food services business in southern New Jersey, Jain sees a way to cheaply control a U.S. purchasing company. “The concept of shell companies has been around the world for many years,” he said. “They’re generally almost dormant public companies that can be used to quickly and easily merge with private companies.”
According to Jain, targeting an existing business to M&A is an effective way to extend the Spac model to smaller offerings. “The business targets we’re talking about have a postal code of between $ 300 and $ 600 million in terms of valuation,” he said. “For it to operate from a public market perspective, Spac must be between $ 75 and $ 100.”
However, setting up a Spac can only cost millions of dollars in administrative fees if you eat a large portion of the value in such a small portion. “[Hometown] the structure is more flexible. . . with a longer lead time and better economic growth, ”Jain said.
“It works like a Mini-Spac,” he added. “When you make a merger, the name changes, the scoreboard changes, the committee changes, the management changes, everything changes as the merged entity enters the U.S. capital markets.”
Not everyone is convinced. “This doesn’t work at all,” Coffee said. “The [over-the-counter market] it doesn’t give you any real liquidity. All you get is the ability to negotiate on the bulletin board with a potential buyer on the other side. “However, Jain believes that, with the right acquisition target, Hometown will be able to list Nasdaq in exchange. However, last week the company moved away from the main investment in the OTC Markets trading venue added the warning to his shares.
Although some shareholders have made big profits, the trade has been very small, where the $ 100 million valuation of Hometown may be something more than hypothetical. Duke and Vanderbilt paid $ 1 a year ago this week for shares listed at $ 13, and investors who joined before 2016 have done even better on paper. However, less than 2% of the shares in the hometown have changed in stock market transactions in the last 18 months, according to data provided by Senteio.
Uncertainty about the valuation of the hometown could frustrate the company’s merger and settlement plans. “Who wants to merge their business into a delicatessen and give it a $ 100 million valuation?” asks Joseph Grundfest, a Stanford law professor and former SEC commissioner. “A space has money. We can value cash. Delicatessens can have pickles and pastrami, but I doubt they are worth the $ 100 million pickles and pastrami. ”
Despite the limited stock market in his hometown, the Wall Street study has at least boosted demand for his sandwiches. Philadelphia magazine was among the outlets to publish a restaurant review last week. When FT ordered the cheese steak, an officer proposed putting up a $ 15 T-shirt from his hometown with the hometown logo and the slogan “Let’s not eat both hungry”.
“I keep your credit card,” the secretary said, seeing that it could be taken seriously in the short term. “And if you write a bad opinion, I’ll keep charging.”
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