By Paul Price
Sometimes the best new idea is an old idea.
We sold the shares of executive search firm Heidrick & Struggles (HSII) at $17.37 per share on July 5, 2013. Today we were able to buy back a position at $14.94, a 14% discount to where we sold just twenty-four days ago.
We picked up 250 shares for our Virtual Value Portfolio. The $3,735 cost came out of our cash reserves. Market Shadows will pocket a quick cash rebate on this purchase as HSII goes ex-dividend for a 13-cent distribution on Wednesday.
At least two private equity firms had been interested in taking HSII private at valuations ranging from $17 – $19 per share. Management says they are committed to staying independent. Experience suggests that might be code for "Make me a higher offer." That is exactly what happened earlier this year with another of our previous portfolio companies, Life Technologies (LIFE). They turned down multiple bids initially before accepting a later, higher priced offer.
Price negotiations asides, I think HSII is worth well above the sub-$15 we paid this morning to add it back to our Virtual Value Portfolio. The shares have traded higher than that over most of the past decade.
The buyout firms were convinced they could profit from privatizing the company at higher levels.
We can pocket almost 4% in yield while waiting for the mean-reversion price that should evolve over the next full business cycle. Another buyout rumor or takeover would speed up the process.
See full details of all open and closed-out positions: http://marketshadows.com/virtual-portfolios/virtual-portfolio/
Disclosure: I bought HSII shares in my personal portfolio today (July 29). My cost ranged from $14.92 – $14.94.