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April 2022 Mid-Month Update: A Sum-of-the-Parts Opportunity

  • April 16, 2022

Considering most of the Inside Arbitrage Model Portfolio companies are yet to report quarterly results, we decided to focus on a new opportunity with recent insider buying for this update. You don’t hear a lot about sum-of-the-parts (SOTP) opportunities these days because it is both difficult to come across companies that are selling at a discount to their component parts and more importantly there may not be a clear catalyst to realize value through the narrowing of that discount. For investors that look at SOTP opportunities, a few situations from the past that come to mind include,

  • Yahoo (or later Altaba after Verizon acquired the operating assets) with its significant stake in Alibaba (BABA). Investors that invested in Yahoo for the SOTP opportunity end up doing very well but it took a long time for the thesis to play out and there were several management missteps along the way.
  • IAC Interactive (IAC) with its numerous spin-offs including the very successful separation from dating websites operator Match Group (MTCH) in July 2020, the recent spin-off of video streaming company Vimeo (VMEO) and a plethora of prior spinoffs like LendingTree, Ticketmaster, etc. The company still holds a position in peer-to-peer car rental company Turo.
  • Sears Holdings with its various divisions and companies that were either sold or spun-off including Orchard Supply Hardware, a REIT spinoff through Seritage Growth Properties (SRG), the spin-off of its apparel brand Lands’ End (LE) and the sale of their Crafstman brand to Stanley Black & Decker.

I recently noticed insider buying in a holding company called Cannae Holdings (CNNE) where two insiders including the CEO and a director purchased shares multiple times from February through earlier this week. The CFO also purchased shares last year at much higher prices as you can see below.

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