Two Thrift Conversions That Are Ripe For A Takeover...Special Situation Investing News - 9/8/2015
Followers of special situation investing know that thrift conversions, aka demutualizations, are often fertile hunting grounds for attractive investment opportunities. For those of you who are not familiar with this special situation investing trick so to speak, I refer you to a great article on the subject by The Manual of Ideas:
As I mentioned in a post recently, the pipeline of new thrift conversions has all but dried up, with only three in the pending right now.
That's less than idea for people looking for investment opportunities in the sector, but it does not mean that it's devoid of opportunities.
Tim Melvin of Street.com, who is a big fan of this type of investment, recently wrote up another interesting article on thrift conversions. He focused on an interesting subsection of demutualizations, banks that converted from thrifts back in 2011. What is so special about banks that converted in that year? Converted banks are banned from being bought for three years after their initial conversion. That means that the 18 banks that converted from thrifts in 2011 have just had their moratorium on being bought out lifted. Institutions that convert from thrifts to publicly traded banks are taken over a very high percentage of time. How often? I haven't seen any recent statistics on the subject, but historically 75% of thrift conversions have been taken over within five years or less.
One bank that Melvin believes is an attractive takeover target right now is ASB Bancorp $ASBB.
A chart of $ASBB (blue) vs. the S&P 500 (red) since conversion (click to enlarge)
ASB Bancorp trades at just under book value (98%) when the average converted thrift is taken over at 135% of book. Furthermore, the bank's list of large shareholders includes two activists who would like to see it taken over Lawrence Seidman and Firefly Value Partners.
Another thrift conversion that Melvin believes is an attractive takeover target right now is Atlantic Coast Financial $ACFC.
A two-year chart of $ACFC (blue) vs. the S&P 500 (red) (click to enlarge)
Atlantic Coast Financial trades for right around book value, again a discount to what a bank would likely have to pay in a takeover. It also has a successful bank investor as a major shareholder, PL Capital with 6.4%.
2011 Thrift Conversions Make Good Takeover Targets
Melvin actually published another article on thrift conversions recently that might be of interest as well:
Not Much to See Here -- Except Profits
The more recent conversions mentioned in it include, Kearny Financial $KRNY, which trades at 87% of book value, Beneficial Bancorp $BNCL88% of book value and First Northwest Bancorp$FNWB at 82%.
Thanks for reading. If you liked the article (or even if you didn't but are just feeling particularly generous), please give it a thumbs up or comment below. Comments and recommendations are how I keep tabs on how many people read and enjoy my work, so please do so...it only takes a second.
Also, if you haven't already, make sure to click on the link at the top of the page to join this new special situation investing community. Doing so will enable you to receive notification when new articles are published here and to share your own ideas.
Lastly, make sure to follow me on Twitter - featuring my new handle: