Big trading range day, page-4

Naos have sold down part of their BSA holding as per the announcement and they might be selling more. That might be for the simple reason that they have concluded that they have had the best of BSA and its time to move on.

However, something most BSA shareholders would not be aware of unless they follow either CTN or CGA, is that there are some shenanigans going on with those two that involves Naos, and which have, for the most part, not made it into the media. It is not obvious to me why that might be prompting Naos to sell down BSA, but others might be able to join the dots. The CGA/CTN shenanigans are a bit like War and Peace, so it is hard to summarize, but I will have go. However you will have to concentrate and remember that reality is stranger than fiction.

CTN is Contango Microcap, which is a $157m LIC, and is the oldest such microcap LIC.
Last year CTN sold off its previously internally owned investment manager for, I think, about $13m. The investment manager emerged shortly after that as the listed entity CGA, Contango Asset Management in Sep 2016 with a market cap of about $70m.
The CGA SP peaked at $1.93 on 6 Oct 2016 and has been downhill ever since.

At that stage, CTN still held some shares in another LIC that CTN had spawned earlier, Contango Income Generator, CIE.
In Nov 2016 CTN sold the interest in CIE and announced on 8 Dec 2016 that they had put the resulting $27m with another investment manager, OC Funds Management.
That really put the cat among the pigeons with CGA.

So interests friendly to CGA with holdings in CTN, called for an EGM of CTN shareholders to replace the original directors. The EGM was held on 27 March 2017, and CGA got their way, and the old CTN directors were booted out. The new directors seem to have turned out to be particularly friendly to CGA’s interests.

Now through this period, the investment performance of CTN, as managed by CGA, has been, shall we say less than scintillating, whereas OC funds management put runs on the board. But surprise, surprise, in Aug 2017, the new board at CTN announced that they had reached a deal to pay OC Funds about $1.0m and OC funds evidently agreed to hand back the $27m and then CTN gave the funds back to CGA to manage. (see CTN annual report)

Through all this, the share price of CGA has been sliding because, basically it was always way, way overpriced relative to its funds under management.

Are you still with me, because this is where Naos comes into the story?
In June through August 2017, funds controlled by Naos bought nearly 15% of CGA. They must have paid about $1.10 for the shares, or by my reckoning about $7m.
That investment is now underwater, with the CGA SP at $0.80.

On 13 Oct 2017, the independent chairman of CTN, Mark Kerr, resigned without explanation. Then, seven days later, on 20 Oct 2017, CGA announced that they are getting out of managing microcap stocks and that they are assigning the rights to manage CTN’s funds to Naos in exchange for a payment of up to about $12.5m.

So Naos will be managing about another $157m in the microcap space in addition to the funds that they already manage.

It is not clear whether Naos are actually managing any of CTN’s funds at this point.
No, courtesy of an email that just arrived, it appears that as of 20 Oct 2017, Conatango Asset management are no longer the investment manager for CTN funds, so presumably Naos must me the manager.

A further complexity is that in mid-August Wilson Asset group popped up on the CTN share register with a 5% holding in CTN but it looks like Wilson has been beaten to the punch.

There are probably some middle eastern slaves who have been treated with more respect than CTN shareholders have been accorded through this saga.

I sold most of my holding in CTN after the March EGM vote at prices well above the current SP. (I voted to keep the original directors and against the usurpers, but the vote went the other way.)
CTN shareholders can rightly feel used and abused.

As I understand it, Naos are not interested in mining stocks so they may be inclined to sell down the mining stocks in CTN’s portfolio.

I leave it to the reader to apply their minds to whether there is any connection between these goings on and Naos selling down its holding in BSA. If there is a connection, it is not obvious to me unless Naos need the money to pay to CGA the $12.5m.

It’s the wild west out there and the sheriff is nowhere to be seen.

There are some sharp operators with their own money involved in this CTN/CGA saga, so I am deploying my all singing all dancing disclaimer.

cheers

These are my opinions only. Nothing that I have written here should be construed as disparagement of any of the parties or entities involved. For all I know, all of the parties and entities may be completely convinced of the correctness of their actions and be acting from the highest possible motives with all due skill and care in accord with their various responsibilities and obligations. Any figures and facts are mentioned in good faith but I accept no responsibility for their accuracy.