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Design Within Reach Shares Skyrocket Nearly 577% on Buyout Offer by Herman Miller

The shares of Design Within Reach, Inc. (OTCPink: DWRI) were up sharply in early trading this morning on news that Herman Miller would acquire an ownership interest of 84% for approximately $154 million in cash.  According to the press release, Herman Miller CFO Greg Bylsma stated,  “Each of DWR’s shareholders will be entitled to receive approximately $23per share on a fully-diluted basis as a result of the acquisition.  Furthermore, an escrow account (borne solely by the largest DWR shareholders), will be established to satisfy any post-closing obligations resulting from the transaction. Shareholders will receive further information from the Company regarding the acquisition shortly after closing.”   

The current CEO of Design Within Reach, John Edelman, and its current president, John McPhee, will continue to manage the operations of the unit within Herman Miller and will convert their remaining ownership in Design Within Reach for a 8.5% ownership stake in the newly formed consumer business unit under the Herman Miller umbrella. Design Within Reach expects to benefit through a larger presence within the higher margin consumer market and Herman Miller will gain access to an exclusive product portfolio further establishing the company as a premier lifestyle brand.  

It sounds like a match made in Heaven, but who cares unless you own or intend to buy shares of Herman Miller.  The real question is can more money be squeezed out of the deal by investors?  The answer is…  Maybe a little.  Shares opened the day at $5.00 after last trading at only $3.25.  It should be noted that last trade was only a few days ago and was the largest single volume day for the stock in the last five years.  If it wasn’t for the fact the stock was actually down that day from the previous close, I might suspicious.  Unfortunately, it may have just been bad timing on the part of an investor tired of waiting for the stock to rebound.  

As I write this article, shares are changing hands at about $21.90 per share.  With an offer on the table valued at $23.00 the easy money has certainly been made and leaves about $1.00 or a 4.5% return on the table.  Of course if you annualize the return begins to look very attractive, but you will have to most likely tie up that capital until the acquisition is consummated.  In addition, there is always some modest downside risk if for some reason the deal falls apart.  However, I see that risk as minimal in this deal. Shares will most likely drift a little lower as investors cash out, and then strengthen again as new investors play the arbitrage.  It will be important to pick your entry point wisely in order to maximize returns.

This is a true turnaround success story for Design Within Reach.  It was only five years ago the company terminated its registration with the SEC and delisted from the Nasdaq as shares sank to well under $1.00 per share.   The current leaders, Mr. Edelman and Mr. McPhee were appointed to their posts in 2009 and have orchestrated an enviable recovery.

Disclosure: The author owned shares of DWRI at the time this article was published.

OTC Markets and Small Cap Notable: ALJ Regional Holdings, Crumbs Bake Shop, First Mountain Bank, Genius Brands, Armanino Foods, Burnham Holdings, Metalico, Hampshire Group, Changing Technologies and SnackHealthy

Movers and Shakers

Shares of ALJ Regional Holdings, Inc. (OTCPink: ALJJ) were up as much as 20% higher in early trading before falling back to gain nearly 12% on the day.  No specific news was out on the company, but the upcoming quarter is expected to be strong and it is possible the stock appeared in a subscription based research service such as Seeking Alpha prior to the markets open.

The ride on Crumbs Bake Shop, Inc. (OTCPink: CRMBQ) has been a wild one ever since Marcus Lemonis and Fischer Enterprises announced they would team up in an attempt to save the struggling and now bankrupt maker of cupcakes.  Shares soared from roughly $0.03 to over $0.60 per share after the possible deal was revealed before crashing back down to $0.16 after the Chapter 11 bankruptcy was announced.  However, today shares saw a revival jumping 90% on news from the Wall Street Journal the bankruptcy was being put on the fast track to consummate a sale.  There has been a lot of money made and lost in the common stock of Crumbs over the last week and this is just a little too sweet for my taste.

First Mountain Bank of Big Bear Lake, CA (OTCBB: FMBP) hit the skids after the bank announced its deal to be acquired by First National Bank of Southern California was off due to issues with regulators.  In May, First Mountain agreed to be acquired by First National for $9.00 per share upon regulatory approval.  Unfortunately, that approval was not forthcoming and shares fell 17% to $7.25. 

The stock of Genius Brands International, Inc. (OTCQB: GNUS) continues to slide after topping $4.00 per share just last month.  The company filed with the SEC to offer 3.125 million shares to be sold by current holders of the common stock and Series A Convertible Preferred Shares. 

Earnings or Lack Thereof

Yesterday, Armanino Foods of Distinction, Inc. (OTCPink: AMNF) reported it had achieved the highest quarterly sales and profitability in the history of the company.  Sales for the second quarter ended June 30, 2014 were up 6% to 7.67 million and earnings jumped nearly 15% to $975 thousand or $0.03 per share.  The company has been on a roll for some time and it just keeps on rolling in the dough.

Earlier today, Burnham Holdings, Inc. (OTCPink: BURCA, BURCB) reported its results for the second quarter ended June 29, 2014.  Sales for the second quarter were up 5.5% to $38.1 million while net income came in at $867 thousand or $0.19 per share compared to a loss in the prior year.  The net loss for the second quarter of 2013 was exacerbated by a $5.0 million non-recurring charge, but the company still reported an operating loss of $569 thousand versus an operating profit of $1.65 million in the current quarter. 

Good News Bad News

Metalico, Inc. (NYSE MKT: MEA) announced yesterday that is expects to report improved results when it releases earnings next month.  The company is forecasting sales to increase approximately 9% to $142 million and operating income to land between $2 million and $2.5 million compared to a loss of $2.0 million in the prior year.  EBITDA is expected to be in the range of $6.8 million and $7.2 million compared to only $2.6 million in the prior year.

In more good news, Hampshire Group, Ltd. (OTCQB: HAMP) announced it has signed a sourcing agreement with Levi Strauss & Company to supply knit shirts, woven shirts and sweaters for the Dockers™ Brand globally.  This extends the company’s current agreement beyond North America. 

Head Scratchers

In the “Head Scratchers” category the stocks of both Changing Technologies, Inc. (OTCQB: CHGT) and SnackHealthy, Inc. (OTCQB: SNAX) were up sharply today.  These both look like a hope and prayer based on the financials for the first quarter of the year.  In the latest 10-Q filed by Changing Technologies, the company shows its only asset to be about $12 thousand in cash and no revenues.  But hey, they are investigating the lucrative 3D printing market.  Thinking about the 3D printing market should at least be worth a market cap of $66 million, right?  This stock was up 83% today to finish at $5.50.

The financials of SnackHealthy do not look much better, but at least they have some inventory.  Total assets amounted to just over $66 thousand mostly made up of inventory and the company had a stockholder deficit of $63 thousand.  Of course no revenues were recorded for the quarter, but don’t let that bother you.  The stock was up 60% today to finish at $4.00 per share giving the company a market cap of nearly $22 million.

First Physicians Capital Group, Inc.: Current Investors Loss Creates Arbitrage Opportunity for Small Investors

Last Friday, I wrote an article about a take under at Gasco Energy in which all minority shareholders will be taken out at a price that was substantially below the most recent trading price at the time of the announcement and put the blame squarely on the shareholders of the stock, not management. Just a week later we have yet another example of a take under being orchestrated by the majority shareholders effectively taking out certain minority shareholders at a price that I believe substantially under values the company.

I have to admit, I struggled with the title for this article. It could have easily gone in completely opposite directions. As a holder of the stock, I am obviously not thrilled about the reverse split that has caused many shareholders to dump the stock prior to the split in order to not own a non-reporting company which will have even less liquidity than currently exists. That is certainly the “glass is half empty” way of looking at it and most likely the way many current minority shareholders are seeing it.

On the other hand, I could view this as a positive for small investors who may not know an opportunity exists to earn Continue reading →

Gasco Energy, Inc.: The Devil was in the Details and Minority Shareholders got Burned in this Penny Stock

Shares of Gasco Energy, Inc. (OTC Pink: GSXN) began to crack in 2006 and after a brief recovery came crashing down for good in 2008. Gasco became a victim of the natural gas oversupply and was not in a financial position to handle the lower prices. Unfortunately, natural gas made up most of the company’s production and could not depend on more stable oil prices to keep it afloat. After crashing in 2008 to less than $0.50 per share, the stock continued its downward spiral as natural gas prices remained weak and it became more obvious the company was not going to be able to meet its obligations.  

The stock took what appeared to be its final blow during Continue reading →

Sitestar Corporation: Strange Happenings at this Tiny Real Estate Play

At first glance, the last thing you would think of is real estate when you look at the business and history of Sitestar Corporation (OTCQB: SYTE). Go to its website and it is clear the company is in the internet services and solutions business. However, while this business was dying, the company invested the excess cash flows into primarily residential real estate. This was certainly a departure from being an ISP and hosting websites. Continue reading →