Cambria, Bitcoin, and Energy
§Cambria Automotive
In April of 2021, I wrote up Cambria Automotive (an auto dealership collection), a merger arbitrage situation. The general idea was, the management buyout team did not have enough votes to take the company private, meaning they would have to raise their bid or let the public shareholders keep the company.
So what happened? The original buyout price was 80p. Management ended up increasing the offer to 82.5p OR participation in the private company. What I thought was going to be a relatively simple investment turned into a complicated story of misaligned executives.
The original price was too low. The real estate and cash ALONE the company owned was worth 75p+, and the actual business generated ~10p in earnings each year. For those of you old enough to remember 2020 and 2021, used car prices increased by ~50% in a year due to a variety of reasons, such as supply chain shortages, logistics difficulties during COVID, etc. So, with a higher gross profit, the business was probably generating $20M+ in earnings, making this super cheap!
However, management was completely misaligned. The management team who wanted to buy the company owned ~40% of the shares. However, they thought that the company should be run for themselves instead of the shareholders- this thought was conveyed through a few interviews.
Good management counts for something!
Two Thoughts:
§Is Bitcoin Working?
This question was inspired by this twitter thread, where the creator of Dodgecoin states their thoughts on what is wrong with the current Cryptocurrency market.
One of the main criticisms is that Cryptocurrency was supposed to alleviate some issues that rise with capitalism , such as corruption, fraud, and inequality. Instead, Crypto has these same issues but takes off the “guard rails” of regulation- which only exacerbates the above problems.
It kind of seems like a catch-22 to me. Maybe I just don’t understand crypto (yet)!
§Check Your Bingo Cards!
Who had Exxon’s management team winning the honest management awards in 2021? Not me!
Apparently Citigroup’s co-head of the new natural resources and clean energy transition group approached Exxon to suggest they commit to a net-zero emissions goal. Management (again) rejected this proposal, saying that they would not commit to a goal they know they cannot achieve. Unheard of in energy companies!
That is when the Citi investment banker said the following (emphasis mine):
“Most companies today who have committed to net zero don’t have a plan on how to get there , but they’re working to get there.”
So with many of the largest energy companies nowadays committing to net-zero emissions and not even being on track to hitting the goal, what will they do?
The quickest way for an oil major to reduce their emissions is to sell their assets. However that presents a major problem: selling assets does not change total emissions. It only moves the blame from an oil major to another company.
In addition to that, the only buyers of those assets would be organizations not concerned with emissions , as many of these properties are inherently high carbon emitters. How many organizations will not be concerned with emissions in 10 years? My guess is very few. So will we have forced sellers of major energy assets?
Putting this all together, it is possible that closer to 2030, we will start seeing many oil majors selling off their carbon-emitting assets at low prices. It is either that, or managements will have to revise their carbon goals. Which is more likely to happen?