Alta Fox Capital Management opposes the announced merger of Collectors Universe

M. Cap: $827million | Collectors Universe, Inc. is a leading provider of value-added services to the collectibles markets. 

On June 18, 2020, Alta Fox Capital Management (5.4%) announced that it has nominated a slate of six highly qualified director candidates for election to the Board at the company’s 2020 annual meeting of shareholders. Alta Fox also announced that it has issued an open letter to the shareholders. In its letter, Alta Fox expressed its belief that the shares are materially undervalued due to inadequate shareholder engagement, poor capital allocation, and a lack of digital innovation.

Valuation Insight: With improved governance, investor relations, exciting revenue tailwinds, and margin expansion, we believe CLCT should conservatively trade at +25x our 2023 EPS target of $2.01, yielding ~$50 in value for CLCT’s core business. We believe that the value of these digital initiatives could be worth an incremental $50/share. We believe our nominees have the experience and track record to work collaboratively with management to deliver $100/share in value to CLCT’s shareholders within the next 3 years ($50/share in core business + $50/share in new digital initiatives).

Three Different Strategic Paths Forward for CLCT

Alta Fox explained three strategic options for the future of CLCT:

The first option (and Alta Fox Capital’s preferred plan) is for a new and rejuvenated Board to work alongside the current management team in improving the core grading business and investing in high-margin, scalable, and recurring revenue streams that capitalize on the Company’s existing competitive advantages. Each new service offered will enhance the customer value proposition, further expand CLCT’s competitive moat, and will significantly improve shareholder value. It believes this plan can lead to significant share price appreciation over the next three years.

The second option is to slash public company costs and go private. It believes there would be many strategic and financial buyers of CLCT at significantly higher prices, and it estimates that removing public company costs in FY19 would have increased net income by over 20%.

Finally, the third option, which the current Board has apparently chosen—the status quo. This involves a disengaged Board failing to adequately address significant customer backlogs for graded items, doing the bare minimum for investor relations, failing to show operating margin improvement, and essentially milking the business for cash flows with an inefficient balance sheet and bloated cost structure. This lackluster strategy is how the current Board has taken a dominant asset for a decade and managed it to mediocre returns. Shareholders and customers deserve better.

On July 7, 2020, Alta Fox stated that Mr. Turner (one of the Alta Fox nominees) continues to believe that the changes Alta Fox is seeking at the company are in the best interests of all shareholders and customers, Mr. Turner has withdrawn his candidacy as a director nominee of Alta Fox for election to the Board at the Annual Meeting. Alta Fox thanks Mr. Turner for his contributions to the slate’s operating plan for the company and for helping Alta Fox connect with the passionate collector community. Source

On September 29, 2020, the company announced that it has entered into a settlement agreement with Alta Fox Capital Management and appointed two new independent directors to the Board. Pursuant to the agreement, Alta Fox agreed to vote all of its shares in favor of each of the company’s nominees at the 2020 annual meeting 

On November 30, 2020, the company announced that it has entered into a definitive agreement under which an investor group led by entrepreneur and sports card collector Nat Turner, D1 Capital Partners L.P., and Cohen Private Ventures, LLC will acquire all of the company’s outstanding shares of common stock for $75.25 per share in cash.

 On January 5, 2021, Alta Fox (5.5%) stated its belief that the tender offer commenced by Cards Acquisition Inc. is neither fair nor in the best interests of stockholders. Alta Fox  stated its belief that this transaction significantly undervalues the company’s brand and its future growth prospects, and therefore, the Offer does not properly consider the interests of stockholders who may desire to retain their shares in the company and have the opportunity to participate directly in the company’s growth potential. As a result, Alta Fox  stated that it do not intend to tender its Shares in the Offer and instead intend to exercise appraisal rights. Source

 On January 26, 2021, Alta Fox (5.5%) reiterated its disappointment with the purchase price of Cards Acquisition and announced its stance that it do not intend to tender its Shares in the Offer and instead intend to exercise appraisal rights. Source