Replies to post #166 on National Holdings Corporation (NHLD)

[illegal_alias]

Thanks for the concise and informative synopsis.

[persistentone]

Thank you for the great summary glass.

I would like to see you address the extra lawsuits that were just added. It looks like legal exposure has climbed another $6M in just one quarter. They apparently did some bad deals and are getting sued for it, and the total exposure is now around $22M by your summary. What's the merit of those cases?

In addition, to support a move to NASDAQ, didn't they get rid of at least one of their most profitable businesses? That's why the Dec 2014 earnings are substantially lower than any recent quarter. That raises the question what are their sustainable earnings moving forward.

[glass99]

CB-Pharma wants to "buy" NHLD with NHLD's money.

On November 18, 2015, Dr. Lindsay A. Rosenwald, Chairman and CEO of CB Pharma Acquisition Corp. (CB), wrote a confidential letter to NHLD’s Chairman of the Board, Mr. Robert Fagenson. Rosenwald said he and CB’s other Co-Chairman, Mr. Michael S. Weiss, want to buy NHLD for either $3.25 cash or $3.25/3.50 cash/stock combination. Weiss and Rosenwald are not strangers to NHLD, and CB’s 32%-42% "premium" offer price is severely lacking.

In the first quarter of 2015, Opus Point Partners Management, LLC (OPP) paid approximately $4.50 per share to purchased 89,530 shares of NHLD. While OPP usually focuses on investments in publicly-traded biotech and life sciences companies, they had a specific purpose behind the purchase of a small cap investment banking and asset management firm’s stock, and NHLD’s Board of Directors and management were well aware of that reason.

It was not a coincidence that OPP had purchased the NHLD shares shortly after the 2014 year-end NASDAQ listing of CB Pharma Acquisition Corp (CB). CB had been set up and primarily funded by the two OPP partners, Weiss and Rosenwald, “to identify a prospective target business.” However, CB had already identified its target business—NHLD. This fact was disclosed to the public on November 25, 2015 when CB issued its press release regarding its non-binding proposal to acquire NHLD.

Almost five years earlier in October 2010 when NHLD was struggling to survive financially, OPP had led a multi-million dollar equity investment into NHLD that resulted in Weiss becoming NHLD’s Chairman of the Board and OPP owning over 23% of NHLD’s stock. In connection with this investment, NHLD was required to enter into a joint venture with OPP, OPN Holdings, to create a new boutique investment banking business with a strategic priority of building a fully-integrated sector-focused, investment banking and capital markets vertical in healthcare and life sciences. An example of this strategic priority was demonstrated with the Manhattan Pharmaceuticals’ stock offering (now TG Therapeutics) in December 2011 in which Weiss and Rosenwald were significant stockholders.

One-and-a-half years later in March 2012, Fagenson became Chairman and CEO when he agreed to invest in NHLD. In April 2012, he unwound the joint venture at a cost to NHLD and forced Weiss to resign from NHLD’s Board of Directors. Then, Fagenson proceeded to clean up NHLD’s balance sheet so the company would not have to beg for financing from anyone else (see post #166 “NHLD History and Due Diligence”).

In response to CB’s non-binding proposal to acquire NHLD on November 18, 2015, Fagenson simply said, “Our Board of Directors acknowledges receipt of this letter will take up consideration of this non-binding letter in due course." This cold response to a $40 million offer is easy to understand. CB’s offer can be largely paid for with NHLD’s $25 million of cash as well as its $11 million deferred tax asset, and while this year’s Earnings before Interest and Taxes (EBIT) is not close to the $10 million NHLD generated last year, NHLD has the ability to generate that kind of cash flow.

In essence, CB wants to "buy" NHLD with NHLD's own money and with total disregard for NHLD’s ability to generate future cash flow. Weiss and Rosenwald are being opportunistic with respect to NHLD's current stock price, and they may be reminiscing back to the time when NHLD was struggling for financial survival, which is clearly wrong.

Today, NHLD has no debt, plenty of cash, a substantial deferred tax asset, and the ability to generate a multiple of its market capitalization in EBIT over the next several years. Given these factors and the low interest rate environment, it is clear that CB’s proposal is severely lacking and should be rejected.

See the press releases issued by NHLD and CB:

http://globenewswire.com/news-release/2015/11/25/790335/10157287/en/CB-Pharma-Acquisition-Corp-CB-Announces-Non-Binding-Offer-to-Acquire-National-Holdings-Corporation-NHLD.html

http://www.businesswire.com/news/home/20151125005497/en/National-Holdings-Corporation-Responds-Letter-CB-Pharma