Bidding War for Sunnyside Bancorp ($SNNY)

We mentioned last month that "An Old Oddball Stocks Idea Ha[d] Its Day" with the sale of Sunnyside Bancorp, Inc. Today, a different buyer announced that it has a higher bid (20% premium) for Sunnyside.  

Rhodium BA Holdings LLC (“Rhodium”), a New York-based investor, which through its special purpose subsidiary OppCapital Associates LLC beneficially owns approximately 9.82% of the outstanding common shares of Sunnyside Bancorp, Inc. (OTCBB: SNNY) (“Sunnyside” or the “Company”), today sent a letter to the Company’s Board of Directors presenting a fully financed proposal to acquire Sunnyside for $18.50 per share in cash.

Over the past twelve months, Rhodium has privately approached the Company with multiple expressions of interest to acquire the Company on attractive terms, which were rejected without explanation by Sunnyside’s Board of Directors. Rhodium’s current offer represents a 23% premium to Sunnyside’s closing price on April 19, 2021, a 19% premium to the price offered by DLP Bancshares Inc. and a 50% premium to the Company’s unaffected share price on March 16, 2021 prior to the announcement of the DLP Bancshares Inc. offer. 

In its open letter to Sunnyside, Rhodium seems to be threatening to do a tender offer if their bid is rejected.

Third Amended Complaint Filed in Life Insurance Company of Alabama Shareholders' Lawsuit

Earlier, we mentioned that there was an Eleventh Circuit Court of Appeals ruling that was favorable to the minority shareholders suing Life Insurance Company of Alabama, which resulted in the federal court in Alabama ordering the shareholders to file file one final amended complaint against the company and its directors. That third amended complaint has now been filed, so we thought we would quote from some interesting sections:

• In some cases, a large book value discount at an insurance company might indicate an asset quality problem, suggesting the company's assets were not worth their carrying values. However, LICOA's assets then and now consisted primarily of a rather “vanilla” corporate bond portfolio managed by outside advisers. The distress that the market price of the non-voting shares was (and is now) implying is managerial in nature. As discussed herein, it would ultimately be revealed that a group of relatives took legal control of LICOA by owning a majority of shares and have used and continue to use this control inequitably to the detriment of minority shareholders. Interestingly, during the pendency of this litigation, that discount seems to have widened and narrowed based on the market perception of Plaintiffs' likelihood of success in the litigation, indicating that it is indeed the inequitable conduct causing the distressed trading price of the non-voting shares.
• The economic purpose of an insurance company, from a shareholder perspective, is to raise funds from policyholders and invest them at a profitable spread. Using borrowed money (“Float”) from the insurance customers as leverage and investing it in a bond portfolio ought to offer shareholders a higher return on their capital. But because the controlling shareholders of LICOA overpay themselves and otherwise waste money, the return on equity that minority shareholders receive is lower than the underlying yield on the bond portfolio. The minority shareholders bear all the risk of an insurance company's financial leverage (where the total assets are approximately three times the shareholder capital) but without the benefit of any increased return.
• Causey’s husband Michael—who also works for LICOA—has had a similar social media presence, claiming to “Live in Alabama, but rarely there! Love traveling the globe in search of the best life has to offer...”. Like his wife, Mr. Causey also posted pictures of a lavish lifestyle of global travel and extravagance. The problem with the Causeys—and their family members who are also Director Defendants in this case—is that consistent with their social media profiles, their interests lie with funding and maintaining their lifestyles – not the interests of the shareholders of LICOA consistent with their fiduciary and statutory duties.
• Even though Daugette is the Chairman of LICOA and his brothers-in law Lowe and Renfrow have subordinate titles, each year they are paid virtually the same amount. In 2019, LICOA began paying Causey a matching amount as well. For four executives of varying tenure, title, and seniority to receive virtually identical compensation shows that LICOA's compensation is not based on the market value of services rendered, but rather it is a de facto family dividend. The controlling shareholders have hired each other and split a disproportionate share of LICOA's profits according to a negotiated scheme amongst themselves. Tellingly, LICOA does not have any board minutes, compensation studies, or any documents whatsoever that explain how these nearly identical compensation levels were established.
  
• After this litigation ensued—and after Terry Jacobs, whose family members are LICOA shareholders (“Jacobs Shareholders”), was disclosed as a witness and potential plaintiff—Defendants caused LICOA to purchase the Jacobs Shareholders’ shares at nearly three times the then-trading value of the LICOA shares (i.e., much closer to the book value). See Exhibit I. Near the same time, Director Daugette was purchasing the shares of other, uninformed shareholders at much lower prices, demonstrating how the Director Defendants game the system to keep share prices artificially low for their own oppressive repurchasing scheme, even though they know that the true value of the shares is much higher, as exhibited by the much higher price paid for the more knowledgeable Jacobs Shareholders' shares.
• The Daugette, Renfrow, and Causey family members receive extravagant six figure salaries, some of which is for “no show” or “no work” jobs, and all of this excessive compensation is a de facto dividend that shareholders who are not family members do not receive. See Exhibit K. This compensation has been rising even as the company's profitability has deteriorated in recent years. See Exhibit L. As self-dealing transactions, these payments to insiders need to be entirely fair (both stemming from a fair process and resulting in a fair outcome). The burden of proof is on the Director Defendants to show that payments to these insiders are entirely fair, but since they run their business in a “Mafia Style” without written records, they will be unable to meet this burden.
• The most egregious usurpation of a repurchase opportunity was committed by Daugette after the Lightfoot investigation and report. During the coronavirus chaos of 2020, Daugette personally bought shares from small shareholders for less than a quarter of tangible book value, while shortly thereafter he had LICOA pay three times as much for the Jacobs Shareholders' shares. If it was a good deal for LICOA to pay the Jacobs Shareholders $31.88 per LINSA share, then Daugette clearly usurped an even better opportunity from LICOA when he personally bought LINSA shares for prices as low as $10 per share – using LICOA resources such as employees, email accounts, and letterhead to conduct these personal purchases. After having his independent director patsies rubber-stamp his past misconduct with the Lightfoot straw-man investigation, he now feels emboldened to commit even more blatant abuses.

The entire Third Amended complaint is embedded below. The voluminous exhibits are in a second embed after that.

Licoa - Plaintiffs’ Third Amended Consolidated Complaint by Nate Tobik on Scribd

LICOA Third Complaint Exhibits by Nate Tobik on Scribd

New Order in LICOA Shareholders' Lawsuit

This order in Trondheim Capital Partners LP et al v. Life Insurance Company of Alabama et al in the US District Court for the Northern District of Alabama was published today:

This matter comes before the court on the parties’ Joint Status Report (doc. 52), which the court will construe as a motion by the plaintiffs for leave to file an amended complaint. For the reasons set forth below, the court will GRANT the motion and will grant the plaintiffs leave to file one final amended consolidated complaint.

In its prior Order (doc. 51), the court found that it erroneously abstained from hearing the Shareholders’ claim for judicial dissolution in light of the decision of the United States Court of Appeals for the Eleventh Circuit in Deal v. Tugalo Gas Co., --- F.3d ----, 2021 WL 1049813 (11th Cir. Mar. 19, 2021). The court ordered the parties to submit a Joint Status Report and to include proposals for moving forward in light of Deal.

In the Joint Status Report (doc. 52), the plaintiffs request leave to file “one final amended complaint asserting the derivative claims and reinstating the dissolution claim,” which in turn would “allow Defendants an opportunity to answer those claims or move to dismiss.” The plaintiffs also request to proceed with discovery while any motion filed by defendants remains pending. (Doc. 52 at 3).

The defendants request a briefing schedule to allow this court “to determine if it has jurisdiction to consider the dissolution claim[] before considering Plaintiffs’ remaining claims.” According to the defendants, “Deal concludes with the directive that the district court make…a determination of jurisdiction;” accordingly, they ask the court to follow that course here. (Doc. 52 at 3).

Although the defendants correctly point out that the Eleventh Circuit in Deal ordered the district court to decide on the merits “whether the governing state law permits a federal court to dissolve a state-chartered corporation,” plaintiffs’ claim for judicial dissolution is not currently pending before this court, because this court dismissed that claim without prejudice. Deal, --- F.3d at ----, 2021 WL 1049813 at *9; (doc. 50).

Accordingly, pursuant to Fed. R. Civ. P. 54(b), the court sua sponte WITHDRAWS its Memorandum Opinion (doc. 49, § III.B) and Order (doc. 50) ONLY as to its rulings to abstain from hearing and to dismiss Count Two of the Shareholders’ Direct Complaint—the claim for judicial dissolution—and to stay the case. The court LIFTS the stay pursuant to such withdrawal.

The court next construes the Shareholders’ proposal in the Joint Status Report (doc. 52 at 3) as a motion for leave to amend pursuant to Fed. R. Civ. P. 15(a)(2). Because the court previously dismissed Counts One, Two, and Three of the Direct Complaint and the entire Derivative Complaint without prejudice, and because Fed. R. Civ. P. 15(a)(2) requires the court to “freely give leave [to amend] when justice so requires,” the court will GRANT that motion and will grant the Shareholders leave to file one final amended, consolidated complaint containing the claim for judicial dissolution and any other claims—both derivative and direct—against all defendants. The Shareholders shall file their amended complaint on or by April 22, 2021.

This procedure will allow the defendants the opportunity to move to dismiss the claim for judicial dissolution in light of Deal’s directive, but will promote judicial economy by also allowing the court to consider at the same time any other matters in this case.

DONE and ORDERED this 7th day of April, 2021.

The LICOA Concerned Shareholders website has the documents that the Concerned Shareholders have received from books and records inspections of LICOA.

Interested in trying the Oddball Stocks Newsletter?

If you are curious about the Oddball Stocks Newsletter, we've added a couple low-risk ways that you can try out what we are about.

First, there are our back Issues. Our most recent Issue was Issue 34 this month. The following earlier Issues are available à la carte: Issues 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, and 31.

Last February, we compiled a collection of Highlights from our back catalog to demonstrate what the Newsletter is, or what it hopes to be: topical, philosophical, focused on companies that the market ignores, pounding the table for value investing while grappling with problems like rapacious managements that are consuming value.

The "Highlights Issue" is available here for purchase as a single Issue. If you have been curious about the Newsletter, then this is the perfect opportunity to try about two Issues worth of content (much of which is still topical and interesting) at a low cost.

This is a "highlight reel," but it is not a victory lap or a tout of what we have written about. A lot of these highlights are our think-pieces: on shareholder rights, on banking as a business model, on value investing. There are pieces about companies that got taken out at a premium but also about ones that are trading lower now some years later... of course, those may be the most interesting to pay attention to now. There are two companies – Scheid Vineyards and Enterprise Diversified (formerly known as Sitestar) – where we warned about significant risks that ended up materializing.

In the past, we also posted some Newsletter excerpts that give a taste of the Oddball writing and coverage style - but just remember that the most interesting content is for subscribers only. The excerpts were on The Coal Creek Company, Tower Properties, Bank of Utica, small banks, Avalon Holdings, Boston Sand and Gravel, Conrad Industries, and Sitestar / Enterprise Diversified.

Don't miss our recent Oddball Stocks blog posts (separate from the Newsletter content) on:

• Scheid Family Wines Announces Sale of Three Vineyard Properties ($SVIN) 
• Developments in the activist campaign at Life Insurance Company of Alabama ($LINS $LINSA) 
• An Old Oddball Stocks Idea Has Its Day - Sale of Sunnyside Bancorp, Inc. ($SNNY)
• Hanover Foods Reports Quarterly Results $HNFSA $HNFSB 
• @MidwestHedgie Tweetstorm on Bank of Utica $BKUT $BKUTK
• The Ohio Art Company - Reverse Split (Squeeze Out) $OART 
• Fidelity D & D Bancorp, Inc. $FDBC to Acquire Landmark Bancorp, Inc. $LDKB
  
• Small Bank Investors React to the Bank of Utica Annual Report $BKUT $BKUTK
• Bank of Utica 2020 Annual Report
• Small Banks Hold Better Credits Than Regional Banks, And They're Cheaper
• Tower Properties Announces Massive Special Dividend ($TPRP)
  

Finally, if you want to be completely immersed in the Oddball universe, be sure to follow Nate Tobik and the Newsletter on Twitter. 

Scheid Family Wines Announces Sale of Three Vineyard Properties ($SVIN)

Oddball grape farmer, vineyard, and wine producer Scheid Vineyards Inc. announced the following the night before Good Friday,

Salinas, California, April 2, 2021. Scheid Vineyards Inc. (dba Scheid Family Wines) (OTC Markets: SVIN) announced today that it sold three of its vineyard parcels for $33,000,000 in consideration, which includes the buyer assuming $20,000,000 of the Company’s debt that was secured by the properties. The disposition of these parcels, which comprise 1,193 acres of leased and owned vineyards, is part of Scheid Family Wines’ overall strategy to better align its asset holdings and debt with its growing premium bottled wine business.
Mr. Scott Scheid, President and CEO of the Company, stated, “We are pleased to complete this transaction and continue to focus our attention and resources on the growth of our branded goods portfolio, which includes our recently launched entrant in the trending ‘better for you’ category, Sunny with a Chance of Flowers, as well as other national and global brands.”

One of the bullish writeups that went around in 2018 thought that that Scheid's land should be worth $40k to $60k per acre. While this sale may not have been their best acreage (and location matters a lot in wine), this valuation still has to be a disappointment for Sum of the Parts investors in Scheid.

Left unsaid is what Scheid's ongoing relationship with this land and these grapes will be. Is this a sale-leaseback? Are they just going to buy the grapes? Is there any kind of long-term contract to buy them? 

Or, are they realizing that they don't need as many grapes because they can't sell that much wine?

Note that Scheid also had to sell land in 2000 to deleverage.

Previously regarding Scheid:

• A wine company at 53% of BV and 4.6x earnings, plus a little industry background (July 2013)
• Do the Disappointing Scheid Vineyards Results Show a Bad Business in Decline? (July 2019)
  
• Interpreting the Scheid Vineyard 2019 Results (June 2020) 
• Scheid Vineyards ($SVIN) Releases Quarterly Earnings (July 2020) 
• Altria's Wine Business (Chateau Ste. Michelle) Isn't Doing Much Better than Scheid Vineyards ($SVIN $MO) (August 2020)
  
• Report from Scheid Vineyards ($SVIN) Annual Meeting (November 2020)
  

We have also covered Scheid in past Issues of the Oddball Stocks Newsletter.