Paradise, Inc. was a net-net idea that Nate posted way back in July 2012 - so seven years ago. At that point, shares were trading at about $18. We posted an update in June 2019 when the company announced plans to liquidate.
At that time, the company's estimate was that the "aggregate amount of distributions to shareholders as a result of the Asset Sale and Liquidation Plan will be between approximately $18.0 million and $25.0 million, or approximately $35 to $48 per share based on 519,600 shares outstanding".
The company just mailed an announcement (below) that the final distribution will be $4.50 per share. We thought it would be interesting to compare the distributions that were actually received with the estimate that was given in 2019.
The company distributed $10 in September 2019, $4 in July 2020, and $10 in September 2020. With this final $4.50 payment, it will bring the liquidation proceeds to $28.50. That is below the low end of the liquidation value estimate that the company published in its proxy statement for the plan of liquidation. There have been no communications to shareholders explaining the shortfall between the estimate and what has been distributed.
One issue here is that the company terminated its SEC registration in 2019 after approving the plan of liquidation, and has not subsequently provided any financial statements to shareholders. We don't know whether the shortfall was because of lower than expected asset sales proceeds... or higher than expected SG&A costs.
There were a couple of corporate governance concerns with Paradise even prior to the liquidation. On Twitter, "DoubleOak Equity" tweeted, "$PARF announced in Feb18 it was exploring strategic alternatives. Didn't disclose until 12/7/18 that it had entered into a retention agreement effective 10/31/17 with CFO with $75K bonus paid when company sold." In the proxy statement, payments of severance and a special bonus were projected to be an eye-popping $3.2 million - that is over $6 per share.
We've seen in the past with other liquidating Oddballs, there's a temptation for managements to stretch out the liquidation so that they can remain on salary, but this is bad for shareholders because it (obviously) reduces the eventual proceeds due to the overhead cost but also reduces the IRR of the investment due to the delay.
There are some Oddball investors on Twitter talking about this situation, if you're curious for more: (@OzzieCapital, @coleperkins121, @chrisvirnig, @doubleoakequity).
This case is noteworthy because investors tend to take the management liquidation estimates at face value - and they often are indeed conservative.
PARF - Final Liquidating Distribution - December 2021 by Nate Tobik on Scribd
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