Steel City Capital Investments, LLC is the management company of the Steel City Capital fund. Michael G. Hacke is the fund’s founder and managing member. Recently, Steel City Capital released its Q1 2020 Investor Letter – a copy of which can be downloaded here. For Q1 2020, the fund reported a net return of -10.7%, while the S&P 500 returned -20.00%.
In the said letter, Michael G. Hacke spoke about Iacteractivecorp (NASDAQ:IAC) and Match Group Inc. (NASDAQ:MTCH) stocks. IAC is a holding company that owns brands across globally, mostly in media and Internet. Match Group is an Internet company based in Texas. Here is what Michael G. Hacke said:
“IAC is a media and advertising conglomerate whose portfolio includes Vimeo, Dotdash, Care.com as well as majority ownership interests in both Match Group (which includes Tinder, Match, Plenty of Fish, and OkCupid) and ANGI Homeservices (which includes HomeAdvisor and Angie’s List). For several decades, IAC has operated as a successful asset incubator. Previously owned companies that have been separated include Ticketmaster, Hotels.com, Expedia.com, LendingTree, Hotwire, and TripAdvisor.
The opportunity at hand is a special situation and represents the next chapter in the company’s long history of creating shareholder value. In the coming months, IAC will fully separate Match Group by distributing its remaining holdings to existing IAC shareholders. The pertinent components of the separation plan are as follows: IAC shareholders will receive ~2.37 shares of “New Match” for each share of IAC that they currently own; IAC will transfer $1.7 billion of existing debt to New Match; and New Match will pay a dividend of $3/share of cash consideration to IAC, resulting in the “New IAC” holding ~$2.3 billion of cash.
When all is said and done, IAC’s remaining ownership interest in ANGI and its net cash position alone will equal $4.7 billion of net asset value, or $55.3 per share. This is without ascribing any value to Care.com, which IAC acquired earlier this year for ~$500 million, the $250 million investment it made in Turo (a peer-to-peer care sharing marketplace), or IAC’s portfolio of other assets that, pre-coronavirus, were expected to generate $80 million of EBITDA in FY’20.
Comparatively, the market is currently valuing the New IAC “stub” at ~$31.6 per share, nearly half of conservatively calculated net asset value. The proverbial dollar selling for fifty cents. I synthetically created this “stub” buy purchasing IAC and selling short the pro-rata shares of New Match that the Partnership will receive when the separation is completed later this quarter. While I don’t expect the price/value gap to close immediately or fully, the two should converge over time, providing the Partnership with a solid return.”
In Q4 2019, the number of bullish hedge fund positions on IAC stock increased by about 29% from the previous quarter (see the chart here).
In Q4 2019, the number of bullish hedge fund positions on MTCH stock decreased by about 27% from the previous quarter (see the chart here).
Disclosure: None. This article is originally published at Insider Monkey.
