Filing Details

Since the Great Financial Crisis the public market has bid up large cap tech stocks and left behind small, micro, and nano-cap value.  This “undervaluation of value” recently hit its 99^th percentile historically, the highest since the tech bubble of March 2000.

The energy industry was the worst stock market performer in the past decade. Now, in some quarters, hydro-carbon energy is viewed as “politically incorrect” as well.

HWCC shares are so thinly traded that the company is barely public.  Its current average daily trading volume is only about $115,000.  Shareholders have little liquidity, hence HWCC trades at a depressed valuation.

HWCC is not a growth company, hence it trades at a depressed valuation.

Because of the cyclicality of the industries which HWCC serves and because of exogenous risks, HWCC cannot be expected to deliver predictable, linear earnings, hence it trades at a depressed valuation.

HWCC has no current analytical coverage.

HWCC has been unlucky as an acquirer:  Its two offshore acquisitions, Southern Wire (SW) and Southwest Wire Rope (SWWR), were wounded by the subsequent explosion of Deepwater Horizon and the collapse of the price of oil, and Vertex by tariffs and trade wars. The aggregate purchase price HWCC paid for its acquisitions exceeds HWCC’s current market cap by nearly 100%.

Protect the independence of the company as it executes this strategy, and recognize  shareholders’ sense of urgency, by electing David Nierenberg a director and designating Damon Benedict a board observer.  This could enable HWCC to use D3’s networks in the activist and the governance communities and David’s four decades of turnaround experience.

Pursue a “sum of the parts” (SOTP) disaggregation strategy, similar to what D3 advocated successfully at MedCath (MDTH) and Garden Fresh Restaurants (LTUS).  SOTP works where a public company is so poorly followed that its total enterprise value is substantially less than what could be realized by selling each of its individual pieces to the right financial or strategic purchasers; paying off debt; and then repurchasing shares and/or distributing net proceeds to shareholders.  At MDTH this generated approximately a 200% gain and about 175% at LTUS.  HWCC’s aggregate purchase prices for SWWR, SW, and Vertex were approximately $80M. There is reason to hope that HWCC might be able to recoup much of what it paid for SW and SWWR.  And, with recent easing of international trade tension, the restocking of inventory, and closure of Vertex’ Attleboro site, perhaps HWCC could monetize most of what it paid for Vertex.  Possibly, the proceeds from these sales could pay off all or most of HWCC’s debt, leaving it with its large, profitable core copper wire and cable master distribution business.

We see four possible benefits from monetizing the non-core businesses:

HWCC’s management and board would free up time to focus entirely on optimizing HWCC’s core business, rather than spreading themselves thin across four different businesses.  We anticipate that focusing management on the core business should improve its growth, asset utilization, and cash flow, thereby generating free cash to improve shareholder returns.

As HWCC substantially reduces its share count, the company can explore de-listing its shares to reduce G&A expense.

Ultimately, within two to three years, HWCC could sell the core business.  We hope that focusing management entirely on growing and improving the core, then selling it, might generate an attractive exit price, particularly with proceeds distributed among substantially fewer shares.”