Capital Southwest Sells Long-Time Holding

Portfolio holding Capital Southwest (CSWC) doesn't make news often. Today it announced it is selling its wholly-owned Lifemark Group for $84.75 million in cash:

"Lifemark has been part of the Capital Southwest portfolio since July 1969, when we made our initial investment. As our longest investment holding, Lifemark is an example of how our capital enables management teams to consistently think and act long-term," stated Gary L. Martin, chairman and president of Capital Southwest. "It is in the best interest of our shareholders to pursue this transaction now. The market is ideal for us to use the capital from this sale to invest while the opportunity is high and the availability of alternate funding is low. This allows us to add companies to our portfolio that provide a great long-term benefit and return on investment to our shareholders."

Capital Southwest estimates that $46.2 million of the proceeds will be retained for future investment and $24.4 million will be paid in long-term capital gains tax on behalf of its shareholders. Based on an individual tax rate of 15%, it is estimated individual shareholders will receive a net tax credit of $3.73 per share effective 12/31/2010 from this transaction. The transaction is subject to the approval of the State of California.

CSWC has seen its stock price move up nicely recently. Yet the shares still trade at a discount to book value. While it is by no means a big dividend payer -- yielding less than 1% last I checked -- it is the only holding where my broker is instructed to reinvest the payouts.

No one can predict the future, but I expect this is a holding that will remain in the portfolio for many years to come.

Comments

[Philbert]

Any speculation on why they sold? What does selling while "the opportunity is high" mean? Seems like markets are pretty fairly valued now. Maybe he meant while the opportunity to sell is high.

Also this stocks seems like one that will never sell for equal to or more than its book value.

[John]

@Philbert: "Opportunity is high" probably means many firms and startups are having a very hard time finding financing and CSWC has the money to put to work, and can do deals on favorable terms.

CSWC does look to be a company that will stubbornly go for less than NAV. Which makes reinvesting dividends back into the company appealing, at least for me.