Summary
- Fast food chain Luby's is set to liquidate after pursuing a sale process.
- The real estate value supports the shares at current levels. Additionally, there may also be further value in the operating businesses.
- High CEO stock ownership creates alignment with shareholders.
The company estimates $3-4/share of liquidation value to shareholders, and I get to a similar place on expected value, though the range of potential outcomes may be broader ($0-6).
On September 8, the troubled Texas-based dining chain Luby's (LUB) announced its intention to liquidate after a strategic review process launched over the summer. At the time of writing, the shares, though volatile, trade below the lower end of the company's estimate of $3-4/share upon liquidation (bolding below is mine):
While no assurances can be given, the Company currently estimates, assuming the sale of its assets pursuant to its monetization strategy, that it could make aggregate liquidating distributions to stockholders of between approximately $92 million and $123 million (approximately $3.00 and $4.00 per share of common stock, respectively, based on 30,752,470 shares of common stock outstanding as of September 2, 2020). Aggregate payments will likely be paid in one or more distributions. The Company cannot predict the timing or amount of any such distributions, as uncertainties exist as to the value it may receive upon the sale of assets pursuant to its monetization strategy, the net value of any remaining assets after such sales are completed, the ultimate amount of expenses associated with implementing its monetization strategy, liabilities, operating costs and amounts to be set aside for claims, obligations and provisions during the liquidation and winding-up process and the related timing to complete such transactions and overall process.
Source: Luby's investor site
Insider Ownership
CEO Christopher Pappas owns over 23% of the shares, and his brother, Harris Pappas, has a similarly large holding. There has been no material insider selling since 2018. Hence, alignment with shareholders is relatively clear. The CEO will benefit far more from an effective, price-maximizing liquidation process than a drawn-out process with high fees.
