A Tulsa, Okla., hedge fund has upped its stake in Monaco Coach Corp. and now controls nearly 14% of the Coburg, Ore.-based recreational vehicle maker.
The Register-Guard, Eugene, reported that Prescott Group Capital Management increased its stake in Monaco to 4.1 million shares on Dec. 16, when the company’s stock was trading at 41 cents per share. As recently as September, Prescott owned 1.7 million shares. Prescott is now the single largest holder of Monaco stock.
After the news of Prescott’s buy was publicly disclosed on Friday, Monaco stock shot up in a brief, intense rally in the last hours of trading. After starting Friday at 49 cents per share, Monaco stock rose as high as $1.69 per share before closing at $1.39 per share. Monday saw the stock decline 60 cents to close at 79 cents per share.
Craig Wanichek, Monaco’s director of investor relations, said Monday that it was the company’s policy not to comment on investment issues. A representative of Prescott Group Capital Management did not return phone messages seeking comment from the Register-Guard.
Analyst Frank Magdlen, director of research at The Robins Group in Portland, said he doesn’t know for sure what the Prescott Group’s play means for Monaco. But it could be viewed as a vote of confidence, he said.
“I would say it’s possible they’re a contrarian-type investor,” he said.
He noted that Forest River Inc., an RV maker owned by Warren Buffett’s Berkshire Hathaway, just bought the RV assets of Coachman Industries Inc. in Indiana.
Perhaps, he said, the Prescott Group was heeding Buffett’s investment advice, “to be fearful when others are greedy and to be greedy only when others are fearful.”
Prescott Group probably is looking 18 months down the road, in the hope that the economy will be in recovery and Monaco has returned to profitability, he said.
The Oklahoma firm could exert influence on Monaco’s management, either by getting a seat on the board or by “jawboning,” he said.
“But what is there to jawbone? They’re waiting for the market to get better,” said Magdlen, who does not own Monaco stock. “It’s not that management has mismanaged the business. The whole industry is experiencing similar decline in demand. … The whole industry is in survival mode.”
The Register-Guard reported that if Prescott Group tried take over Monaco and dump the top executives, it would have to pay a premium.
The Monaco board approved new severance agreements in August for CEO Kay Toolson, President John Nepute and other top executives. If Prescott or any other investor were to take over the company, they’d have to pay Toolson and Nepute 200% of their base salaries — based on what they were before recent salary reductions — and the average of their bonuses the past 3 three years, which amounts to a total of somewhere between $3 million and $5 million for the two.
Ed Easterling, president of Crestmont Research in Corvallis, a company that manages investments and conducts market research, said Prescott probably increased its stake because it believed that Monaco stock was undervalued.
While hedge funds are often viewed as predatory, and perceived to have predatory intentions if they buy a big stake in a company, “actually hedge funds are less vulture investors than they are value investors,” Easterling said.