CNSL: A Rogue Funds Divestment
End of Year Portfolio Updates
To end the year (and our first two full quarters as a fund managing OPM), we will be announcing significant portfolio changes and updating you on our top portfolio holdings. In the coming weeks we will do major write ups for all new positions and short but sweet updates in positions we have already identified. At the beginning of next year we will report a YTD update (in the form of my letter to investors) and our first publication of our unaudited returns. We will also be creating an “invest” tab on the website where you can view all fund marketing documents. If you are interested in Rogue Funds, fill out the contact page on the website and we will get up with you as soon as we can.
Consolidated Communications is no longer part of the Rogue Funds Portfolio
As the prior number one holding in Rogue Funds, we figured it would be appropriate to address that Rogue Funds has completely divested away from this holding taking a mediocre gain in the process. This will be one of the shorter updates but it is extremely important to know why we moved away from a high conviction position.
After the Private Equity buyout offer was announced at $4 I knew this price would most likely be negotiated up and I saw little downside in the value of the underlying business. We held for a few months until recent news of an increased buyout at $4.70 was announced (this drove the stock price up to $4.10). This, again, was an atrociously low value for the company but it was dependent on minority shareholder approval by early 2025.
Opinion on the situation:
To ignore a 14% arbitrage (~9% with discount rate from T-bills) opportunity, we obviously had to have some good reason, so, I’ll try to summarize my thought process as best I can. I believe that searchlight (based on their past acquisition history) was most likely offering the CEO an amazing package if the acquisition went through. This seems obvious enough, but I think this created an incentive opportunity for the CEO to slow down fiber lay down, while the company struggles with liquidity, to force minority shareholders to agree to the acquisition.
Although the company is in a tight liquidity position (hence the undervaluation to begin with), they chose not to use their fiber assets as collateral for possible debt as we saw with frontier communications. This again signified to me that the company had no plans of getting out of their liquidity position with anything besides an acquisition.
The risk that I am highlighting is that, if minority shareholders vote against the acquisition in spite of the liquidity risks, the downside of the stock is extremely high in that scenario. I don’t like the risk reward of the current situation and was willing to sell for a modest gain.
We have rolled over some of the new cash into another fiber opprotunity which I will be excited to share in a future update.
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Disclaimer: The author of this idea does not have a position in securities discussed at the time of posting and may trade in and out of this position without informing the reader.
Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment adviser capacity. This is not an investment research report. The author's opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies' SEC and CSA filings, and consult a qualified investment adviser. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author's best judgment as of the date of publication and are subject to change without notice. The author and funds the author advises may buy or sell shares without any further notice.
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