Disclaimer / Disclosure long securities discussed.
May 5, 2025
The Russell 2000 reconstitution used to be free money for trading around marginal additions and deletions. But index arbitrage has gotten more sophisticated and competitive. Today, I still follow it, but no longer would own or short something only for the index effect. It can be a nice kicker for something I want to do anyway. This year is typical – I tried two ideas and one appears to have worked (both great investments but only one for the index). Perma-Pipe (PPIH) might be an acquisition candidate, but won’t make this year’s R2K cutoff. Rhinebeck Bancorp (RBKB) looks like both an acquisition candidate and new R2K member later this summer. RBKB was a sleeper addition, just making the cutoff of somewhere around ~$120 million market cap, +/- $5 million.
RBKB has 4.75 million shares that are publicly traded. If another mutual bank pays them $20 per share the cost is $95 million, and they have $119.4 million of tangible common equity. Even if there is $20 million of interest rate marks and expenses, the buyer gets paid $5 million to take the company, which has a decent franchise value and hidden value in their owned real estate. Using similar math to some of these credit union deals you could see a price of as much as $30 per share. Assuming the same $20 million of expense, that would mean the credit union buys the whole company for $43 million more than the equity they get.
This one might require pressure or at least encouragement. The chairman is single-mindedly focused on their CEO search. He isn’t looking for a buyer, doubts that they’d get a premium, and disputes whether now is the right time for a sale. He added that New York can be a hard state to get credit union purchases approved. The bank trades at ~62% of its fully converted tangible book value. This past quarter, they earned $0.21 per share, up from a loss of $0.25 the previous quarter. Their TBV is up by ~10% year-over-year.
June 17, 2025
You wouldn’t know it from their respective recent performance, but PPIH failed to make it into the R2K and hired a new CEO which muddies my thesis that it is a takeover candidate.
It is RBKB that made it into the R2K and might hire a banker to sell itself instead of a CEO. Worth $10ish by itself or $20ish to a buyer. I prefer the latter as I’ve enthusiastically conveyed to their board and management.