Risky business
B. Riley's reckoning
Happy Monday, diligent analysts. This is your Stock Market Rundown for August 19th, 2024. Thanks for joining me, once again. Let’s dig in:
TODAY’S TOP STORY: BILLION-DOLLAR BLUNDER
Over the past year, Bryant Riley, the founder of B. Riley Financial, has gone from being worth billions, to fighting for the survival of the investment bank he founded. It’s a classic story of how the acquisition you thought was a sure slam dunk, can end up (literally) breaking the bank.
Bryan Riley founded B. Riley to focus on investing and lending in small-cap companies, which get ignored by the big boys like Goldman Sachs and Morgan Stanley. And, he built up a solid track record of deals.
That is, until B. Riley’s 2023 acquisition of Franchise Group, which owns retail brands like Vitamin Shoppe. As part of the deal, B. Riley made $200 million of loans to the CEO of Franchise Group, Brian Kahn.
Turns out Kahn was quite a colorful character. Media reports revealed he was named as an “unindicted co-conspirator” in a securities fraud, and linked him to a now-collapsed investment firm where investors saw their funds evaporate.
Kahn denies any wrongdoing, and hasn’t been charged with any crimes. But the stench of malfeasance had shareholders dumping the stock, short sellers circling like vultures, and the SEC launching a probe.
The situation went from bad to worse last week, when B. Riley warned of an eye-watering loss for the quarter, suspended its dividend, and (as the cherry on top) said it wouldn’t be able to file its financial statements on time. The stock, predictably, plummeted.
Now, Bryant Riley has stunned Wall Street by making a bold offer to buy out the entire company and take it private. If a deal gets approved, Riley will be getting quite a knock-down discount: he’s offered $7 per share, versus the $80 per share the stock traded at back in 2022. Now that’s what I call value investing.
SO WHAT ELSE IS GOING ON?
You know what they say: when there’s a gold rush, sell shovels and pickaxes. Semiconductor equipment maker Applied Materials is a “shovel seller” of the AI gold rush, so no surprise it beat estimates on rising demand from customers like Samsung and Intel.
Summertime has Americans as relaxed as a seagull at the beach who just stole a french fry. US consumer sentiment rose in August, as economic expectations got sunnier.
What’s Warren Buffett sinking his cash into? Fake eyelashes and aircraft landing gear. Berkshire Hathaway recently acquired stakes in cosmetics store chain Ulta Beauty and aircraft parts maker Heico.
A pharma company that makes MDMA-based drugs is laying off most of its workforce after the FDA failed to approve its treatments. Guess there just isn’t enough evidence yet that molly does anything more than make it possible to listen to techno for eight hours.
That’s it for today, my friends; let’s circle back later this week for more financial foolishness. Yours in capitalism, The Axe
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