k1 Ventures - Time to take some money off the table
- k1 Ventures recently announced plans to divest its interests in Knowledge Universe Education (KUE), an US based education company and Guggenheim Capital, a privately held global financial services firm.
- In 2011, k1 had invested USD100m in Guggenheim Capital through a combination of preferred shares, common shares and warrants. If the proposed sales are successful, k1 intends to distribute proceeds back to shareholders and will effectively become a shell company.
- KUE is majority owned by Michael Milken, former US junk bond king, and has divested its core education businesses in the US and overseas in recent years. It currently sits on residual cash of some USD20m and real estate tied to the childcare learning centres of KUE. k1 intends to exercise its put option to sell its 6.6% effective interest in KUE to Michael Milken following a fair value determination exercise.
- Similarly, k1's investment in Guggenheim Capital comes with a put option to sell the entire stake to the major shareholder based on fair value.
- Guggenheim Capital has grown its assets under management (AUM) significantly since k1 first invested in 2011, with its AUM more than doubling to ~USD240bn currently.
- k1 expects to divest its stakes in KUE and Guggenheim Capital at a price not less than book value for these investments, which currently stands at USD4.8m and USD102m, respectively.
- While we expect sale of stake in Guggenheim Capital to fetch a handsome premium over its book value given the value appreciation of the company, fact is k1 is currently trading at a 70% premium over its book value of SGD0.48/share. The market is thus pricing in SGD150m of excess value over its book value.
- We think this is an opportune time to take some money off the table given the uncertainty over the eventual price obtained.