Management Structure Points To Sale Of Entire Company

If you want to know what a company will do over the next couple of years you need to read the proxy statement. In the proxy statement you will find out how management bonuses are structured, which indicates how shareholders will ultimately get compensated.

Reading through management bonus structures is an important part of any due diligence process as you want to know how a management team is getting paid to run a company you are investing in.

Sometimes there are bad structures. Bonuses that are shareholder unfriendly such as rapidly growing the NAV of a REIT, which gives a management team the incentive to acquire assets at any costs. Other times there are shareholder friendly structures in place, like a bonus based on the share price of the company.

I bring all of this up because one company I have been talking about for a while recently released their annual proxy statement. And it changes the entire direction of the management compensation and bonus structure. In fact, there is a new clause in the management bonus agreement that gives the CEO a fat bonus should he sell the entire company!

Since reading the proxy I have become even more bullish on the stock. The right incentives are in place for the team to increase the valuation and even sell the entire company.

The stock is at a 52 week low. The assets are real and in play. The management team is well aligned. And there could be a large cash injection over the next 12 months that could significantly re-rate the stock.

Let’s dig in…