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Duke and Vanderbilt Universities, two of the most prestigious learning schools in the United States, are among the major shareholders in a company that owns a sandwich shop in New Jersey and has a market valuation of $ 100 million despite registering only $ 13,976 in course sales.
Paulsboro Delicatessen, a dusty refinery city bordering the Delaware River near Philadelphia, has gained notoriety on Wall Street after its parent company Hometown International was appointed by hedge fund manager David Einhorn as an example of “quasi-anarchy” he said he had. stock exchange in the financial markets.
“The pastrami has to be amazing,” Einhorn said mocked in a letter to investors a fortnight ago, citing Hometown’s nine-figure valuation as an example of how toothless financial regulators allowed for a destructive food frenzy. “Small investors are likely to be absorbed by these situations,” he wrote, “suffering damage.”
The hometown has presented financial statements as a public company since 2015. Its shares are not listed on a stock exchange, which makes them much less liquid than chip shares; instead, they are traded “without a prescription” through a network of brokers who negotiate transactions with potential buyers and sellers. On a typical day, stock operations in the hometown add up to just a few thousand dollars. Still, the stock price has risen from $ 1.25 in October 2019 to $ 13 this week.
Unlike GameStop and others “Meme stocks” which have generated a wave of interest from home traders, the valuation of the hometown was not driven by amateur speculators, but by institutional investors. Its key sponsors include a Hong Kong company created by veterans of Och-Ziff Capital Management, which sees its investment as a potential variation. acquisition companies for special purposes which have recently helped boost business dealings to 40-year-olds.
Through a review of stock filing and public records and key insider interviews, the Financial Times has compiled this account of one of the strangest episodes of an extraordinary period for U.S. capital markets, one that has frightened some experts. “[This] it’s a parody of a Spac, ”said John Coffee, a law professor at Columbia University who wrote about hostile acquisitions. “And that’s what I’d expect at the end of a bubble.”
The hometown “has had limited success operating its current charcuterie,” a company lawyer told the Securities and Exchange Commission in September. During a recent noon climb, three customers waited in a dimly lit dining room while staff tended to the iron and struggled with a temperamental credit card machine.
However, the company has excelled in raising money. The hometown earned $ 2.5 million in private shares in April last year, despite a six-month closure of its deli caused by the stay-at-home order of the governor of Nova pandemic Jersey, Phil Murphy. According to the financial statements presented in March, approximately $ 1 million has already been earmarked to cover last year’s losses, loan repayments and other outflows. In December last year, the kitchen was open again, with monthly losses of about $ 70,000, and effective enough to keep them for more than a year.
Much of that money came from multimillion-dollar grants from Duke and Vanderbilt Universities, which together invested about $ 2 million. Both colleges referred questions about their investments to Maso Capital, a Hong Kong-based investment company.
Now, Hometown plans to use what’s left of cash to fund a business acquisition that sounds like it places the company on a path that goes far beyond Paulsboro. The company, whose executive director Paul Morina is also a head-to-head wrestling coach and principal of a nearby high school, keeps an open mind about what it will acquire.
“We will not restrict our potential target companies to any specific business, industry or geographic location,” Hometown told investors in March. This phrase echoed a wording commonly used by “blank check” companies, or Spacs, which raise capital in the stock market as empty corporate expenses and use cash to go and buy offers.
The spaces are food U.S. mergers and acquisitions are up, worth $ 172 billion in U.S. corporate acquisitions in the first quarter, according to Refinitiv data, and persuading emerging technology companies such as electric car maker Lucid Motors Tesla and the eToro online broker. embrace public property.
While critics say the Spacs are a slightly regulated stock market gateway, allowing untested companies to go public with little control, the vehicles are gaining widespread acceptance. Still, experts say it’s unusual for a company like Hometown with existing operations to try to reinvent itself as a blank check company, years after it applied to become a public company.
During a recent noon climb, three customers waited in a dimly lit dining room while staff tended to the iron and struggled with a temperamental credit card machine. The FT ordered a cheesecake © Mark Vandevelde / FT
The plan to complete a merger is the latest twist in Hometown’s baffling corporate existence, which began with its incorporation into Nevada in 2014. Just a year later, the company filed an initial public offering, identifying itself in a presentation of the SEC in 2015 as “the creator of a new concept of delicatessen” with “homestyle” sandwiches and other starters in an informal and welcoming atmosphere.
That draft pamphlet, filed before the Paulsboro delicatessen opened its doors or even “fully executed” a lease, prompted the SEC to write a letter to Morina stating, “We believe you are a company “. Morina responded that the company had bought new carpets, demolished walls and doors, introduced gas pipes and wiring for refrigerators, and bought an oven with six stoves, among other equipment, all to “meet its goal of [a] grand opening “.
The hometown began selling sandwiches in October 2015, but it would take longer until the public could buy shares in the owner company. Most of the shares were owned by Morina and her co-director Christine Lindenmuth, who teaches mathematics at the institute where Morina is the principal.
A few dozen financial investors contributed $ 180,000 to each other, in exchange for a roughly 5% stake, in a private placement that began in 2014. Among the first sponsors was a state high court judge and his wife, and several people who appear to be relatives or associates of Peter Coker, a North Carolina businessman.
Sometimes large blocks of stocks have changed hands in off-market transactions. In March last year, shortly after becoming chairman, Coker’s son Peter Coker Jr. bought a 29% stake in Lindenmuth and immediately sold the shares to three separate buyers.
The following month, Hometown reached an agreement with an investment firm.
Maso Capital, based in Hong Kong, is in many ways the opposite of the meme traders who have taken over the stock markets on their wild journey. For much of the past decade, Maso has been dedicated to finding ways to help cash-rich companies in Asia move toward more agile balance sheets. Last year Maso even launched a Spac, with Coker Jr. as director.
“We’re not afraid to roll up our sleeves and be innovative,” Maso co-investment director Manoj Jain said. “They consider us advocates of good governance in the region.”
When Einhorn sees an overvalued food service business in southern New Jersey, Jain sees a way to control an acquisition company in the United States at a good price. “The concept of shell companies has been around globally for many years,” he said. “These are generally inactive public companies in general, which can be used to merge with private companies quickly and easily.”
According to Jain, reusing an existing business for mergers and acquisitions is an efficient way to extend the Spac model to smaller offerings. “The target companies we’re talking to are in the $ 300 to $ 600 million zip code in terms of valuation,” he said. “To get it to work from a public market perspective, Spac has to be $ 75 million to $ 100 million.”
Still, setting up a Spac can cost only millions of dollars in management fees, as much of the value is consumed in such a small business. “[Hometown] it is a more flexible structure. . . with a longer time to find a goal and better economic growth, ”Jain said.
“It works like a mini-Spac,” he added. “When you run the merger, the name changes, the marker changes, the board changes, the management changes, everything changes, as the merged entity enters the U.S. capital markets.”
Not everyone is convinced. “That doesn’t work at all,” Coffee said. “He [over-the-counter market] it does not provide you with real liquidity. All you get is the ability to negotiate on a bulletin board with a potential buyer on the other side. Still, Jain believes that with the right acquisition goal, Hometown could be able to trade on the Nasdaq stock exchange. However, last week the company moved away from the main investment when trading OTC Markets attached a notice to their actions.
While some shareholders have made big gains, trading has been so fine that Hometown’s $ 100 million valuation may be little more than hypothetical. Duke and Vanderbilt paid $ 1 a year ago for shares that were trading at $ 13 this week and investors who came in before 2016 have done even better on paper. However, less than 2% of Hometown shares have changed hands in stock market transactions over the past 18 months, according to Senteio data.
Uncertainty about Hometown’s valuation could still frustrate the company’s mergers and acquisitions plans. “Who will want to merge their business into a deli and give them a $ 100 million valuation?” asks Joseph Grundfest, a Stanford law professor and former SEC commissioner. “A Spac has cash. We can value cash. The charcuterie may have pickles and pastrami, but I doubt they have $ 100 million pickles and pastrami. “
Despite the limited stock market in the hometown, Wall Street scrutiny has at least revitalized demand for its sandwiches. Philadelphia magazine was one of the outlets that published a restaurant review last week. When the FT ordered a cheesecake, an employee suggested adding a $ 15 T-shirt with the hometown logo and the slogan “Eat so we don’t both starve.”
“Keep your credit card,” the secretary said, sounding briefly as if she could be serious. “And if you write a negative review, I’ll keep charging it.”
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