Kanen Wealth Management calls for sale of U.S. Global Investors

In a letter to GROW directors, Kanen Wealth Management said, in part, “Kanen Wealth Management is one of the largest shareholders of U.S. Global Investors, owning over 450K shares, representing 3.3% of the Company’s stock. At the core of our thesis, we believe that the Company’s current share price is significantly below its intrinsic value and that investments, real estate, and cash alone are worth more than the market cap. Additionally, we believe its asset management business, with ~$11m in recurring fees, is worth $2.75/share. We are deeply concerned that the board has shown little interest in creating value for outside shareholders by creating policies that funnel an exorbitant amount of money to Mr. Holmes and insiders. In our opinion, Holmes is incentivized to gamble shareholder money to earn larger bonuses for himself. Despite Frank Holmes’ reputation as a sophisticated finance expert, GROW continues to trade at a significant discount to its liquidation value. The growing pattern of late filings, accounting restatements, and stock price underperformance suggests the company is not fit for public markets. We remind investors that management rejected a buyout offer two years ago that represents an approximate 100% premium to today’s stock price…We believe GROW’s stock trades at a significant discount to its liquidation value due to questionable corporate governance and incentives that enrich insiders at the expense of outside shareholders. Given our understanding of the Company’s assets and recurring fee income, we believe that a sale of the Company, if undertaken, could generate meaningful and certain value creation for equity investors: GROW Assets: When including $28.5m in cash; $5.2m of HIVE debenture; $11.5m in mutual fund investments; and their estimated ~$6.0m of real estate value, we believe GROW’s assets are worth $51.0m, or $3.70/share. Asset Management Business: In addition to our balance sheet, the investment management business generates ~$11 million in recurring fee income. Based on our conversations with industry participants, we believe a strategic would pay 3-4x fee income, which could equate to $2.75/share. If the Board pursues a sale, we believe shares would be worth between $6.0-7.0/share, which represents a 130-175% upside from the current stock price. Because the equity trades below the $51m of tangible assets, the board should immediately authorize a tender up to $3.60 per share which in effect equals the cash, investments, and real estate. The fact that the board doesn’t recognize buying $1.00 of assets for $0.70 demonstrates they lack the skillset to serve as directors ($36m market cap with $51m of liquid and tangible assets). It’s been over two years since Mr. Holmes dismissed a $5.30 buyout offer as ‘insufficient.’ We believe such an offer or better is still on the table. If the Board pursues a sale, we believe GROW’s equity would be worth 2-3x more than its current stock price implies. Mr. Holmes, it is time to end the public embarrassment that U.S. Global Investors has become. We urge you to run a proper sales process and finally create value for shareholders. What are we waiting for, Director/ Chairman Jerry Rubinstein’s 90th birthday?”