Isaac Capital Group appears in Star Tribune: Activist investor wants former CEO at helm of ARCAFebruary 05, 2015
An activist investor wants to reinstall 74-year old Edward “Jack” Cameron as the CEO of Appliance Recycling Centers of America, the company that Cameron founded in 1976.
San Diego-based Jon Isaac also wants to replace three members of the board.
It’s a twist of sorts. The typical activist investor generally seeks representation on the board of directors and then pushes to install new management at the companies they invest in.
ARCA recently rebuffed Isaac’s request for board representation and it now looks like both sides are headed toward a lengthy and costly proxy fight.
In August, Cameron retired as president and CEO of St. Louis Park-based Appliance Recycling Centers of America (ARCA), and the company promoted Mark Eisenschenk. Cameron retained chairman of the four-person board of directors. Cameron said at the time: “After more than 35 years as head of ARCA, I believe this is the right time to turn ARCA’s leadership over to the next generation.”
Eisenschenk, who joined ARCA in July 2013, was chief operating officer and president of its wholly owned subsidiary, ARCA Recycling Inc. Isaac said ARCA is trading below its book value, which he puts in the $18 million to $22 million range. ARCA shares are trading around $2.86 per share, and it has a market cap of about $16.6 million.
Isaac, the managing member of Isaac Capital Group LLC, started accumulating a position in ARCA shortly after Cameron announced his diminished role at ARCA. On Dec. 18, Isaac Capital filed a form 13D with the Securities and Exchange Commission after it accumulated more than a 5 percent stake in the company.
Since then, Isaac Capital has accumulated more shares of ARCA. In the latest filing on Jan. 16, Isaac Capital had accumulated a total of 663,201 shares, or a 11.5 percent stake in the company. All told, Isaac capital has invested about $1.9 million in accumulating its shares.
Isaac said he didn’t have any prior agreement with Cameron but likes the founder’s vision and that Cameron continues to work daily at the company. “We think he is the right leader and the board needs to go,” Isaac said in an interview with the Star Tribune.
In late January, Isaac made a presentation to the ARCA board suggesting ways to increase shareholder value and requested representation on the board. According to an amended SEC filing by Isaac Capital this week, the ARCA board and management sent a letter to Isaac on Jan. 30 denying his request for board seats. Now Isaac is promising to put more pressure on the company, promising in his response to the board that he will be presenting a competing slate of directors at the 2015 annual meeting.
The Isaac Capital Group is an international private investment firm that looks for companies that are undervalued in nature and then takes large positions in these companies in order to force change in the companies and unlock shareholder value. Isaac expressed interest in Appliance Recycling last year and Cameron flew out to California to give Isaac a tour of their recycling operations there. “We plan on buying more to the extent permissible by law,” Isaac said.
Appliance Recycling sells appliances through 18 company-owned ApplianceSmart stores and operates 11 processing and recycling centers. A third business unit partners with utilities to provide a complete range of appliance recycling and replacement services. In 2013, it reported record revenue of $129 million, up 13 percent from the previous year, and net income of $3.3 million after it lost $3.9 million in 2012.
Through the first three quarters of 2014 ARCA’s revenue were $100.3 million, up 4.3 percent from the same period a year ago, and net income improved to $2.2 million, up 3.8 percent. The company should report fourth quarter and year-end results at the end of February.
“He clearly knows what he is doing,” Issac said of Cameron. “He literally started the company in his garage and built it into a $130 million company.”
ARCA’s market value hasn’t improved much, at the end of 2007 ARCA’s market cap was approximately $40 million but over the last 10 years the average market cap has been $18 million. The current market cap is approximately $16.6 million.
ISAAC CAPITAL GROUP HAS A HISTORY OF INVESTING IN UNDERVALUED COMPANIES. IN DECEMBER IT CLOSED ON A $5 MILLION PREFERRED STOCK TRANSACTION WITH DATARAM CORP., A PRINCETON, N.J.–based maker of large capacity memory products that has a market cap of just $6.25 million. Isaac won board seats at Dataram in November and in January helped install a new CEO there.
Isaac Capital is also the largest shareholder in LiveDeal Inc. Isaac Capital began investing in the Las Vegas-based online marketing company in 2011, eventually owning 42 percent of the company’s shares. Isaac and his father Anthony Isaac were named to LiveDeal’s board in December 2011 and in January 2012 Jon Isaac became LiveDeal’s president and CEO. Market value in LiveDeal has risen to $45 million from $1 million when Isaac Capital first invested.
Patrick Kennedy • 612-673-7926