Why Chris DeMuth Jr. Likes Activision, Oil & Gas + Innovate

Summary:

• Chris DeMuth Jr. discusses his investment approach, focusing on mispriced securities.
• His thoughts on current market conditions, highlighting investment interests in energy and potential opportunities in Activision.
• Update on Innovate, his best new idea for 2023.

Listen to the podcast below or on the go via Apple Podcasts or Spotify.

Chris DeMuth Jr. returns to talk the state of the markets (2:20) M&A, deal financing and arbitrage. (5:50) Activision, Microsoft, the FTC and why Chris sees the deal closing (15:40) Opportunity today is in energy, especially oil and gas (24:30) Update on Innovate (NYSE:VATE), a long-term hold (33:45).

Transcript

Rena Sherbill: Chris DeMuth, welcome back to the show. It’s always nice to talk to you.

Chris DeMuth: It’s good to be here. Thanks so much for having me again.

RS: For those who don’t know you, maybe like synthesizing in a line or two what you’re all about and what you’re focused on at Rangeley Capital and Sifting the World. And if you want to break the rules and add a line, that’s fine. But not like an exposition.

CD: My wife always likes me to give a short version. She usually requests a single word. A word is a little hard. I’m an investor. I guess if I had to say one word, if I had a few sentences, I would say my background is in public policy research. I’m very interested in data analysis. I’m very interested in thinking about complex subjective risks with a probabilistic framework.

So whenever there’s hairy, ugly policy issues, whenever there’s litigation issues, whenever there’s the kind of thing where you might have some counterparties who are price insensitive for reasons unrelated to the underlying economic value I like to take the other side. So that’s Rangeley Capital. That’s me.

I have a couple of great colleagues that I work with on finding investment ideas and sizing them and do other things in my spare time. But what I’m working I’m thinking about, mispriced securities generally with some kind of corporate action that’s going to for better for worse unlock the underlying value typically 3 to 5 years ahead.

RS: So given where we are this year, late August, rounding the corner towards September, how are you thinking about the markets? What are you thinking about as you’re looking broadly speaking? And you can narrow it down as you keep going?

CD: Sure. Last year 2022, so thinking about the calendar year, made a lot of sense to me. It was very cathartic, especially on the short side, especially looking at the kind of things that were preemptively getting crushed with the onset of reality of real interest rates and the cost of capital.

You had this kind of weird, suspended animation era where as long as there’s no cost of capital, kind of the more dramatic, the total addressable market, the more of a story you have to say about what can happen over the next 10 years, has very little cost. So you’re just stuck with what is the most dramatic benefit that you can describe, which is a kind of a, a childish, and strange enterprise.

And then as interest rates rose, you have a real cost of capital and you can’t just do that anymore. And a lot of things that I thought looked probably worth less, and certainly worth much less than where they were trading did badly. They kind of bounced back a lot this year. It’s been a hard one on the short side. It’s been a hard one for skeptics and debunkers and value investors on the short side.

This month actually has been a very good one, but this year has been a very bad one for nonsense, getting kind of inflated. And weirdly enough, I guess the market’s a discounting mechanism, it’s done that as the interest rates actually rose as opposed to the prediction of them rising. I don’t think that’ll last. I don’t think it can last for years.

A lot of these guys are kind of frantic producers of press releases and incremental shares. Whatever their stock price is doing, the stock count is kind of going up into the right full time. And they kind of put out a press release for every little thing they do. So a lot of kind of never profitable tech. Interestingly it was kind of on its last legs.

And then the AI enthusiasm really saved it. Not only did it save it, but it saved a lot of the huge asset allocators, including SoftBank (OTCPK:SFTBY), where they were going to just have to dump inventory on the market. And we’re probably weeks away from kind of dramatically impacting the market. And then we’re able to hang on because of AI enthusiasm. So that has some very good things in it, that has some legitimate investments, but also has a lot of nonsense that it rescued.

On the long side, ditto, last year, kind of started to have this revival of small cap over large and value over growth and that’s kind of dissipated a bit. I can say where I’m spending a lot of my time in energy and capital is really on two categories.

The first is ESG service provider for buying all the stuff that ESG sells price insensitively for mandates energy mostly and specifically oil and gas where there are equities that are just wildly mispriced relative to the underlying commodities.

And then secondly, an area that I think is most for better or for worse, uncorrelated over the next few years, is litigation. We have some major litigation efforts underway. Some I can talk about, some I can’t yet. And that’s going to kind of make our luck between those two. We have this and that elsewhere.

I’m certainly always paying attention to the M&A market. I’m very involved in researching arbitrage. My arbitrage books is as light as it’s ever been, kind of directional bets and equities are pretty light outside of litigation and outside of oil and gas. If those two areas work well, I would have a hard time hurting myself elsewhere, just how we’re sized and scaled.

If those two things go badly, I’d have a hard time saving my bacon elsewhere. Again, just how we’re sized. So these are kind of our two firm exposures. And then we have this and that as opportunistically things arise.

RS: Why would you say that things are light on the arb side these days?

CD: Two-fold, one is deal financing was in havoc as interest rates rose. We can handle high interest rates, but we can’t really handle uncertainty and fluctuation.

So just deal financing kind of the market was closed, that was really hard on LBOs and psychologically hard on deal target boards. The boards kind of tend to have this funny sense that you should pay me for a premium to the best I ever traded during my tenure, even if half the value is gone away, right.

So it’s hard when things are fluctuating on the credit side to have a very active deal market. And then when you do, we have a fanatical regulatory regime in Washington, which is unlike anything we’ve seen in prior Republican or Democrat administrations.

I was very close to a lot of the Obama Democrats. I found them sane, sober, free on their own recognizance, normal humans who you could do business with, maybe more skeptical of M&A than some of the Republicans. But you had a big change with Biden. Biden is pretty checked out, maybe generally, but certainly from administrative state enforcement of regulatory minutia.

That’s never been his beat. It certainly is not his beat now to any extent. All his pressure comes from his left. So if you kind of place him as a pretty normal Democrat, call him the center of the Democrat kind of spectrum. So kind of the middle of the left of center of American politics. All his pressure comes from his left.

So from progressive, I guess they’re like progressive more than they used to like liberal. But if you look at kind of Liz Warren activists, and then combine that with this idea of all of government, basically weaponizing these individual bureaus for other political purposes outside of their statutory mandate, punishing their enemies. And so you have just absurd cases being brought where if it’s a company they don’t like, they’ll just sue them for anything they can think of. And M&A is always an opportunity.

And now, interestingly while you have these kind of hipster, woke, fanatics running the FTC and the DOJ, the judges are not that way. Democrat and Republican judges are just down the line have been tossing out this administration’s cases one after another. So they’re really hurting their credibility, but they’re slowing down deals and not only is it stricter, but it’s sort of unanalyzable because it’s like judging somebody else’s religion.

It’s not yours and you don’t want to insult them or something, but also it’s not something that your own framework is going to necessarily be all that valid and understanding. It’s not like all the other administrations in history, that were based on economics and the law where all you had to do is understand economics and the law, and you could second guess more or less nine times out of 10, what they’re going to do. There’s nothing — this administration has nothing to do with the law. Nothing.

You would get every single thing wrong and you’d be surprised every day if you try to study law and economics and understand what the FTC Chairman does next. She punishes enemies of this administration near or far with any tools necessary with a zeal and without statutory mandate. So it’s harder to want to jump in front of that. Now because the cases are so absurd, as absurd as they were with Spectrum Group (SPB) which was a huge position of ours, as absurd as it was with Activision (NASDAQ:ATVI), which still is a huge position of ours.

These judges are getting it right. And the judges have a real process. The FTC can just make something up and they really are completely — they’re unelected. They’re without recourse. They have no procedural way to affect them within the FTC. But these judges don’t like getting overruled and they’re just serious people. Maybe the profession attracts serious people. But since COVID everything’s recorded, it’s very easy remotely to kind of track a bunch of cases at the same time. And young, old Democrat, Republican, progressive, conservative, men, women, all these just every demographic difference and every level of specialization.

Some people happen to be experts in antitrust. Some have, in the case of Activision, the judge had actually recently done an antitrust case on this. A little bit of a different antitrust case involving Activision. She’s already a pretty expert.

Other cases, they’ve never done antitrust, probably outside the class in law school. And they’ve just been great. I mean, they’ve been, even if you can’t analyze what the heck the administration is doing, if you just pay attention to the facts and the law, these judges have been getting it all right. So the litigation has been a great opportunity for me to really apply logic and put a lot of capital to work.

RS: So, let’s expand on that. How are you thinking about litigation?

CD: Sure. So, I like being in ones where I think there’s kind of a plausible valuation if I’m dead wrong. I like to survive. I like to tie. I like mediocrity. I like getting my money back. I like not being poor. If I’m wrong about everything. So clearly you’re not going to necessarily be outlandishly awarded with gaudy riches, right or wrong. That would be optimal.

But I can kind of put up with paying close to somewhere around $40 for Spectrum Brands that I think it’s worth to kind of more or less that without out a deal that I thought was a fabulous deal for them. And clearly the right antitrust decision to approve and it didn’t even matter anyway.

So the government kind of had an incorrect case about a really stupid point they were trying to make. So it was kind of one of these things where factually they were wrong. They were wrong on the law. But even if they’re right, it was kind of just the weirdest, like, pedantic thing to worry about kind of high-end door locks. I mean, normal people can buy normal door locks whenever they want, super competitive market. So we’re going to have a slight concentration in high-end, kind of complicated door locks.

And several times a day listening to this case because it was a boring case and it came right after Elon, which was endlessly entertaining for me. I was listening to this, I’m like, look, I think we’re going to be right. I think we’re going to make a ton of money. I think this makes sense. I think it’s going well, but it’s so freaking boring listening to.

Why does the government even care? Like, don’t they have anything better to do? Do we really have a government that’s so big that we can just everything anybody can come up with we can spend millions of dollars, and months of our limited life expectancy, discovering whether this company is going to dominate high-end door locks, which by the way, if Amazon spent three seconds on this, they would crush them like a bug if they ever wanted to.

So we would be so lucky. I mean, I whispered this, I guess I can say it now. We don’t have a position anymore. We whispered like, I only wish we almost had pricing power in this business. Like it was, it was not even, it was not even an approximation of the truth, in an event. But anywhere close to 40, you had a free roll, that you’d win something you’d probably win. And then it traded to — doubled almost. So I think it touched 80, close to 80. It’s high-70s now, which is, you know, it’s fine. That’s about what it’s worth with the deal that they were able to get done.

Twitter was a huge position of ours. Last year it was definitely a case where that was more of an actual speculation, like, we would’ve been properly screwed if we had lost that. But that was an extreme case of the entirety of American corporate law and contracts resting on something that if that failed might as well burn it all down because then contracts wouldn’t have meant anything.

But for the most part, we want to be in where we’re kind of okay without a big win. Burford is a case we’re very involved with, against Argentina. Big position of mine. And without that win, without that full win, express the way we think it’s going to be. It’s kind of okay here and with it it’s spectacular.

And that’s kind of where we like to be kind of have a half dozen roles between mediocre and spectacular. So our winners pay for our losers with some left over, but our losers are either tolerable, or if I’m just playing very small, very, very small. I mean, because I write, because I get bored and get into mischief. Sometimes we really do something speculative, but we’re talking basis points. They’re are not percentages.

I know Activision (ATVI), you mentioned them. They’re a big focus of yours. You want to talk to listeners how you’re thinking about Activision?

CS: Sure. There was an incredibly weak case in the U.S. by American legal and procedural standards. There’s actually not a big deal risk. There was a hiccup which is the EU — Europe is going very well. Got approved.

But the UK has procedurally an incredibly strong regulator, that you can kind of see philosophically a lot of the differences in how Americans think about this thing, which is, even when the government comes after you, in theory it’s still their burden and they have to prove their case in front of a judge which this government, I mean, they were – they beclowned themselves. I mean, they had a joke of an expert they were certain what would happen in the future, but they didn’t even understand just basic industry dynamics today.

And they acted as if they were a agent for a multibillion dollar multinational Japanese competitor in a way that at one point I thought that that had this had a government role that they would have had to actually file as acting as an agent of a foreign entity here. They, I mean, they basically had us another company write this complaint and it was weak. The judge’s decision was perfect.

But the only hiccup was, right before all of this happened, the head of the FTC met with the CMA and the CMA blocked this. The CMA — the British analogs where it’s very, very hard to successfully overcome CMA challenges. And so we basically, it appears, consistent with using a foreign government that had weaker due process to prove a case that we were unable to prove in the U.S. against two American companies on behalf of a foreign company.

So that’s however corrupt it is. They claimed, ‘oh no, we didn’t tell them what to do, we didn’t discuss this.’ Sure. If you lined up every American, out of 340 million Americans, the last in line for believing me if I said, oh I was kind of meeting with this counterpart in business, we went to the Bohemia Club and we were having cocktails, but don’t worry, we didn’t discuss pricing a week before we both set pricing.

She’d be the last one in America to believe that. Right. So, she hates companies. She hates capitalism. She hates deals. Hates, I don’t know America. But the idea that she can then go and secretly collude with a foreign regulator and we’re just supposed to go by her say so. Now we were going to get a lot of discovery on all that and that kind of changed things real quickly. But so, clearly, at the least, it was the Americans saying, will no one rid me of this troublesome priest and the CMA knew what to do. And at most, it was actively explicitly coordinated.

Whenever anything looks this corrupt, my history in observing situations like this is it tends to be the most tawdry, the least evil secret mastermindy and the most just like debased as possible, I don’t know if it’s very debased or slightly debased, however, the CMA did the bidding of the FTC. That’s unwinding quickly now that the FTC lost.

It was actually in this tribunal review of the CMA decision where you really heard a lot of the back and forth between the two sides. Weirdly, the CMA and the companies were really on the same page. The tribunal didn’t want to just remove procedurally the decision to block it. But I think it’s quite likely that they’ll be given some kind of SOP to change that decision.

I strongly suspect that Microsoft (MSFT) turned to Activision and said, hey, give me some division that we’re going to shutdown anyways. And we’ll throw ourselves at the feet of the CMA and beg for forgiveness and see if we can divest. We are going to fire Bob, right. We’ll divest Bob. Like, let’s give them Bob. Like we were going to fire him anyways. Maybe we don’t have to pay workers comp if we do that. But it is a $4.28 net spread. That’s 56% annualized return if it closes in the middle of next month, it will. Maybe there’s a little delay, who knows?

But I think the funny thing about the tribunal was, if they were very quick, they would have not had to shell out another dollar dividend. If they were very slow, I think it’s reasonably likely that the company would simply close around the CMA and move those businesses to Luxembourg. They were kind of in the middle, so we’re kind of in this delay period right now. But I don’t think there’s a lot of substance or deal risk to it.

Obviously, I could be proved humiliatingly, embarrassingly quickly wrong if the thing gets blocked. But I just don’t think it’s going to get blocked. I think it’s going to get done. I think you can make over $4 a share. And unlike the Twitter situation where we were really betting a diabolical downside if we were on this, we just, in that case, we were just invested in the contract. We believed in the contract. We believed the contract was worth 54.20. We didn’t think the company was worth much of anything.

Activision is doing great. Activision is worth, a lot. I was surprised that they put up with such a small deal bump of just a buck. I think that was kind of an agency problem. These are people who are going to be working together soon and I don’t think they care that much about their shareholders anymore. But it’s worth, it’s worth quite a lot. So I think, make $4 bucks, risk $10 or $15 assuming there’s not something other than what we know what’s wrong with it that would cause it to break. But I think it’s probably 90% chance or so that it closes. Maybe 95%.

RS: Do you have a sense of the timeline on that?

CD: Yeah, next month or so?

RS: Before the October 18th date?

CD: Yeah. And if not, then give us another dollar dividend every month, maybe be a little ballsier about asking for a serious recut if we need more time. I don’t think we’re going to, but demand something for it.

RS: Do you have thoughts on Microsoft (MSFT)?

CD: No. I would say I got to hear a lot from the management kind of online and offline over the past several months and was just consistent. Maybe when you don’t have a reason to look behind the scenes of a big tech company, maybe they’re all like this. But I don’t know, it’s a $2 trillion company. I guess it’s good that the people running it are good. But the people running Microsoft are really good. CEO is really impressive. The guy who runs Xbox Gaming is really impressive. They’re top people. I was glad to see them standing up for themselves and their company and their industry. An industry that’s dynamic, that’s completely transformed itself over a few years.

And amongst the perverse thing that was about this government, in some combination of stupid and evil is that they would have frozen the state of this industry dozens of times along the way, in the way that they’re saying, oh my gosh, I’m scandalized. This is how you could use this pricing power now if we were to not freeze the state of this market. Well, these markets are very dynamic, they change all the time.

And I feel like Microsoft really understands that. I feel like Microsoft is really ahead of the curve on a lot of things right now. So I’m really, really impressed by the people involved. They’re just kind of cool. They handled themselves so well on the stand. This lady, Sarah Bond that I hadn’t known about before, one of the top Microsoft execs, just like, they’re fantastic people, not edgy, actionable. I have no direct position in Microsoft, probably should have through all these years. But — so impressed by the company and think Activision will be in good hands. Like Twitter, once I get cashed out of it, my interest will decline by 99.99%. But I wish them well.

RS: All right. Talk to us about energy. What are you seeing over there?

CD: I think thematically my job is always to find arbitrariness, to find counterparties. I always assume if you come to me with really any bet that you want to make me, Rena, I’m going to say, no. Because I’m going to say, well, I first suspect that you’re at least as smart as I am. Then I suspect you have at least as good judgment as I do. And I suspect if you want to bet me, you’ve worked at least as hard as I have on it.

And then, I won’t say this about you, but I’ll say this generally. What if somebody’s cheating and what if they win all the bets they cheat? And say they were just cheating 1% of the time. So I assume that I’m going to have an expectancy based on, I don’t know, mid-forties percentage, likelihood of winning stuff my default against kind of fair game. So what I really love is counterparties, not where I’m pitting my judgment against somebody else, which sounds like an awful idea. I like finding somebody who’s constrained. Who comes to me and says, I have to do this. I have to buy this. I have to sell this.

In my PA which is much, much, much smaller than my fund, all of my investments are in the dark export market where most retail brokers literally say, you have to sell this security, if you want to trade it, you may not buy it. And they’re just like hoovering stuff up at a tiny fraction of their value where many people have, literally contractually have to sell something, or indexes that have to buy it. I like constrained counterparties, people who are forced to do something and I’m just kind of making my way in this world as a service provider who just takes the other side of the train because they need somebody to take the other side of the train.

That opportunity today is in energy, especially oil and gas. And especially situations where you’re a service provider to ESG mandated funds. It’s not rational or self-seeking in the economic case, but as an agent that might be completely rational or self-seeking, we might figure while they’re making more in fees than they’re giving up in returns, and I can pick up the returns. So, oil, gas, to some extent uranium, other kind of real stuff, energy, and areas that have an environmental impact.

Of course, when you’re talking about the secondary stock market and when you’re talking about individual projects, the impact on the global environment is zero because you just take projects that were going to be one place, you move them someplace else. You have somebody else own something and a company that is cash flowing doesn’t need to raise new capital. The secondary market has no impact whatsoever on production.

But you have waves of situations in history. I don’t know how similar this is in other countries, but I can think of many examples in the U.S. where a political regime tries to co-opt the private sector because it wants to use a private sector balance sheet as well as the public on behalf of some political goal.

And in doing so tends to vilify a company or an industry. And in doing so when they settle or come to terms, has a sort of fascistic public partnership, public private partnership with them that ends up wildly accrruing to the benefit of the equity holders in situations where they can’t necessarily do CapEx. They can’t necessarily fight the regime, but they can be co-opted in a way that if it were a private contract and not the government, it would be a legitimate antitrust violation.

And the examples I would give are the NSA with tobacco in 1999, ended up being incredibly good for tobacco investors because they basically weren’t allowed to spend money on all sorts of things like advertising. They weren’t allowed to make health claims against each other. And the U.S. government, or at least the States, basically become limited partners of Philip Morris (PM). And so 100 years from now, people will be smoking Marlboro Reds and Philip Morris, and Altria (MO) will be spewing their distributions to shareholders over this. And so it was really good for them.

UnitedHealth (UNH) and Obamacare. The companies that were supposed to be the pariahs got rich. Politicians, they got rich too, but — on both sides of that trade. But they were insiders, they were partners and at the superficial rhetorical level, they were villainized. But being the villain is a great deal and being the villains can be a great deal in oil and gas and energy right now because the last thing anybody’s going to do is CapEx.

They’re not going to start new projects. The most cyclical of cyclical industries is going to have the cycle broken where these guys, when prices are really high, do a bunch more projects; when they’re really low, they stop, they kind of flail back and forth. Well, at $80 a barrel right now, prices could double and they’ll sit on their hands. They’ll say, okay, we’ll distribute all the money out to investors. Distribute all the money out to investors.

They’re being screamed at by the politicians to stop doing what they’re doing. The politicians want to strangle supply. They are goosing demand with endless fiscal and monetary stimulus and they want demand to skyrocket. They want supply to go away and then they complain if prices are high. So it’s completely an innumerate combination of preferences.

But if anybody in the world understands them, the decision makers in the oil and gas companies do, and people who have tortured shareholders for years because they just keep, they like to drill, they like their business and they’re somewhat insensitive to timing these things well, they’re going to be forced to because they know they’re not supposed to build — you’re not supposed to build refineries. You’re not supposed to drill for oil and gas.

And intermittent energy is a peak supplement in certain geographies at certain times of year, but it is not a substitute. So, if it’s really, really sunny, that’s fine. If it’s really, really windy. But sometimes, the sun sets or is clouded over and some days are still.

And so, maybe we have a consensus forming, kind of a bipartisan across ideologies in favor of nuclear. And we have a big position in physical uranium to cover our bases there.

But until then there is a multi-decade delta between rhetoric and reality and we’ve actually placed our policy bets on the rhetoric. So we’re saying we want this and that and the other thing, but we’re decades away from being able to replace it and everybody that votes, seems to want to be able to turn the lights on at night and wants to be cool in the summer and warm in the winter.

And the fact that this past year had an incredibly mild European winter kind of pushed off the reckoning by 12 months. But not necessarily more than that. And so I think oil and gas is terrific and I think a lot of the equities were trading at big, kind of, discounts to where the commodities imply they should be at. Especially if they are going to become kind of a cash returning machines instead of drilling machines.

RS: We’ve seen a big resurgence lately in energy. Do you feel like that’s going to keep incrementally going up in that sector?

CD: Yeah, just starting. I would say demand is really hard to forecast. And so who the heck knows? Quarter-to-quarter, I think, whether or not we have a recession and how China is kind of post-COVID reopening, kind of how fast they bounce back, a lot of things like that matter are important, maybe not that knowable or at least knowable by me.

But I think that the supply constraints, the intentional supply constraints on projects that take a long time to turn back on if you turn them off, I think it’s going to make the supply picture tricky for oil and gas.

And I think the likelihood is, prices are much, much higher. And that the likelihood is that, at some point you get much more of the value of their companies in this area recognize kind of upstream oil and gas companies.

But I really don’t care. I don’t care just like I didn’t care with tobacco, and I didn’t care with UnitedHealth. And I don’t care if the market cares, as long as we’re getting distributions, right? Like I can get my money back in M&A and regular special dividends, and buybacks.

And if I have to wait for those, fine. If I have to wait for those, it’ll make it easier for me to get bigger. I don’t have to worry about literally everybody in the world, but me, could adopt ESG as a religion. And that’s fine. That’s fine.

RS: Last time you were on, in May, you were talking about Innovate (VATE) as your top pick. You want to update listeners on that one?

CD: Sure. So we’ve owned this one for a while. I think this is one that we bought last fall. It’s a leveraged equity. It could easily be worth zero and more easily in this high interest rate environment.

So call it like zero is the downside. Like I think that’s fair with, you know, you can also play the bonds. Like, the bonds are probably a less spicy way to play this, but they’re pretty yieldy. And it’s a weird hodgepodge of spectrum, engineering and life sciences. Spectrum, I hope they can monetize at some point. I don’t think they care about have some value.

The engineering business is an okay business. It’s a little bit chunky. A big kind of fancy expensive projects, you know, kind of retractable stadium roofs, that kind of thing. It’s been, I guess, let’s just say all the bad news and the good news because that’s an easy way to organize a conversation. The bad news is interest rates are higher if you have a highly leveraged equity that puts more stress on them. And engineering has been a little softer than I would have hoped and expected.

My thesis in this is that, engineering kind of pays for the debt and leaves some residual equity value over. None of that, yeah, we’re not the punch line yet. That’s not what I’m here for, but that has been little softer than I would have said.

Good news. They made a, they’ve been paying their coupons, like they’ve been servicing the debt. And for better or for worse, let me put this as a question mark. Management’s far more confident than I am in their ability to manage their balance sheet. I kind of like management scared. I kind of like pessimists and people who are worried about filing for bankruptcy. I think there’s some kind of counter indicator sometime. Optimists make me nervous.

But these guys think they’re fine. They think I’m a worrier. I would put in more money if they needed to get recapitalized. I would put more money if they had a big equity offering. They need to sell equity or assets. Full stop.

The balance sheet is not stable over the next several years. They know this, the people in charge think they have time and want to kind of sort through what they want to be left with and what they want to jettison. They don’t seem to have any interest in raising equity right now. That’s fine just as well. You’re not going to get diluted here. But all of this is to pay for a few shots on goal.

So the stock price was $0.70. Then it was three bucks and a change. Now, it’s a buck and change. Like, I think it’s reasonably likely to be something where we’re just going to see. The shots on goal are all in the life sciences. There’s a couple small subsidiaries just because they’re kind of buried in this. It’s a $131 million market cap company.

So it’s just a sliver of market cap for the equity holders and there’s all sorts of different parts within that. But the shots on goal that they could put this year and possibly score on could be worth a multiple of the market cap.

The one, MediBeacon is the one that I’m most interested in. That’s at the FDA now. I think it’s going to get approved. I think it’s going to get to market. I think it could become a consistently common product for medicine and it has the kind of razor, razor blade model of the marker, will have to be continually resold.

Now, you could just flip that today and solve the balance sheet problem, but I don’t think the insiders want to. I think the insiders, my sense is that, MediBeacon, well they want to be left with because that could be $10 a share, or $20 a share. I mean, that could be a spectacular bonanza. So I think they’re waiting to kind of manage and maybe sell R2, maybe sell one of the other things to kind of fix the balance sheet and probably be left with MediBeacon.

Maybe spin it, or have some kind of – rename the company MediBeacon. Have that the focus heading into 2024. I think it could be spectacularly valuable. Might not, might not get approved, might not get adopted. But I think it’ll be approved. I think it’ll be adopted. I think upon approval, the stock price doubles, I think upon adoption it doubles again and could become a great one.

So, TBD, we just don’t know yet. And, not a lot of news, but I think over we’ve seen the data. We’ve seen what they’ve submitted at the FDA. It looks not just, really robust and convincing, but robust, convincing, and largely onto some minutiae that’s left before final approval. So we think final approval is in great shape for this year.

RS: Appreciate that update. And thanks for always sharing so much actionable insights with us. Really appreciate it, Chris.

CD: You’re welcome. It’s good to be here. Anybody can follow-up. I’m easy to find on Seeking Alpha. I’m always grateful to have a conversation. Always something to talk about. And so thank you, Rena, I really appreciate it and I look forward to speaking again sometime.

RS: Absolutely. You run Sifting the World on Seeking Alpha. Anywhere else besides Seeking Alpha that people can find you?

CD: I try to keep all of my actionable investment content on Seeking Alpha. So you can find me there. So there’s, I guess the three categories are Sifting the World for investment ideas. Rangeley Capital, which you know, it’s a hedge fund. I can’t kind of market it or talk about it too much outside, but people can — people who want us to manage capital can do that.

And then thirdly, I have my kind of everything other than investing, I have called Vale Tudo, which is my other stuff I’m doing. So, mountaineering, MMA, CrossFit and trail running. So stuff that I kept wanting to talk to investors about, but that’s not what they’re here for. So I kind of try to shut up about that stuff and I have that separate.

So Vale Tudo, Sifting the World, and Rangeley Capital. And I’m available to chat about Activision, or Innovate, or anything else with people interested.

RS: Very good. A renaissance man. Chris, thanks for taking the time. Appreciate it.

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