Sold: Guest-Tek (GTK)
I have been busy with non-investing duties so I missed the following transaction that occured in early December to one of my legacy holdings, Guest-Tek (TSX: GTK). Guest-Tek, a leading supplier of wireless Internet solutions to the hospitality industry, was one of my first investments—my 3rd purchase to be exact, and before I started this blog—and was a tiny holding in my portfolio.
Management offered to buy out Guest-Tek at $0.50 and take it private, and shareholders appeared to have voted in favour of it (I was aware of the offer but didn't follow the voting situation closely.) Fundamentals of the company had been deteriorating for years and its share price declined significantly over the last 3 years.
Shares were delisted on December 4th of 2009. I took a loss on this investment (-23.75%).
Sale Price: $0.50
Total Return: -23.75% (-17.94% annualized)
Post-Mortem
History
I was more of a newbie back in 2004 when I bought this stock. I had very little money and it was the 3rd stock I bought. I remember being scared a bit when I bought this because it was a risky company. It's kind of funny how life is: I was scared and thinking hard for a few weeks about this investment (before I made it) but the size of the investment was so tiny compared to the present.
At that time, the company was the largest wireless internet solutions provider for hotels and motels and just went through an IPO. Its shares fell around 40% from the IPO price and that is what made me look at it (I was scanning the worst IPO performers on the TSX and decided to look into this.) I was basically betting on a turnaround of a struggling company.
I bought it because it seemed to have some moat (a tiny one) and appeared to have good relations with customers in the hospitality industry. I figured it was hard for competitors to establish similar relationships with the hotels. The financials looked ok (not terrible but nothing spectacular either.) I was more of a growth investor back then so I was also investing primarily on the prospect for increasing wireless network services in hotels.
The company kept sliding—share price and profitability—and just couldn't turn things around. Part of the problem was that their margins were too small and they were highly vulnerable to currency fluctuations. Furthermore, it seemed like their operations were not efficient and management seemed incapable of improving the situation.
About an year or so after my investment, the stock had fallen maybe 20% or 30% (don't remember exactly) and it looked like this was a big mistake. Out of blue, a Japanese company showed up and offered to buy out a majority stake. The offer price was around 20% above my purchase price (in terms of taxes, roughly half was counted as capital gains while half was counted as a special dividend.) I tendered all my shares but it was oversubscribed and I only got my pro-rated share of my allotment. I was able to tender roughly 50% of my holding so I was left with 50% of my original investment.
Final Outcome
I didn't follow the company closely, partly because it was a small holding, and the share price collapsed after the tender offer and take over by the Japanese company. In late 2009, insiders offered to take the company for private and shareholders accepted it at a really low price. I wasn't following the company close enough to discern whether the buyout price was "reasonable" or not. I suspect it was a take-under but the company wasn't that great to begin with.
Ultimately, I ended up with a loss :(
Lessons Learned
I made a big mistake in becoming complacent after the tender offer. It's a small company so it doesn't make the news. One really needs to follow it year in, year out, and I never did that. This was a mistake on my part because the stock price kept declining during that period. If I had followed the company, I would have been able to sell out with a profit when it looked like things were falling apart.
Situations like this have made me become more of a concentrated investor. It's just too difficult to follow more than 3 or 4 companies. Actually, following the companies is not hard; what is hard is staying interested in those companies!
Anyway, ever since this debacle, my goal has been to follow companies more closely.
Management offered to buy out Guest-Tek at $0.50 and take it private, and shareholders appeared to have voted in favour of it (I was aware of the offer but didn't follow the voting situation closely.) Fundamentals of the company had been deteriorating for years and its share price declined significantly over the last 3 years.
Shares were delisted on December 4th of 2009. I took a loss on this investment (-23.75%).
Sale Price: $0.50
Total Return: -23.75% (-17.94% annualized)
Post-Mortem
History
I was more of a newbie back in 2004 when I bought this stock. I had very little money and it was the 3rd stock I bought. I remember being scared a bit when I bought this because it was a risky company. It's kind of funny how life is: I was scared and thinking hard for a few weeks about this investment (before I made it) but the size of the investment was so tiny compared to the present.
At that time, the company was the largest wireless internet solutions provider for hotels and motels and just went through an IPO. Its shares fell around 40% from the IPO price and that is what made me look at it (I was scanning the worst IPO performers on the TSX and decided to look into this.) I was basically betting on a turnaround of a struggling company.
I bought it because it seemed to have some moat (a tiny one) and appeared to have good relations with customers in the hospitality industry. I figured it was hard for competitors to establish similar relationships with the hotels. The financials looked ok (not terrible but nothing spectacular either.) I was more of a growth investor back then so I was also investing primarily on the prospect for increasing wireless network services in hotels.
The company kept sliding—share price and profitability—and just couldn't turn things around. Part of the problem was that their margins were too small and they were highly vulnerable to currency fluctuations. Furthermore, it seemed like their operations were not efficient and management seemed incapable of improving the situation.
About an year or so after my investment, the stock had fallen maybe 20% or 30% (don't remember exactly) and it looked like this was a big mistake. Out of blue, a Japanese company showed up and offered to buy out a majority stake. The offer price was around 20% above my purchase price (in terms of taxes, roughly half was counted as capital gains while half was counted as a special dividend.) I tendered all my shares but it was oversubscribed and I only got my pro-rated share of my allotment. I was able to tender roughly 50% of my holding so I was left with 50% of my original investment.
Final Outcome
I didn't follow the company closely, partly because it was a small holding, and the share price collapsed after the tender offer and take over by the Japanese company. In late 2009, insiders offered to take the company for private and shareholders accepted it at a really low price. I wasn't following the company close enough to discern whether the buyout price was "reasonable" or not. I suspect it was a take-under but the company wasn't that great to begin with.
Ultimately, I ended up with a loss :(
Lessons Learned
I made a big mistake in becoming complacent after the tender offer. It's a small company so it doesn't make the news. One really needs to follow it year in, year out, and I never did that. This was a mistake on my part because the stock price kept declining during that period. If I had followed the company, I would have been able to sell out with a profit when it looked like things were falling apart.
Situations like this have made me become more of a concentrated investor. It's just too difficult to follow more than 3 or 4 companies. Actually, following the companies is not hard; what is hard is staying interested in those companies!
Anyway, ever since this debacle, my goal has been to follow companies more closely.
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