Investor Dialogue: HEICO, Transdigm, & Terminal Values

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Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

One of the first questions I had was, how did you choose to invest in one or the other share classes?

Analyst 1: For me, it was just a matter of trusting the Mendelsons and being content with the A shares, even though they don’t vote as much. When I bought them, they were significantly cheaper. To me, it didn’t make any sense to pay up for more voting rights.

Analyst 2: Voting rights is something that directed me to go towards the regulars, as opposed to A. We own both; more regular than A. As you may know, A got created as a result of a failed acquisition and they have never been able to go back to collapsing the two, primarily for tax reasons. That is the same reason why I don’t invest in any ADRs or GDRs; I want to be able to own the equity and own the voting rights.

So you own mainly the voting shares?

Analyst 2: Yes.

How much more expensive have they been, on average?

Analyst 2: The spread between common and A has been fairly steady, even today. What do you see as A?

Analyst 3: It’s roughly a 20% spread right now.

Analyst 2: Yes; it’s been fairly steady like that.

Analyst 3: Historically, the spread has been around 20%, 25% and then, during Covid, the spread collapsed and actually went negative. There was a really interesting arbitrage move where, essentially, sell all your As and buy all the traditional. Literally, by the end of the day, there was a 50% premium being reassigned to the As. From there, you could sell all of your voting stock and end up having a 15% larger position, less taxes, in your A. Historically, it was around 20%, 25%. Before Covid, it started collapsing closer to 10% and then it went negative and now it has re-expanded out.

The reason why it happened in Covid was, on that day, there was a fund that was blown out of position. The voting stock is more held by active managers. I have alerts set for the spread.

Analyst 2: Remind me again, does Greenhaven own HEICO, or not yet?

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