AUSTIN, Texas, June 13, 2016 /PRNewswire/ -- Etude Capital LLC together with its affiliates ("Etude Capital"), the largest shareholder of RENN Fund Inc. (NYSE MKT:RCG) ("RENN" or the "Company"), today announced that it has delivered a letter to Russell Cleveland, RENN's Chief Executive Officer, and to the other members of RENN's Board of Directors.
The full text of Etude Capital's letter to RENN:
Board of Directors RENN Fund, Inc.
11520 North Central Expressway, Suite 162
Dallas, Texas 75243
Etude Capital, LLC, together with the members of its Schedule 13D group (collectively, "Etude Capital"), beneficially owns shares of RENN Fund, Inc. ("RENN" or the "Fund") representing 12.4% of the outstanding shares of and making us the largest shareholder. Our discussions with other significant investors in the Fund have given us reason to believe that they share our views regarding the best path forward to unlocking shareholder value.
Etude Capital has been in contact with Russell Cleveland, the Fund's Chairman of the Board of Directors (the "Board") and Chief Executive Officer, since February 2016, to discuss strategies for unlocking significant value for RENN's shareholders. We were pleased with the Board's approval of a plan of liquidation in April 2016 because, at the time, it represented what we believed to be the best option for shareholders. However, the Fund's $23 million in net operating losses and $1 million in shell value under the Investment Company Act of 1940 are substantial assets that will be lost under the current plan of liquidation. Our analysis leads us to believe these assets are worth approximately $8 million, or $2 per share.
Fortunately, a superior alternative has emerged to the Fund's current plan of liquidation that will allow the Fund to preserve its valuable net operating losses and shell value, reduce expenses, and ultimately unlock significant shareholder value. Horizon Kinetics LLC ("Horizon"), a highly reputable fund manager with $6 billion in assets under management ("AUM"), approached us recently to discuss an alternative to the Fund's current plan of liquidation. After our discussions with Horizon, we are of the mind that the Board should take the steps required to install Horizon as the Fund's investment manager. In this way, the Fund can reduce expenses by at least $300,000 per year, recapitalize, and efficiently distribute key assets to shareholders, while still preserving the aforementioned net operating losses that could serve to provide considerable tax benefits to shareholders.
From what we have learned about Horizon, we are confident that Horizon's scale as an investment manager would provide distinct advantages and benefit the Fund's shareholders. Adopting Horizon as the Fund's investment manager is likely to unlock shareholder value for the following reasons:
- Horizon would temporarily waive the management fees until such time as the Fund reaches appropriate scale and would thereafter reduce management fees by 50 to 100 basis points;
- Horizon would leverage its existing vendors to further reduce operating expenses;
- Directors' fees and insurance expenses would be reduced to appropriate levels;
- Certain legal fees and administrative costs would be absorbed by Horizon's in-house departments;
- With Horizon as investment manager, we believe a 2% total expense ratio could be achieved at $10 million net asset value ("NAV"); and
- Horizon's strong reputation and associated goodwill would have a positive effect on shareholder confidence and RENN's share price.
For the benefit of the Board, we have laid out the following steps that would need to be taken in order to effectuate our proposed alternative:
- The Board will withdraw the plan of liquidation at the upcoming Annual Meeting;
- Messrs. Cleveland, Pierce, Hill and McCormick will resign from the Board;
- Horizon will propose two (2) independent and two (2) interested directors to serve as the members of the Board;1
- The necessary steps will be taken to install Horizon as the Fund's investment manager;
- The Fund will distribute shares of Bovie Medical Corporation, Apivio Systems Inc., and
- FitLife Brands, Inc. to RENN's shareholders pro-rata; and
- Horizon will recapitalize the Fund to achieve at least $10 million NAV as soon as practical after its installation as the Fund's investment manager.
Our proposed alternative allows shareholders to benefit in the distribution of the Fund's shares in Bovie Medical Corporation, Apivio Systems Inc., and FitLife Brands, Inc. Additionally, shareholders can participate in AnchorFree Inc.'s future without the uncertainty and illiquidity of a trust. Most importantly, shareholders will maintain ownership in a revitalized fund with considerable tax advantages and reduced expenses. The alternative requires the Fund's shareholders to suffer the expenses of dissolution and foot the bill for a large carve-out of the proceeds of the liquidation for future insurance costs.
The Board has a clear mandate and its fiduciary duties compel it to act in the best interest of shareholders. We hope you agree that our proposed plan as set forth herein provides a pathway for shareholders to realize the benefits of the liquidation without the needless destruction of shareholder value inherent to the current plan.
It is our strong preference to work together with the Board to achieve this value-maximizing outcome. We are willing and ready to discuss the contents of this letter with Mr. Cleveland and the other members of the Board at your earliest convenience. We must, however, reserve all rights to take whatever actions in the future we believe may be required to preserve and enhance shareholder value by any means we may deem to be required.
Etude Capital, LLC
1 Director compensation will be reduced significantly on a newly reconstituted Board, as neither Etude Capital nor Horizon are able to find any precedent for paying 1.8% of AUM to directors.
Etude Capital has retained Olshan Frome Wolosky LLP as its legal and strategic advisor in connection with its investment and involvement at RENN.
Etude Capital LLC Steven Stein
SOURCE Etude Capital LLC