Courtesy of Dr. Paul Price, Beating Buffett
Bloomberg reported recently that GAMCO gave Chairman Mario Gabelli a 30% raise from 2009 to 2010 to an astounding $56.7 million. How did shareholders fare last year? They made 3.9% including dividends while the Russell 2000 index posted a 21% gain.
Gabelli’s pay dwarfed the compensation of other, better known CEOs managing 5 – 10 times the assets.
If that wasn’t audacious enough Gabelli’s greed extends this year to pumping up his AUM through rights offerings for his closed-end funds. A letter dated March 21, 2011 spelled out the details for holders of his Gabelli Global Multimedia Trust as follows:
Primary Subscription Rights:
· The fund proposes to issue one transferable right for each share of its common stock held on the record date. Three rights will be required to purchase one additional common share at the subscription price (free of commission for registered shareholders).
· Over-Subscription Privilege: The over-subscription privilege permits all record date shareholders who have fully exercised their primary subscription rights to subscribe for any additional unsubscribed shares, if available. In addition, under certain circumstances, the Fund may issue additional common shares to satisfy over-subscription requests in excess of the common shares available for the over-subscription privilege.
Subscription Price:
The subscription price will be $7.00 per share, which is below the current market price and below the net asset value (NAV) of the Fund.
The Fund’s 10-year annualized return- a whopping 1.1%.
* Source: Barron’s March 28, 2011 – data as of March 25, 2011
What GAMCO is doing is coercing the shareholders of its closed-end funds into buying more shares of stock or suffering a guaranteed dilution of their currently held share values.
Any record-date shareholder who doesn’t exercise his rights will face a loss of NAV due to the issuance of new shares at below both market value and NAV. The over-subscription privilege adds insult as it allows others to swoop in and buy shares at discount levels far beyond their own assigned number of rights. They can do this by asking to buy any shares reserved for shareholders who don’t use their own rights. GAMCO management also can simply issue as many shares as there is demand for – regardless of rights outstanding- as outlined in the text above.
The big winner in all this? GAMCO, of course. They get huge inflows of new money into closed-end funds that can never be redeemed. This is a crime against shareholders that is, unfortunately, all too legal.
Dr. Paul Price www.BeatingBuffett www.OptionsProfits.com
