Bring Back Conserve

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Bring Back Conserve School

Central Steel Spurns Cash Acquisition Offer

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Cental Steel & Wire rejected a cash offer of $1,000 per share from Samuel, Son & Co., a metal processing and metal products manufacturing company headquartered in Ontario. Central Steel stock, thinly traded on over-the-counter markets, closed at $700/share last week, meaning Samuel, Son & Co.'s offer represented a 43% premium over Central Steel's current market capitalization. Conserve School holds 161,207 shares of Central Steel stock, which would have been valued at $161 million.

It would seem that a cash offer at a substantial premium over current market capitalization would be in the best interests of Conserve School, especially when you consider that the Trust is substantially undiversified, with over three-quarters of its assets held in Central Steel stock. This is an opportunity to, in one fell swoop, not only increase the assets of the trust, but also to boost its liquidity and to diversify and reduce its risk. (And if the first offer was $1,000 per share in cash, you can certainly extract more at the negotiating table.) Conserve School has been heavily reliant on dividends from Central Steel stock to fund operations, and those dividends have taken a wild and unpredictable ride, ranging from $2.50/share in 2002 to a high of $20 in 2007 and back to $11.50 in 2010, according to a Milwaukee Journal Sentinel article. There is little doubt that unpredictable and/or depressed dividends, given their central role in funding Conserve's operations, were a driving force in the decision to convert to a semester school.

Central Steel's decision not to pursue the proposal infuriated minority shareholders, led by Milwaukee-based investment banking firm Edelman & Co. Ltd., which represented 12% of Central Steel's shareholders. President Robert Edelman accused Central Steel executives of "failing to create value", according to the Milwaukee Journal Sentinel. "Central Steel leadership seems to believe that the company is a value unto itself, which needs to be perpetuated as an independent organization in any event, absolutely, and without qualification, forever," he said.

Edelman's statements echo concerns raised previously about the dual role of Conserve School Trustees and Central Steel executives. Preserving tight control over Central Steel has appeared to be the priority, with fiduciary duties and basic portfolio managment principles relegated to the backseat. Conserve School has long been paralyzed by the fact that almost 80% of the trust assets consist of Central Steel stock. As mentioned previously, the trust holds 161,207 shares, which is in the neighborhood of 60% of the company. So while the trust might contain hundreds of millions of dollars, the school is tightly bound to the success or failure of a single company.

Despite the transition to a semester school model, Conserve faces many of the same risks that it did before. The semester school likely costs less to operate, which means it is more likely to be able to survive on stock dividends alone, whereas the full model probably wouldn't. (That's not to say they couldn't pursue tuition revenue or donations like any other school though... but alas...) At the core, Conserve still has almost all of its eggs in one basket. The trust consists mostly of Central Steel stock, and they are still almost exclusively reliant on dividend income to fund the school's operation.

This had the potential to be a boon for Conserve. Substantial appreciation of the trust, combined with greater liquidity and broader diversification... well let's just say if your financial planner asks you if you want these things, say "yes, please".  And it highlights once again the conflict of interest in having the same people act as Conserve School Trustees and Central Steel executives.

The Milwaukee Journal Sentinel article can be found here:

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Last Updated on Thursday, 26 September 2013 09:03

Central Steel and Wire in 2010: Revenue up 36%, $4.6 million profit

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According to Central Steel and Wire's 102nd annual report, via Alex Gray, sales jumped from $521 million in 2009 to $709 million in 2010, ultimately boiling down to $4.6 million in net earnings. Central Steel paid out $11.50 per share in dividends, roughly the same as in 2009 when the company sustained a loss of $2.3 million. The Conserve School Trust holds 161,607 shares of Central Steel and Wire stock, which would have reaped about $1.9 million in dividends.

Read the full article:

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Appeals Court Upholds Conserve Semester Model

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A 3 judge panel of the Wisconsin Court of Appeals for District III upheld Conserve School's semester model in a ruling filed yesterday. In its 13-page decision, the court found that the semester program provides a full "grade" of education and satisfies the "regular enrollment" requirement set by the trust, and that the trustees have broad discretion to determine the makeup of the student body. The court continued that the trust instrument is unambiguous and that estate planning files were properly excluded from discovery during the trial. Finally, the court found that the semester program, while a significant departure from the original model, does not reflect a finding that the operation of Conserve School is impractical. Rather, it "reflects the trustees' desire to operate the school in a manner best suited to current economic realities within the boundaries of the trust instrument."

The appeal was brought by the Culver Educational Foundation following an unfavorable ruling from the Circuit Court in Eagle River. There is no indication if this ruling will be appealed.

The full text of the decision is attached to this article.

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Culver Appeal: Oral Arguments Waived, Awaiting Decision

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After a 7 month wait, Culver's appeal is no longer awaiting assignment at the Wisconsin Court of Appeals. Both Culver and Conserve School have waived oral arguments and the case will be decided based on the submitted briefs. The case is being heard in District III by a 3 judge panel. As District III only has 3 appellate judges, the case will be heard by the following individuals:

Michael W Hoover

Gregory A Peterson

Edward R Brunner

Michael W. Hoover

Gregory A. Peterson

Edward R. Brunner

The briefs are available here on under the article that announced the appeal. Updates will be provided as they are available.

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Last Updated on Wednesday, 25 August 2010 20:42

Misrepresentation Claims Allowed To Continue

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In yesterday's hearing, Judge Nielsen ruled the parents' claims against Conserve will be allowed to move forward to discovery. The four causes of action (negligent misrepresentation, intentional misrepresentation, fraudulent inducement to contract, and breach of contract) have been consolidated into two causes of action. The demand for punitive damages was also allowed to continue.

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Last Updated on Thursday, 28 January 2010 03:13
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