Avalon Holdings – Nalluri Continues to Increase Stake
Anil Choudary Nalluri recently filed an SC 13D/A report indicating that he owns 1,092,356 shares (market value $2.7 million) in Avalon Holdings Corporation (AWX), which represents approximately 33.2% of the share capital and 11.6% of the voting power. These shares were acquired through small, continuous purchases primarily during May and June. The second largest shareholder in AWX is Chairman Ronald Klingle (76 years old), who owns 781,550 shares, representing 20.0% of the share capital and 66.8% of the voting power. Klingle essentially controls all the B shares (10x voting power).
AWX has two classes of shares: 3.3 million Class A shares (1 vote per share) and 0.6 million Class B shares (10 votes per share). These share classes were introduced during the IPO in 1988 ($8 per share) to allowed the company's shareholders and management to maintain control of the company while raising capital from the public. Initially, after the IPO, Klingle (331k Class B shares) shared the high-vote shares with former president and COO Darrel D. Wilson (279k Class B shares). Wilson passed away in 1999, after which Klingle purchased his B shares.
Back to Nalluri – he is a psychiatrist based in Ohio (like AWX). Nalluri has systematically increased his stake in AWX since 1999 (!) through continuous stock purchases. In 2009, Nalluri expressed dissatisfaction with the company's management and questioned investments in golf clubs. Then, in 2018, Nalluri had a "correspondence" with the company in which he suggested that AWX should hire an investment bank to explore the possibilities of selling the company's shares or assets. He was critical of the management's handling of the company's resources, particularly investments in golf clubs and hotels, which he believes have led to significant financial losses. Nalluri further proposed that the board should freeze their salaries until they can demonstrate a profit and increase shareholder value.
Although Klingle himself has full control over AWX, it is interesting to see how Nalluri continues to increase his stake in this relatively illiquid stock. Nalluri now owns 33% of the Class A shares.
(Disclaimer: at the time of publication, the writer owns shares in the mentioned company)
That was a good catch. I do recall it, but have never seen anything in the 10-K’s or Q’s. I believe Gentile was recently found guilty but has appealed the verdict. I think AWX is just one of his troubles. If I missed something in the filings (which is certainly possible) let me know. Thanks.
The problem is Nalluri has to find someone to put pressure on Klingle. It is just very difficult when you have these A class and B class stock holdings. Plus there isn’t anything too alluring about the company. I guess you could argue that the real estate should have gained a lot in value, but Ohio is not the most exciting place. That being said I do own a few shares. But nothing will happen until Klingle or his family decide to sell the company or try to enhance shareholder value.
Take a look at Donegal Insurance a few years ago they were challenged on their A and B class structure. However, they would up settling with the investor and bought him out at a premium to rid themselves of the problem. The company continues to go nowhere, but at least pays a decent dividend.
Hopefully, we will wake up someday and Ron Klingle will surprise us. But, I am not holding my breath. 😉