Chicago Rivet & Machine – Closing Iowa Facility
Chicago Rivet and Machine Co. (CVR) was founded in 1927, has been publicly traded since 1980, and operates in two segments: Fasteners (about 90% of revenue) and Assembly Equipment (10%). Within the Fasteners segment, the automotive industry accounts for two-thirds of sales, with 80% of those sales occurring in the U.S. The Fasteners segment includes both the parent company’s operations and its subsidiary, H&L Tool (Michigan), which is a leading manufacturer of products made through precision turning and cold forming techniques. The company has 207 employees.
CVR has announced that it will close its manufacturing facility in Albia, Iowa, by October 1, 2024. The closure will impact all 19 full-time and part-time employees. The Albia facility has provided tools for the company's entire range of mechanical, hydraulic, and pneumatic rivet machines, serving both existing and new customers. The board has decided to consolidate the operations in Albia into the facility in Tyrone, Pennsylvania.
(QuickFS)
The company expects to incur certain costs related to layoffs, the closure, and disposal of the facility, as well as the relocation of equipment. However, these costs are not expected to be material to the company’s operations.
The wholly-owned building in Albia is approximately 2.7 thousand square meters and, at a price of $500 per square meter, could have a market value of around $1.35 million. The building has been on the books since at least 1995 (likely longer) and is most likely recorded primarily at the land value at the time of purchase. We might estimate a book gain of $1.1 million if it is sold for $1.35 million. However, perhaps half of the proceeds will be used for severance pay and other closure-related costs—so let’s assume the book gain and cash increase (after taxes) will be $0.5 million. This would have only a marginal impact on the company’s tangible equity of $25.2 million.
CVR owns two other properties in addition to the Albia facility: one in Pennsylvania (10 thousand square meters) and one in Michigan (11.5 thousand square meters). General market prices for industrial properties in Tyrone, Pennsylvania, appear to be around $300 per square meter and in Madison Heights, Michigan, around $700 per square meter—these figures are likely somewhat conservative. Applying these figures to the properties gives us a total value of $11.1 million ($3 million + $8.1 million) and $1.5 million for the Albia property, for a total of $12.6 million.
The acquisition cost for the land is $1.5 million and for the buildings, $6.8 million. They have been on the books for at least 30 years—likely longer (I couldn't trace further back than 1995). Assuming they are depreciated over 40 years and have been on the books for 30 years (likely a conservative estimate), the book value for land and buildings today is $3.2 million. This suggests potentially hidden values of $9.4 million. If these properties were sold or theoretically revalued to market value, equity would increase by $7.4 million (adjusted for latent tax of $2.0 million). Equity would then increase by 29% from $25.2 million ($26.1 per share) to $32.6 million ($33.8 per share). The Price-to-Book ratio (P/TB) would then drop from 0.64x to 0.50x.
Supporting this analysis is the fact that the company sold a property in Naperville, Illinois (HQ and both segments, approx. 5.1 thousand square meters) in Q3 2022 for $5.4 million (recorded a gain of $4.7 million—price of $1,060 per square meter).
(Disclaimer: at the time of publication, the writer owns shares in the mentioned company)