Why I’m Betting This $2 Stock Gets Bought for $7

Janel owns 45% of Rubicon and needs 80% to unlock valuable NOLs. Shareholders have leverage, likely forcing Janel into offering a significant premium (2-4x) the market price by the end of the year.

For those who are new here, I don’t publish often—I spend most of my time screening, reading, and looking for spaces where I can have high conviction.

Most of these opportunities are quite small, perhaps too small for many funds to buy, but inevitably some are larger.

With illiquid securities you often have to place limit orders at the ask to get a fill, and there are only so many shares to go around—so being early is crucial.

Let’s begin.

I’m going to explain an intricate, yet clever corporate transaction, so read as slowly as needed to follow along.

Understanding these key details are necessary to understanding how today’s opportunity exists.

The Offer

On July 1, 2022, Janel Corporation (JANL) announced a tender offer for 45% of Rubicon Technology (RBCN) shares at $20.00 per share. Prior to the announcement, Rubicon shares were trading around $9.00. Immediately following the tender, Rubicon issued an $11.00 per share special dividend on all outstanding shares—including those tendered to Janel.

Let’s break that down:

Janel acquired 45% of Rubicon at $20.00 per share. After accounting for the $11.00 dividend they received on those same shares, Janel’s net cost was $9.00 per share.

Rubicon shareholders received $20.00 for 45%¹ of their shares and an $11.00 dividend on the remaining 55%. That equates to an average return of $15.05 per share:
($20 × 0.45) + ($11 × 0.55) = $15.05.

Importantly, shareholders retained 55% of their Rubicon shares—now representing ownership in a much smaller, but potentially valuable, post-transaction stub.

Several activist hedge funds—Bandera Partners (~10.6%), Aldebaran Capital (~6.6%), Sentenia Capital (~5.9%), and Poplar Point (5.5%)—held significant stakes in Rubicon and agreed to tender shares in support of Janel’s offer, helping ensure the deal's success.

If Janel wanted Rubicon’s assets, why stop at 45%? Why not buy the entire company?

Rubicon operates a small sapphire business. Sapphire is used for optical and industrial applications, where durability is as important as clarity.

There are businesses out there making money selling sapphire, but Rubicon is not one of those businesses. FY 2022 Revenue was $3.6M with -$0.5M in cash flow from operations.

Janel was more interested in the $41M of net operating loss carryforwards (NOLs) tucked away in Rubicon’s annual report.²

Figure 1: From Rubicon’s 2020 10K

Rubicon lost hundreds of millions of dollars from their operations over two decades and generated substantial NOLs³.

Rubicon shows a valuation allowance which essentially cancels out the value of these NOLs to Rubicon because Rubicon is unprofitable and therefore unable to use them.

However, a profitable company—such as Janel—could use the NOLs as a “tax shield”. As Benjamin Franklin said, a penny saved is a penny earned.

If a company earned $196M in pre-tax income, at the current 21% corporate tax rate, they would owe $41M in taxes. If they had Rubicon’s NOLs they would owe nothing.

So why wouldn’t Janel simply make a tender offer for 100% of Rubicon’s shares outstanding?

The tax code wont allow it.

The tax code wants to allow companies that lose money—perhaps during the growth and investment phase—to use those losses to offset future gains. It incentivizes risk taking by rewarding successful ventures with more profits.

At the same time, the tax code is wary of allowing successful companies to perpetually buy NOLs from unsuccessful companies for pennies on the dollar and essentially arbitrage the government’s taxes into shareholder’s pockets.

Therefore, Section 382 of the Internal Revenue Code (IRC) discourages acquiring NOLs by severely limiting their usage (and therefore value) if a shareholder acquires more than 50% of a loss corporation within a rolling 3 year window⁴.

For Janel to buy Rubicon and get unfettered access to their tax shields, they must avoid tripping IRC §382.

They must also obey IRC §269 which states that the principal purpose for acquiring a company cannot be avoiding federal income taxes.

In theory, the wording of IRC §269 is quite strict. But, in practice, it’s infrequently applied and hard to enforce so long as the acquirer doesn’t immediately discontinue existing operations and liquidate the corporation.

Figure 2: Janel 07/13/2022 SC TO-C

Hence, in 2022, Janel made the tender offer to acquire only 45% of Rubicon’s shares. Notably, in their filing (figure 2), Janel explicitly stated first their intent to improve Rubicon’s business. But they also telegraphed their next move—positioning themselves to more easily acquire additional Rubicon shares three or more years later.

This future acquisition would allow Janel to consolidate Rubicon’s financial statements with their own, enabling Janel to capitalize on Rubicon’s substantial (NOLs)⁵ without triggering IRC §382.

That brings us to today.

The tender offer officially closed on August 19, 2022. Therefore, the three year IRC §382 testing period resets on August 19, 2025.

This means Janel is free to acquire enough shares to consolidate financial statements ≥ 80 %. On August 20th they can buy an additional 50% of Rubicon.

Figure 3: From Rubicon’s 2024 10k

Currently, Janel owns 46.6%, and will likely launch a tender offer for at least 33.4% (bringing them to 80% ownership) of shares outstanding, and possibly up to 50%⁶.

Shareholders Leverage

Janel spent roughly $10M to acquire 46.6% of Rubicon. Without 80% ownership—unlocking the NOLs—that would be $10M down the drain. Sure, they own a minority interest in Rubicon’s sapphire business—with $1.5M in FY 2024 revenue (perhaps this is worth $1-3M to a strategic buyer)—but for Janel to not have wasted $10M they’re going to have to buy at least 33.4% more of Rubicon’s outstanding shares.

Knowing this, do the remaining Rubicon shareholders have leverage over Janel? Is it like a game of Monopoly? If you own Boardwalk, and I own Park Place, and I know that you can’t win without the pair, then I should be able to dictate the terms.⁷

Janel’s Leverage

The value in the core business could be monetized by Janel or by any other shareholder. But the value of the net operating losses can only be realized by Janel due to the restrictions around trafficking NOLs. As we’ve seen, you have to jump through some serious hoops to access the NOLs.

Given that Janel is the only logical buyer, perhaps Janel actually has considerable leverage over Rubicon shareholders. If they don’t buy the shares, who will?

Every action has an opposite and equal reaction

There is potential for brinksmanship on both sides. Janel could attempt to offer very little, knowing they are the only logical buyer. Shareholders could respond by refusing to tender their shares, knowing that Janel needs them.

What is Rubicon worth to Janel?

1. Core Business Value
If we estimate Rubicon’s underlying business is worth between $1-$3M (0.66-2.0x revenue), that translates to a per-share value of $0.42 to $1.26.

2. Tax Assets
Rubicon has significant tax assets:

• $41M in federal NOLs

• 6.7M capital loss carryforwards

The maximum theoretical value of these tax shields is approximately $20.05 per share ($47.7M ÷ 2.38M shares). However, Janel cannot realize this value immediately; utilization will occur gradually due to their limited profitability.

Therefore Janel will discount these assets. Let’s assume:

• A 15-year timeframe to fully utilize the NOLs,

• The capital loss carryforward is used in year 5, and

• An 8% discount rate (approximating Janel’s cost of debt),

The net present value (NPV) of the tax shields is approximately $22M, or $9.40 per share.

Summing it all up:

• $9.40 per share (NPV of tax assets)

• $0.42 per share (low-end business valuation)

• $0.22 per share (net cash)

Yields an intrinsic value of $10.04 per share to Janel.

Given Janel’s limited profitability, it’s uncertain they’ll fully utilize all the NOLs. To reflect the risk of NOL expiration, I’d expect Janel to apply an additional discount of at least 25%.

Still, this would be $7.53—roughly 3x the current market price of $2.10.

If Rubicon’s value to Janel is around $7-10 per share, but shares trade in the market for $2.10, how much will they offer when they tender for more shares?

If I were Janel, I’d ask my advisors “what is the least amount I can pay?”

Delaware law offers some protection for minority shareholders.

Janel cannot acquire more than 50% of Rubicon without triggering limitations under IRC §382, which would jeopardize the value of Rubicon’s NOLs. As a result, they would likely pursue a tender offer⁸ to increase their stake without causing a change in ownership under the tax code.

Tender offers made by a controlling or significant minority shareholder can trigger the “entire fairness” standard under Delaware law if challenged. This is a demanding burden: the acquirer must demonstrate that both the process and the price were entirely fair to minority shareholders. It’s the most rigorous burden under Delaware law, similar to “beyond reasonable doubt” in a criminal case.

In such a context, the value of Rubicon’s NOL synergies might be included in the fair value calculation if:

1. The tax asset is already partially reflected in Rubicon’s market price;

2. Other acquirers could theoretically realize that value (even if with more difficulty); and

3. Minority shareholders are not being forced out—i.e., they retain their equity post-offer and could also benefit from the potential future tax value.

This accurately describes Rubicon, which leads credence towards some of the NOL value being included in Janels offer under the entire fairness standard.

But, Janel can avoid the entire fairness standard and have the transaction fall under the more lenient business judgment rule by following the MFW two prong test:

1. Independent special committee approval

2. Majority of minority shareholder approval

If both conditions are met from the outset and maintained throughout negotiations, courts will typically defer to the business judgment of the board rather than scrutinizing the deal under the more exacting entire fairness standard.

The second prong—the majority-of-the-minority vote—that may exert real pricing pressure on Janel. This requirement gives non-Janel shareholders the power to block a lowball offer, effectively forcing Janel to include some value for the NOLs in the offer to gain sufficient support.

The composition of this “minority” is what excites me most.

Let’s think about the remaining 55% of Rubicon shares. The four hedge funds previously mentioned—Bandera (~10.6%), Aldebaran Capital (~6.6%), Sentenia Capital (~5.9%) and Poplar Point (5.5%)—each participated in the initial tender, reducing their holdings by 45% but notably retaining 55% of their original shares. For Bandera, this retained stake (5.4%) appears in Rubicon’s most recent 10-K under the >5% beneficial owners section⁹.

The other three funds, Aldebaran, Sentenia, and Poplar Point, dropped below the 5% threshold after tendering their shares, and thus their holdings no longer appear in the beneficial owners section.

However, it is likely these funds retained their shares due to Rubicon’s low liquidity and potential future value from dividends and tender offers¹⁰. Collectively, these funds likely still own > 25% of Rubicon’s publicly traded float. If true, it means Janel cannot get to 80% ownership if these funds refused to tender.

Janel has a working relationship with these funds. Janel provided them a return on their Rubicon investment three years ago. These funds tendered their shares and ensured Janel had a successful first tender offer. If Janel offered a meaningful premium to the market price, a majority of the remaining shareholders would tender and Janel would be able to access their coveted NOLs.

That assumes everyone plays nice.

If Janel attempts a low or "take-under" offer, shareholders could refuse to tender. This could push Janel into protracted negotiations or costly litigation—both outcomes Janel wants to avoid, especially as time passes and NOLs lose value due to expiration.

Ultimately, both Janel and Rubicon shareholders hold real leverage.

Each side has a carrot—and a stick—and neither can afford to swing too hard.

That’s why I expect a pragmatic outcome. Janel will offer enough to get the deal done and avoid risking its $10M investment and years of planning.

Whether the final price is $5 or $7, it represents a double or triple from today’s levels—and importantly, even at that price, Janel would be acquiring deeply discounted NOLs at a further discount. That’s a win for them—and a clear opportunity for us.

DISCLAIMER: This post is for informational and educational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any securities. The author may hold a position in the securities mentioned. All opinions are the author's own and are subject to change without notice. While efforts are made to ensure accuracy, no representation is made that the information is complete or error-free. Readers should do their own research.

1. The actual amount of shares tendered was roughly 50%, some shareholders likely forgot to tender so a slightly higher proportion of each shareholders shares were tendered.

2. The dollar value of the carryforwards are the product of multiplying the loss and the corporate tax rate. Federal gross loss = $196.0 X Corporate tax rate = 21% = Net operating loss carryforwards: $41M

3. One line above in figure 1 shows $14.5M of state net operating losses. These are concentrated in Illinois and are nearly impossible to use effectively under current Illinois tax laws, which severely limit the amount of NOLs a company can use each year to offset gains.

4. Section 382 of the Internal Revenue Code (IRC) limits how much of a company’s NOLs can be used after a “change in ownership” specifically, if more than 50% of a “loss corporation” is acquired by 5% shareholders within a rolling 3-year window, that triggers section 382 which would cap annual NOL usage, wiping out their value similar to the Illinois NOLs.

5. Janel cannot simply use Rubicon’s losses against their gains. Instead, the profits must be earned “inside” of Rubicon. Perhaps Janel’s next acquisition could be placed inside of Rubicon. Perhaps Janel could restructure their existing businesses (and allocation of costs) such that the business they place inside Rubicon would be extremely profitable.

6. At 90% ownership, Delaware law allows them to do a short form merger through which they can freeze out the remaining shareholders for cash without a vote. They would have to wait three more years to do this to not trigger IRC §382, but getting ownership to 90% provides addition benefits at marginal additional cost.

7. It’s hard to win with a Monopoly on the blues, I’d much rather have the oranges or the reds…

8. Under Delaware law, “post-merger synergies” —NOLs in this case— are excluded from the appraisal process used to determine fair value. However, appraisal rights are only triggered when minority shareholders are forcibly cashed out, typically when an acquirer crosses the 90% ownership threshold and completes a short-form merger.

9. Updates are no longer required as Rubicon has become a "dark" company. I checked the other funds 13F statements and did not see Rubicon on any of them, but Rubicon, being delisted is not on the official list of Section 13(f) securities the SEC puts out. Therefore I don’t think we can confirm these funds do or don’t own shares. But given the illiquid market and likely further value to be realized, I think they still remain owners.

10. In 2022, Rubicon sold some real estate and issued a special dividend.