STABLEBOY SELECTIONS

U P D A T E

CKX’s intrinsic value seems to be far lower than its current market capitalization of $926 million. The company earned only $20 million and $10 million (after-tax; before extraordinary items) in the past two years, with deficits in all years prior to 2006. Earnings will have to improve substantially to justify the current price. Furthermore, CKX lost a large part of its asset value after spinning off FX Real Estate. If the management buyout does not take place, CKXE could fall considerably—it is not cheap.

T H E S I S

Last June, 19X Inc. announced plans to acquire CKX. Shareholders received a special dividend earlier this month and are now waiting for $13.75 per share in cash. The ultimate payout will be reduced by 7.5% of the average market price of FX Real Estate – a CKX affiliate. Because this reduction can neither exceed $2 nor fall below $0.75, shareholders will get between $11.75 and $13.00. There is a 20% arbitrage opportunity at the low end.

Risk of deal failure is practically nil. According to a recent press release, CKX’s 2007 EBITDA surpassed deal financing requirements. And 19X is owned by the majority shareholder of CKX.