Murray Stahl: Okay. So for clarity purposes, you should never, I repeat, never include the equity that’s not attributable to shareholders. So what you would get if we decide to liquidate the company, you’re getting the equity attributable to shareholders, $219 million, divided by number of shares outstanding, that’s your number. That’s what you’re getting. The other number doesn’t belong to the company. We need, however, to consolidate reason we need to consolidate those accounting rules. There are two funds that have a lot of outside capital, one is HK hard assets one, one is HK hard assets two. The total assets are not small number. I think they gravitate, they change every day, but they gravitate to around $200 million or thereabouts.
And of the $200 million only about 1/4 of that, and you can see it in the notes, I think it’s Note 1. May not be a quarter, maybe 22% belongs to Horizon Kinetics. But that will be in our shareholders’ equity. So $4 and change is the right book value. The reason we trade at premium book value is, we’re building a real cryptocurrency business. And I personally think, and it’s just subjective, so take it for what it’s worth, I’m also biased. It’s not a fair valuation in a negative sense, it should be greater because take any of the cryptocurrency mining companies that exist, which are many publicly traded. And I think arguably, our is a lot better, a lot more stable and has much, much less risk to it. And I would argue it’s even more successful, that’s measurable in terms of our growth in crypto, how much we produce, how much we retain and the fact that we don’t need outside capital, which the other companies appear to do, why we trade at a much lower price to book.
I don’t think it’s there, but it is what it is, and there you have it.
Therese Byars: Next question. I recently became aware of FRMO, bought a starter position, and I’m trying to understand the details of the business as time permits. If possible, I would love to get a better understanding of the history of the business and some of the current business nuances. Thank you.
Murray Stahl: Okay. So historically, it really was created by Horizon, not the Horizon Kinetics. So there was a Horizon Asset Management or Kinetics Asset Management. The same shareholders control both groups. But they were separate companies. One was largely management of money for wealthy individuals largely, the other management of money in a mutual fund context. And we started that way because we thought the one business failed, the other business could go on. So we had two separate companies around parallel until and somewhere around 2011 I think it was. Those businesses merged and became one, Horizon Kinetics. In roughly the year 2000, Horizon had accumulated a certain amount of capital. We didn’t need it in the business, but we did want to invest it.
So our purpose was to find some vehicle where we could be publicly traded because we thought the permanent capital model is a lot better model for investing money than the transitory capital model, which is mutual funds. One of the problems with the transitory capital model is not even the flows, money comes, money coming, money goes. It comes at the worst possible time. So when you get it, you always get it after a big increase in net asset value. And then because markets go up, markets go down. If it goes down, you end up losing the money. When you actually want to buy things. So was basically a vehicle for investing our own money and perhaps raising some permanent capital opportunistically if we had the ability and we actually did at one point a private placement raised a few million dollars of assets a lot just to see if we could do it.
And that’s the way it was. But then we accumulate so much capital, we didn’t want to merely be an investment company. We always thought, we would buy a business, and we’d run our business. And we looked at various things. And everything we looked at, we either didn’t like it because it’s too time continuing to run or it’s too expensive or it didn’t have a long enough life for us or we just didn’t have the expertise to do it. So it was eight years ago, that we thought about cryptocurrency, and we made a small investment. And the idea was to learn more about the business and see if it could be a viable business and essentially summarizing here, but that’s basically what happened. So the next step in our evolution is to make a much bigger operating company out of crypto.
One of the interesting things about crypto is you don’t need a lot of people in the business. And one of the reasons we didn’t really want to be involved in the conventional business, it involved a tremendous amount of people management. Now whether it be detracted from our attention to other managers, might not even have had time to do it properly. So that’s, in brief, the history. What’s next, Therese?
Steven Bregman: Steven here. I would just add for Dr. Fink. It’s not for me to assign anybody homework, but I thought that was an excellent strategic summation, but if somebody were to want a little more flavor and sense of developing strategic shifts over time. The various letters, the annual FRMO letters, which are on the website can give you a lot more interesting if you’re interested, that kind of thing, detail and nuance if that’s your line of country, it’s worth to take a look at.
Therese Byars: Thank you, Steve. Next, any updates on the Horizon Kinetics merger with Scott’s Liquid Gold that Murray can share and also what impact will HK becoming a public company affect FRMO and the price of its shares in your opinion. When the dust clears, how many shares and what percent of the shares will HK have and be held by FRMO? What percent of the float in shares, yeah, it’s a lot of questions. Okay. Do you want the last one?
Murray Stahl: You might as well.
Therese Byars: Okay. What percent of the public float in shares of the new HK stock would be? And what percent of the outstanding will that be?
Murray Stahl: Okay. So let me just give you some background that you don’t know. One of the reasons we — many reasons for doing this transaction. One of the reasons in this transaction are that when the founding shareholders of Horizon, small shareholder, but nevertheless, a shareholder passed away. So the heirs have no desire to own shares in a private company. So there’s only two ways to solve that. The first way is to buy the shares from them. The second way is come public. Now buying the shares from them is problematic because although we can certainly give anyone complete and full disclosure about what the company owns and what its prospects are, et cetera. The valuation assigned to any business is subjective. So we might assign the valuation of X and someone else might assign the valuation of Y.
It’s a natural conflict. We really didn’t want to do that. So we decided the best thing to do is disclose everything to the world, just come public. And if you own shares, you could either sell it or you can buy the shares. Now the float. Horizon is a private company. So none of those shares in the public domain will be in the public main on day one. The only shares in public domain is Scott’s Liquid Gold, which is about 2% of the shares. So now — but you know there are going to be some selling shareholders. I personally am not among them. But look, no one’s here forever. And some of the people are getting older. And it’s only natural they might want some liquidity. So I can’t give you a number other than the 2% number because in round numbers, that’s what Scott’s Liquid Gold is going to — that’s the float.
And I suspect there’s going to be some other float. But I can’t know the number. I just don’t know it, so I can’t share it. There’s a lot of documentation and this is a reverse merger. So there’s a lot of documentation is put together. As preparation for doing it, we actually hired a CFO with public company experience because there’s a mountain of work that needs to be done to complete this transaction. And it took a certain amount of time just to find and then hire the CFO with company experience. So we’re thinking maybe July transaction we consummated. I don’t know that. It’s just what I’m told and in a merger of this type. No matter how many things you do, there always seems to be one more thing to do. So I don’t know if that deadline will be met.
I think it’s going to be met. It looks good right now, but you never really know the — now will it — how will it affect the FRMO financial statements, it’s going to affect FRMO financial statements. Why is it going to affect that? Because I’m going to use number 2%, it’s not the exact number. Scott’s Liquid Gold has a market capitalization. So I mean if it ends up being 2%, again, it’s not exact. I’m just using this for luxury purposes, you got to get the exact number. I’m sure if you called Horizon, you can find somebody who will give you the exact number. But let’s say the number is 2%. So they told me the exact number, but I just don’t remember to how many decimal points it is, but you should get to the X decimal points. You take the Scott’s Liquid Gold market capitalization, let’s say, we’re 2% for use of computation.
So the Scott’s Liquid Gold market capitalization is X. You divide it by 0.02, 2%, that will give you market capitalization for the entire thing. FRMO is going to own a little bit less than 5%. Again, I don’t know the exact number, but in the footnotes, of the FRMO report, you can find a number. I just don’t memorize numbers like that. But in any event, if you now take Scott’s Liquid Gold, the market capitalization, divide by 0.02 and multiply by point, I think it’s 0.0483 or something or maybe it’s 0.049, I don’t know, some number like that. So if you did that, you would come up with the value the carrying value that FRMO should have if they marked Horizon to market, which we don’t do. And you should do that. And if you do it, you’ll see that the balance sheet values will change.
It will be material. So I can probably do the number in my head and give it to you, but I told you methodologically, how to do it. So you should do that. And now you’ll know the answers to the questions you’re posting.
Therese Byars: Okay. What is the intrinsic book value per share? If you adjust for deferred taxes, the fair value of the private businesses, the fair value of the public businesses and the fair value of the crypto holding?
Murray Stahl: Well, the crypto we mark-to-market, the public businesses we mark-to-market. The private businesses, those will be examples of MIAX and the Canadian Securities Exchange did not market valuations. They are just valuations as conservative as they are given by a third-party. Horizon is that way. I just told you how to do valuation I don’t know what the IPO value is going to be. Well, I just have to find out. So I can’t — even though I have my suspicion of what it is, but I don’t think it would be proper to comment on other than it’s going to be a number, obviously. But in the Horizon case, you’ll see it’s going to be higher. So it’s a higher number. In the case of MIAX, you see the value is, it’s obviously going to be less important.
Arithmetically, that’s obvious, from the financial statement, then Horizon is going to be — and then there’s the crypto business. So we don’t know what the business of Consensus mining is going to be, but we don’t have a lot of shares yet. So that’s something to considered, but I don’t think the change is going to be material. I just think that cryptocurrency mining businesses that are well managed, which I believe this is trade or should trade at big premiums and asset value. And they all do, even though not all of them are particularly well managed. So that’s as far as I can go with giving you what the valuation would be.
Therese Byars: It has become increasingly frustrating watching the world of crypto assets explode to the upside, yet the share price of FRMO Corp has not moved an inch. The last time Bitcoin made a run to 60,000 per coin. The share price of FRMO was trading above $14 per share. Now Bitcoin is at 70,000, and FRMO has not participated at all. What can be done to make sure shareholders are rewarded for their patience? The investments you have made for this company have been fantastic. But ultimately, the company will be judged by share price, not the book value. So do you consider stock buybacks, dividends, a name change and uplisting to try and increase the value?
Murray Stahl: Well. Go ahead and finish if you I may be interested.
Therese Byars: No, no, that’s on a different topic in the next part.
Murray Stahl: Okay. Okay. Well, anyway, I believe it’s going to get its valuation. None of those things are a problem in FRMO in terms of valuation. The problem is everybody owns FRMO pretty much likes FRMO. So nobody really wants to sell their FRMO. So it’s very hard for a new shareholder of substance to get shares. And therefore, you could uplift you can do all sorts of things. You could change the name, you can buy back shares. If you buy back shares, all you’re really going to do is make it less liquid. That’s not going to help, it’s probably going to hurt. So if you really want to get the valuation, it’s going to have to be more liquid. And it’s going to be more liquid because the same dynamic of Horizon in terms of shareholders needing liquidity it’s going to happen in FRMO.
Matter of fact, to a very small extent, it’s already happened. So in the fullness of time, that will — the liquidity problem will solve itself and we’re going to get the valuation we want. If it doesn’t happen the next logical thing to do is do an equity carve-out. So maybe when we have where we’re finally — if we ever get to a position where we consolidate crypto people can see that might do it if we have the right liquidity, then if it doesn’t do it, we can do a carve-out, meaning we do an offering to a subsidiary. Let’s say, it’s crypto subsidiary, make that public, so people can see the value of crypto because right now, there is no individual line item where you could summarize all the crypto. So how do you value Horizons, I mean not Horizon, from those crypto efforts.
There’s no line item to that. And that’s what we’re trying to solve. So in the fullness of time, I don’t think the fullest time is going to be long. We’re going to get to all that stuff.
Therese Byars: Okay. This question is a little off topic of FRMO. He said I know Murray really likes the oil royalty trust positions. One of his larger positions is Permian Basin Trust. It has been hit hard so far this year trading down 50% in the last year. Would you comment on why this is and if you still like this company?
Murray Stahl: Well, I like the company, and there is a dispute. So you may recall when there was a Horizon TPL dispute, although company performed splendidly, the stock went down by 50% when it was dispute. In Permian Basin Trust there’s disputes. It’s not the same dispute as we had with TPL. The operator is accused by a shareholder, not by the trustee, although on behalf of the shareholders, is accused by a trustee of having too many capital charges that were not legitimate. So the issue is how much cash flow, how much dividend should Permian Basin have. That’s going to have to be resolved by the court system. And so what happened in Permian Basin Trust is kind of the same as what happened TPL with, I will say, this the salient distinction.
So I dare say this, the — in TPL, you might not believe this, but yes, we had our dispute, obviously, it was in court, but if you were sitting there in the Board meeting, you’ll be amazed how remarkably cordial the proceedings really were. And the reason was is because we had dispute. It wasn’t a monetary dispute. But more to the point, we agreed on over 99% of the issues. So this is not that kind of dispute and it’s going to be resolved in any way. So it’s going to have to be clarified. And it will get clarified in due course. So either the — some shareholders are right and the company just put in too many capital charges or they’re wrong but we’re going to get the right number. We’re going to find out. So I personally wouldn’t worry about it very much.
Just like during the dispute, you couldn’t see it. You know it’s my perspective, of course, but everybody is working together, I would say, pretty productively. Might have had our odd moment when we’d expressed disagreement on certain topic that we all know what that was. But other than that, it’s pretty pleasant being there. That you wouldn’t imagine that was the case. But it really was. This is maybe going to be a little more profound in the case of Permian Basin Trust, but it will resolve itself in due course. So I am not worried about it whatsoever. And we were buying more shares of Texas Pacific as any we can see from our filings during the controversy, and we’re buying more shares of Permian Basin Trust in the place where it needs to be bought.
Therese Byars: My question is for both Mr. Stahl and Mr. Bregman, is what is one thing each of you believe FRMO shareholders either don’t understand or appreciate about FRMO?
