Cost-U-Less shareholder pushes for sale of company

By Angela McDaniels

Seattle, Jan. 24 - Cost-U-Less, Inc. shareholder Delafield Hambrecht, Inc. requested that the company immediately appoint an investment bank to market the company through an auction process to strategic and financial buyers, according to a schedule 13D/A filed with the Securities and Exchange Commission on Wednesday.

"As the largest owners of the company, we maintain that our capital would be better utilized by realizing fair value through a sale of the company today than by continuing to wait for new investors to embrace a small, illiquid company whose capital is chewed up by the cost of being public," Delafield Hambrecht chairman J.D. Delafield said in a letter to Cost-U-Less chairman George C. Textor.

According to Delafield Hambrecht, Cost-U-Less' enterprise value is roughly $30 million, EBITDA in 2006 and 2007 should be $7 million and $7.5 million, respectively, and, adding back $1 million in public company costs, 2007 pro forma EBITDA to a buyer would be $8.5 million, which yields a market value of 3.5x EBITDA.

"Clearly, this is too low and a sale of the company would yield a significantly higher price than we enjoy today," Delafield said in the letter.

Delafield identified Delafield Hambrecht as a potential buyer in an auction of the company.

"We may or may not be the ultimate buyer, but realizing significantly higher value through a sale is preferable to us to continuing to watch out capital stagnate," he said.

Should Cost-U-Less fail to begin the sale process, Delafield Hambrecht said it will propose certain actions at the next meeting of the shareholders, including the election of directors who support its view.

Delafield Hambrecht Inc., Delafield Hambrecht Partners LLC, Delafield Hambrecht Partners Fund LP, Delafield Hambrecht Micro-Cap Value Fund LP, John D. Delafield, William N. Mathis, and Colin M. Hutchinson together own 380,993 shares, or 9.48% of the company's shares outstanding, and paid $2,528,846.38 for the shares.

Cost-U-Less is based in Bellevue, Wash., and operates retail warehouse club-style stores in the Pacific, the Caribbean, United State Territories, Hawaii and California.

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