Do You Invest in Special Situations?

• Ashford Hospitality Trust (REIT with 116 hotels) launched tender offer to exchange all of its preferred shares into common shares at 5.58 ratio diluting existing common holders by 90%+. AHT was severely hit by the COVID-19, which resulted in substantial cash burn and a tight liquidity situation. The company claimed that they need this exchange in order to get rid of the preferred stock burden and ease their access to capital markets. Management seemed very incentivized and in the process has waived pretty much all of the outstanding conditions that were obstructing the transaction. Eventually, all tendered shares were accepted for exchange resulting in 200% return for the unhedged positions and 80% return for hedged positions. Ashford Hospitality Trust (AHT) – Preferred Stock Tender – 80% In 1 Month Read more
• This was a standard split-off transaction. DuPont de Nemours (DD) was selling its Nutrition & Biosciences (N&B) business to International Flavours & Fragrances (IFF). As part of the transaction, N&B had to be split-off and merged into a subsidiary of IFF. DD shareholders had the option to participate in the tender and exchange their DD shares for IFF shares. Every $100 of DuPont stock accepted in the tender was be converted into $107.53 of International Flavours & Fragrances (IFF) stock subject to the upper limit of 0.7180 shares of IFF per DD share. Odd lot priority was included. Borrow for hedging was unavailable on IB. As with every previous split-off deal before, this transaction closed successfully. Unhedged positions (as hedging was not an option) resulted in a +17% gain (for odd lots) in 1 month. DuPont de Nemours (DD) - Split Off - $1300 In One Month Read more
• At a first glance, alternative energy firm Sky Solar seemed like a messy and repulsive situation (US-listed Chinese firm with fraudulent ex-CEO + pile of litigations), however, deeper research revealed that besides being backed by US VC firm, SKYS was also a target of several privatization proposals by non-Chinese parties. The most recent all-cash offer came from a Japanese led consortium, which then owned 72% of the company, whereas a certain SKYS debt holder Hudson Capital tabled a "considerably higher bid" (despite bombarding the company with litigations claiming insolvency). Eventually, the Japanese consortium terminated their proposal and filed a tender offer instead aiming to raise their stake from 77.5% to 90% and then move for a squeeze-out. On such news, most of the arbitrage spread was eliminated and the idea was closed with 100%+ return in 1 month. Sky Solar (SKYS) - Merger Arbitrage - 100% In 1 Month Read more
• Charles & Colvard, moissanite producer received an opportunistic acquisition proposal that was turned down by the board. At the same time an activist/largest shareholder with 10% ownership was pushing for the sale of the company with $2/share (150% upside) valuation in a conservative scenario. Downside appeared to be limited and the company looked cheap assuming recovery from COVID and a successful tun-around plan. Eventually, the company announced Q3'20 results, which were very positive, and expectations for Q4 were even higher due to the holiday season, reopening of the stores, and addition of 50 new retail stores in Macy'. Insiders continued to acquire shares as well. All in all, many different catalysts seemed to be on the table. And, although there have been no further news from the activist, CTHR stock appreciated significantly. Charles & Colvard (CTHR) - Potential Acquisition Target - 91% In 3.5 Months Read more
• Meten EdtechX Education Group was a failed post-merger SPAC that due to liquidity issues, temporarily reduced the exercise price of their warrants from $11.50 to $1.40 per each warrant. The situation provided an attractive arbitrage opportunity and it seemed that the offer was likely to go through as the company was impacted by COVID and needed extra cash to survive. Aside from that, insiders held a third of the warrants and also seemed to be incentivized to cheaply increase their ownership in METX. There was a 65% acceptance condition, however, it was eventually waived and the offer went through as expected generating +175% returns on the warrant price in one month. Meten EdtechX Education Group (METX) - Warrant Arbitrage - 175% In One Month Read more
• Countrywide, one of the largest real estate agencies in UK, received a preliminary offer at £2.50/share in cash from its peer Connells Group. Although the proposal was still at a non-binding stage, the situation seemed interesting as the company had certain upcoming issues with debt covenants and this takeover presented a better pathway than the extremely dilutive recapitalization transaction recently proposed by another firm. The buyer seemed credible and the strategic rationale was sound. Certain activist, which owned 10.5% of CWD.L also was expected to support the offer. The offer price appeared to be relatively low, but kind of justifiable due to the weaker performance of CWD.L compared to the peer firm. Eventually, Connells not only provided a firm offer but also increased the price by 30%. Countrywide (CWD.L) - Merger Arbitrage - 53% In 1 Month Read more

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