Ieg Holdings (IEGH) – Reverse Stock Split – 19% upside

Current Price –$0.48;

Expected pay-off – $0.57;

Upside – 19%;

Expiration Date - October 17, 2016

Holders of less than 1000 shares will be cashed out

SEC filling

 

Background:

Ieg Holdings is undergoing reverse stock split in order to reduce the shareholder count and costs associated with it. Shareholders owning fewer tan 1000 shares will be cashed out. This corporate action has already been approved by unanimous written consent of the Board of Directors of the Company and by written consent of the largest shareholder (72.4% owner) therefore as per my understanding no further approvals from the minority shareholders are necessary. The cash-out price will be determined as per details below.

 

Cash-out price:

As per filling:

The Board of Directors has determined that the cash-out payment for fractional shares will be an amount per share equal to the average closing price of the Company’s shares of Common Stock on the OTCQX for the 30 calendar days ending on (and including) the Effective Date, without interest. In general, the “closing price” of a security is the final price at which a security is traded on a given trading day and represents the most up-to-date valuation of a security until trading commences again on the next trading day.”

Thus the cash-out price is not fixed and will be determined by average closing prices between 19th Sep to 17th of Oct. With only one week left, the variability in the eventual cash-out price is limited. At the moment the average closing price stands at  $0.6 and the table below illustrates the potential scenarios.

Average closing 10th Oct – 17th OctCash-out priceUpside from current
$0.60$0.6025%
$0.50$0.5719%
$0.48$0.5719%
$0.40$0.5413%
$0.30$0.516%
$0.20$0.480%
$0.10$0.45-6%

So this transaction would be money losing only if over the next week the average closing prices ends up being $0.1 (or if the transaction gets cancelled). However, during the last few days the price seems to have stabilized at $0.48 and if this continues (most likely IMHO) then the final cash out price would be $0.57 resulting in 19% for holders of less than 1000 shares. In absolute value this is a relatively small opportunity with max gain of $93.

 

Other considerations

- Liquidity is quite low so not sure how many of the readers will be able to exploit this opportunity. But at the time of writing there is an ask at $0.48.

- Transaction might get cancelled. The company expects to buy out 116,168 (0.12% of the total) shares and at $0.57 per share that would cost $66k. The company expects savings of only $22k from the reduced share-count. If the amount of shares to be cashed-out ends up higher, the transaction might not be worth doing and therefore might get cancelled.

- The company itself seems quite sketchy and overvalued. It is the owner of  ‘Mr. Amazing Loans’ and provides fast credit to consumers. The latest financials show loans balance of only $7m, minimal growth, constant losses, cash burn and equity book value of $8m – all of this for a market cap of $45m. On top of that if had a number of failed (or half-failed) equity and rights issues. This would have been a great short back in spring and maybe still is. Rough estimate of fair value is probably not more than $0.1 per share.

- What gives a bit of confidence that this reverse split transaction will not be cancelled is that a similar reverse split was done in Apr 2016 when 17,931 shares were cashed out at c. $7/share. (See 10-Q and search for ‘reverse stock split’).

- Street name holders should be treated in the same way as record holders: “The Company intends for the Reverse/Forward Split to treat shareholders holding Common Stock in street name through a nominee (such as a bank or broker) in the same manner as shareholders whose shares are registered in their names. Nominees will be instructed to effect the Reverse/Forward Split for their beneficial holders. However, nominees may have different procedures and shareholders holding Common Stock in street name should contact their nominees.”

10 COMMENTS

    1. dt

      Why too late? After the publication there were plenty of chances to acquires shares in the $0.48-$0.50 range.

      Liquidity is low, a couple buyers can easily push up the price. Price jumped 35% so far today i have no idea why. It trades above the levels of likely cash out. So either someone is not understanding how this tender works, or is buying for other motives.

  1. dt

    I have sold my IEGH shares as price moved up way higher than I was expecting and reached levels above the potential cash-out price. Yesterday’s volume of 96k shares was equal to aggregate volume over the last two weeks. No idea what might have caused this and why specifically yesterday.

    One theory is that someone misunderstood the cash-out price and posted some misleading information. SEC filling had a statement “a fair value of $1.00 per share, which the Company assumes will be the approximate historical closing price upon which the cash-out price will be determined.” So maybe someone expects the cash-out price to be $1?

    Another theory, is that I am truly missing something and there is a good reason for a one day price spike to $0.69.

    In any case, for me a nice gain of 30% (liquidated earlier, as did not expect +44% jump). I hope at least some subscribers had a chance to profit from this as well.

    Looking forward to see how this plays out eventually.

  2. dt

    Taking into account the closing prices over the last 3 days the cash-out price will be within a range of $0.63-$0.66. So not worth waiting for the reverse split any longer as liquidating at market prices ($0.71) results in better return.

  3. dt

    Interesting things are happening with IEGH. According to this press release the reverse/forward split already happened yesterday:
    http://www.marketwired.com/press-release/ieg-holdings-corporation-announces-completion-reverse-forward-stock-splits-ieghd-temporary-otcqx-iegh-2167371.htm.

    But shares still seem to be trading at pre-split prices. IB support explained to me that this corporate action was cancelled, which seems strange keeping in mind the press release this morning. Will try to find out more.

  4. dt

    Got the response from IEGH IR. Apparently the reverse split will be affected by the end of the week (potentially today).

    “It will go effective as soon as FINRA approves it which is expected before the end of this week.”

  5. dt

    IEGH is out with another corporate action:
    https://www.sec.gov/Archives/edgar/data/1627811/000149315217007740/forms-4.htm

    This time it is offering to buy up to 10% of Lending Club in exchange for IEGH shares. Just to show how stupid this tender looks, consider that 10% of LC is valued at $200m whereas market cap of IEGH is only $7m.
    On top of that such an exchange at current share prices this would mean a loss of 33% for LC shareholders.

    Not even sure what is the purpose of such a tender in which no rational investor should be willing to participate.

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