Updates (Feb 2017)

Updates on recent investment ideas


Penntex Midstream – Q4 results announced

Q4 results are in line with expectations and indicate that dividend coverage is at a very comfortable 1.5x level. ETP is expected to announce earnings by the end of February and I would expect some commentary with regards to potential roll-in of the remaining PTXP shares.



Paybox – 50% upside on reverse split remains; likelihood of transaction going through is low

After short term run-up shares stabilized around the write-up levels – investors are clearly concerned that the reverse split has high chance of being canceled or amended. There was also a large seller willing to part with shares below the cash-out price which stopped the run-up towards $0.8/share. The transaction is still on the table, however the likelihood of it going through as announced is diminishing with every new odd-lot account entering. Based on the volume over the last two months the number of odd-lot accounts that the company will need to cash out has probably increased 4x – 5x relative to estimate in the initial filing (meaning the company will need c. $1m instead of $0.18m for cashing out shares). Also further odd-lots would pile-in if there is more certainty regarding the transaction. Company has $2.6m of cash and the transaction would still make sense economically, but it is not clear if management is ready to part with much larger pile of cash than initially estimated. Interestingly, when the company issued updated reverse-split filing, it did not amend the number of shares to be cashed out. Q4 results would likely provide more insight on managements’ incentives for reverse split – cost saving vs cashing out minority holders on the cheap.



OCI Partners – 27% return since the write-up, M&A spread remains at 5%

I closed out this position too early, so my return was much smaller – 11% in couple of weeks. Both OCI and OCI NV continued to trade up. Current spread remains at 5% and the deal (at least as previously communicated by management) is expected to close by Q1 2017, so any announcement might be imminent. Q4 earnings will be announced in mid-March so would expect some kind of update about roll-in at least by that time.



Global Eagle Entertainment – back to the write-up levels, waiting for Q4 earnings

Following the spike in share price mid-December (which was a great cash-out opportunity), ENT has reverted back to the write-up levels and a large spread remains relative to HNA’s planned investment/tender offer ($6/share vs $11/share). HNA has been doing a number of deals across the globe over the last few months so my gut feeling is that the ENT investment is still likely to proceed as planned. However, I am waiting for ENT Q4 results (likely beginning of March) and any comments from the management to reinitiate the position.



Implant Sciences – black box and bankruptcy litigation continues

It appears that closing out position in December was a smart move as shares have traded down subsequently after bankruptcy/litigation expenses turned out to be larger than expected and the litigation with PP has been prolonged.

Implant Sciences remain a bit of a black-box as it is not yet clear how much cash is left with the company following the sale of business and what expenses/liabilities are not yet included in the Dec MOR report (see my most recent estimates in comments section). New balance sheet to be issued by the end of Feb should shed more light on how the balance sheet looks after asset disposal. On a positive side, court granted Equity Committee the right to continue to work towards potential prosecution of Platinum Partners. Shares remain very volatile.



New York REIT – waiting for the first report from new manager

All three catalysts that I expected would lift the share price happened, but NYRT is only up by 3%. One Worldwide Plaza (highest value asset in portfolio) appears to be on the market already. Next catalyst would be liquidation plan and valuation estimates announcement from Winthrop or actual disposal of assets. Some kind of update is likely by the end of February with Q4 result release.



Syngenta – 9% return in 3 weeks

M&A spread has narrowed to 7% (from 17.5% at the time of the write-up) and I liquidated the position resulting in 9% gain in three weeks. The spreads slightly widened and currently stands at 10% – recent announcements and rumors suggest the deal is progressing well and is expected to be closed in Q2 2017.



A number of odd-lot tenders completed successfully:

– Northern Blizzard Resources – price shot up right before the tender expiration resulting in 9% return. Run up in share price was either due to Trump’s Keystone XL pipeline go-ahead or expressed interest in NBZ’s acquisition (proposal has since expired).

– Neuberger Berman REIT – 10% return for odd lots.

– WebMD Health Corp – $140 profit for odd-lot accounts


And of course a couple of failed trades:

– Transalta – 3.7% loss

This arbitrage trade was due to mispricing among different types of preferred securities which were expected to convert into one type. As it turned out the exchange terms got changed and security that looked the most expensive (and which I shorted) got even more expensive resulting in a loss. Now the spread between preferreds is close to zero.



– Rite Aid – 30% loss

So far this has been the worst trade published on this site. Positive rumors on WBA/RAD deal approval narrowed the M&A spread to 3% (from 9% at the time of the write-up). I did not close the position and subsequently it was announced that regulatory approval is hitting some obstacles and WBA in turn reduced the offer from $9/share to $6.5-$7. RAD stock crashed. The spread is now even larger at (23%) after investment community seems to have lost confidence in this deal ever getting approved. Despite larger spread I liquidated the position – it appears my understanding on the likelihood of getting these deal closed has been completely flawed and I have no confidence in waiting for the amended deal to close.