Current Price – C$0.075
Merger Consideration - C$0.156
Upside – 100%
Expiration Date – TBD
This idea was shared by Michael.
Grenville Strategic Royalty is a small specialty finance company that buys royalties from small companies. The business hasn’t been a success, primarily because of impairments and G&A they can’t support. I believe they are doing venture capital style deals with a capped upside, so they lose money on most of them but don’t get the multi-baggers they need on their winners to balance things out. They are merging with a small asset manager which is also distressed. The merger could be helpful to both, simply because they will eliminate one set of public company/executive G&A, which is meaningful given how small these businesses have become (both companies under C$10m market cap)
There is a huge spread here, with Grenville trading at C$0.075 and the buyer, LOGiQ Asset Management (LGQ.TO) trading at $0.025. Each Grenville share will convert into 6.25 LGQ shares after the deal closes, or C$0.156 at current prices. You can’t short LGQ, so there is basis risk that LGQ shares decline between now and the close of the deal. LGQ should have some balance sheet support as it is trading at approximately tangible book value. All that said, even a 40% decline in LGQ shares to C$0.015 would still leave material profit potential in the deal.
Transaction is subject to 66.6% shareholder approval on both sides.