VOTE FOR MEMBER IDEA OF THE MONTH – MAY EDITION

With another month past us, all members are again invited to select the best special situation trade shared during the period.

Contest will be paused for the summer – I need to gather some feedback on this and contemplate how to improve it going forward. Feel free to reach out with any comments/suggestions. Member ideas will still be accepted and published on the site.

Please select one the trades below to cast your vote. The winner(s) will be awarded $1,000. All ideas are listed in the order they have been submitted. I am also sharing quick overview of each.

Only members will determine the winner(s). Selection cannot be changed after submission. One vote per member. Poll will close on next Wednesday (13th of June).

 

Aberdeen Emerging Markets (AEF) – 1% loss so far – Pending

Closed end fund is returning 40%-50% of capital to investors through tender offer and special distribution. Current discount to NAV stands at 6% and tender is for 32% of outstanding shares. Activists shareholders are expected to participate as well, thus tender is likely to be oversubscribed. Investors are also exposed to NAV fluctuations before the tender closes (scheduled for 19th of June).

 

Dextera Liquidation (DXTR) - 70% return so far – Pending

Case for liquidation of former Dextera Surgical. Business has been sold and shares were trading significantly below conservative estimates of expected equity distributions. Liquidation is still ongoing and management is yet to announce their estimates for the distribution.

 

Aveda Transportation & Energy (AVE.V) – 9% return so far – Pending

AVE is being acquired for cash consideration + earnout. The value of the earnount is driven by incremental EBITDA growth of AVE business over the upcoming year. Risk of transaction getting cancelled was very low and market was attaching almost no value to CVR. Acquisition is closing today and CVR valuation will be determined one year later.

 

Grenville Strategic Royalty (GRC.V) - 7% return so far – Pending

Grenville is merging with another illiquid Canadian nano cap in an all share transaction. Merger arbitrage spread stood at 100%, however hedging was not possible and share prices were/are very volatile, thus final payoff will depend on acquirers share price after closing. Shareholders of both companies approved the deal and it will close in the coming days.

 

Red Star Macalline (1528.HK) - 6% return so far – Pending

China’s shopping mall operator buying back 37% of the outstanding Hong Kong listed shares at 16% premium to market prices. Rationalle for repurchase is almost 100% spread between Hong Kong (H shares) and China (A shares) listings. Shareholder meeting to approve the tender will be held this week.

 

Biglari Holdings (BH) – Forced Selling & Expected Repurchases - 0% return so far – Pending

BH stock declined 30% following creation of dual class share structure as well as removal from the index. Underlying business performance remained unchanged. Corporate governance issues persist. Author is expecting company to start buying back own shares at these low prices, which might act as catalyst to propel the share price upwards. Historically BH share price reacted positively to the start of repurchases.

 

Dr. Pepper Snapple (DPS) - 1% return so far – Pending

Large cap merger case. DPS is being acquired/merged in cash + equity of new company transaction. Payoff from the trade is entirely driven by the valuation of the to-be-received equity stub, which will be combination of current DPS business and currently private coffee company (beans, drinks and appliances). Peer comparison indicates market is currently undervaluing the equity stub.

 

RMG Networks (RMGN) - 1% loss so far – Pending

RMGN is being acquired by its chairman at 6% premium to current market prices. RMGN is a failed turnaround case and business continues to decline. Acquisition is subject to shareholder vote, which will mostly be determined by the vote of the largest shareholder who is likely to have been kept in the loop and agreed with the transaction. Go-shop period ended with another potential proposal to recapitalize the company instead of cash out of unaffiliated shareholders.

 

Mitula Group (MUA.AX) – Merger Arbitrage with Odd Lot – 20% Upside

Australian listed company is being acquired by the Japan listed one in an all stock transaction. Shareholders of less than 20k shares can opt to receive cash instead. Cash consideration is 13% above current Mitula share prices. Cash option is likely to be available to record shareholders only.

1 COMMENT

  1. dt

    I am happy to announce the winners of the third monthly contest to win $1,000.

    Out of 9 special situation write-ups, members’ votes concentrated on 3 opportunities – Mitula Group merger arbitrage (by Daniel), Red Star Macalline tender offer for Hong Kong listed shares (by Neo) and almost free CVR in Aveda Transportation merger (by Michael), with the first one taking a slight lead over the other two. Congratulations to all.

    The price pool will be split $400, $300, $300 between the three. I will contact authors to arrange the payments.

    Thank you for all who have shared their write-ups, contributed in discussions and cast their votes.

    May Winners:

    Mitula Group (MUA.AX) – Merger Arbitrage with Odd Lot – 20% Upside

    Australian listed company is being acquired by the Japan listed one in an all stock transaction. Shareholders of less than 20k shares can opt to receive cash instead. Spread of 7% for stock part and 14% for cash part remains.

    Red Star Macalline (1528.HK) – Tender Offer – 16% Upside

    China’s shopping mall operator buying back 37% of the outstanding Hong Kong listed shares at 16% premium to market prices. Tender is currently ongoing and will end on the 6th of July. The spread has narrowed half way (9% return) since the write-up.

    Aveda Transportation & Energy (AVE.V) – CVR – 45% Potential Upside

    At the time of the write-up AVE was trading slightly above cash/stock merger consideration, attributing almost 0 value to the CVR. Company communication and insider actions suggested that market is wrong and CVR at the very least should have significant option value. The merger has been successfully closed and CVR pay-outs will be determined after a year.

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