Current Price – $8.67
Tender Price – $8.88 – $9.30
Upside – 7% (or $63 for odd-lots)
Expiration Date – 28 Dec 2018
This idea was shared by Bill.
Cosan has launched tender offer with odd lot provision and currently trades below the lower limit. Tender is for 7%-7.5% of the outstanding shares.
This is a very similar situation to last year, when company launched tender for 12.5% of the outstanding shares. After the announcement CZZ traded below the lower limit and then right before the end of election period in the middle of the range. The offer was eventually priced at the upper limit and company acquired all tender shares. So it seems that most investors were not willing to sell at $9.65/share. Subsequently share price shot up further after the tender results were announced. This time the upper limit price is 4% lower.
And although this gives quite a bit of confidence in the outcome of the current tender (i.e. upper limit pricing with no proration), a number of things have changed in the meantime:
- Brazilian Real (currency of CZZ operations) has depreciated against USD by 15%. So if converted to Reals, current tender is at higher prices than the previous ones. Also big part of Cosan debt is denominated in USD and currency depreciation increases leverage.
- Brazil’s economic and political turmoil (and election results) might affect shareholders’ willingness to stay invested in CZZ.
- Despite operational challenges caused by Brazil’s environment, the results for 9m YTD have been quite resilient – company generated BRL4.4bn in operating cash (vs EV= BRL30bn), however margins compressed significantly compared to prior year.
- Cosan chairman continued to acquire shares in the open market at $8.3 – $10.8 per share (see here, here and here) and now owns 13.2% of Class A stock.
- Chairman has not tendered last year and I would expect him not to participate in the tender this year as well.
All in all, it is hard to guess the eventual outcome of this year’s tender. However, with share prices below the lower limit it seems quite a safe bet (not only for odd-lots).
Unaffected price stands at $8.1, so any shares not accepted in the tender would be sold at 7% loss.