Below is June 2019 update on all new and currently active ideas as well as recently closed transactions.
RECENTLY CLOSED IDEAS
Micro cap merger between two Israeli banks. Mercantile Discount Bank (3rd largest) is acquiring Dexia Israel Bank. The main risk was antitrust approval, however as both banks operate in somewhat different markets, it was likely to pass. After regulators gave green light the spread narrowed to 1.7%, resulting in 7.5% return within 4 months.
Small upside ($50) opportunity for odd-lots. Cantabio was running a 5000:1 reverse split and cashing out fractional shares at large premium to market prices. Management (owned 70%) had already granted their approval and no further approvals were required. Reverse split took place mid June and holders of less than 5000 shares were cashed out.
Denmark based Danfoss Power Solutions is acquiring US based UQM Technologies in an all-cash transaction. Shareholder approval has already been received and the company was trading at 2% spread before CFIUS (last remaining approval) notified regarding the extension of the investigation period till the 25th of July. Despite strong reaction from the market (the spread has widened to 14% at first), CFIUS approval is very likely. Also Gabelli Funds - currently the largest shareholder (10.7%) of UQM - has increased its stake by about 2.5% (from 8.2%) immediately after the share price drop following the CFIUS review extension.
Temple Hotels is a failed and over-levered Canadian hotel REIT that might provide an interesting opportunity as recently two largest shareholders have been actively acquiring shares and so far have a combined ownership of 87%. Morguard - the manager of TPH - has oversubscribed in two recent rights offerings and currently owns 73%. G2S2, Candian investor George Armoyan’s vehicle, has increased stake from 9% to 14% over the last two months through open market purchases as well as oversubscribing to the latest rights offering. Judging by the speed of share repurchases, some kind of corporate action / takeover announcement seems imminent. However, TPH appears to be fully valued and at current prices the margin of safety is low.
PARF is an illiquid nanocap that is selling its main candied fruit business and plans to liquidate the rest of the company (plastic business and real estate) after that. Paradise is a family business and has been run by farther and son since the 60's. Family owns 40% of the stock and likely wants to retire and cash-out. Despite prolonged timeline, the risk of capital loss here appears to be small as the largest part of distributions will come from cash on hand + cash from fruit business sale. The risk of candied fruit business sale going south is very low, however it is a bit concerning that there are still no real bidders interested in plastic business or the real estate.
UPDATES ON OTHER ACTIVE IDEAS
Ancora Advisors own 8.6% of restaurant chain JAX and currently tries to put the company in play. Ancora’s proxy fight against JAX director nominees ended up being fairly successful as about 2x more votes were withheld than voted for the elected directors. So it will be interesting to see what will be Ancora’s next move or whether any other bidders emerge having seem shareholder discontent with current management. JAX peer Del Frisco Restaurant Group has recently been acquired at significant premium to where JAX is trading currently.
Realm is a failed biopharma cash shell that trades at 48% discount to NAV. Following a strategic review management has announced value destructive all-stock merger with Essa Pharma, which surprisingly got approved by the shareholders (albeit narrowly). The court still has to give its blessing and the hearing has been adjourned till the 8th of July due to shareholder opposition. RLM trades at 26% spread to Essa acquisition offer, however Essa's stock is illiquid with no available borrow.
Fiera Capital is acquiring Canadian listed Integrated Asset Management (IAM) in a cash and stock transaction with additional incremental payout from cash balance at the time of closing as well as CVR linked to performance of two IAM managed funds. The transaction was approved by the shareholders with the implementation date of the 3rd of July and a special dividend of C$0.08/share will be paid out before closing. To lock in the value of stock part of the merger consideration Fierra stock needs to be shorted - exchange ratio will be determined by 5 day VWAP prior closing).
A large Indian pharmaceutical company InvaGen Pharmaceuticals has completed the first part of ATXI acquisition and now the second part (full buy-out at $13.92/share) is conditioned on FDA approval of ATXI opioid medication by Dec 2020/April 2021. So far positive Phase 3 results have been announced followed by a share spike (26% initially). So the next step is the submission to NDA (end of 2019) and then we will have to wait for FDA blessing (end of 2020 with a possible extension to 2021). The approval risk remains considerable.
DNA sequencing machine maker Illumina is acquiring biotechnology company in an all cash consideration of $8/share. The transaction was expected to close mid 2019, but got delayed to Q4 as two last antitrust approvals (US and UK) have been extended. Because of the UK's CMA extension, the spread has recently widened significantly (from 8% to 33%). At current prices downside to unaffected price is smaller than the upside to acquisition proposal.
Potential merger between two junior miners, which together own Ecuadorian copper-gold project Cascabel. Over the last month shares of both companies sold-off as communities around the Cascabel project asked the Ecuadorian court to hold mining referendum. However, in the hearing the majority of presentations were against the referendum and although official decision has not yet been announced, according to CGP the holding court dismissed the referendum petition and did not enter into an examination of the merits of the case. Next catalyst is still Newcrest’s standstill agreement expires in October.
Aimia continues to trade at sharp discount to SOTP valuation (C$6+), especially after share price decline following oversubscribed tender offer. In the beginning of June Aimia announced buyback authorization for 10% of the public float (or 7.5% of all outstanding shares), which if carried out will definitely prove positive for the remaining holders. Mittleman's (largest shareholder with 23.5%) standstill expires in July and any actions taken by this activist might help bridge the valuation gap.
IDEAS WITH NO UPDATES THIS MONTH
This is an illiquid nano cap liquidation trading a a discount to net cash ($0.011/share). Q1 report showed unchanged $100k cash burn, which was partially offset by $50k of other income (most likely interest on the cash balance) and so far nothing has been claimed against the escrow funds. No detailed comments were given on the initial distribution other than that is still expected in 2019.
TZS has liquidated a majority of its portfolio and has two potentially problematic mortgages left outstanding. In Q1 report it was again mentioned that the previously defaulted borrower has made all scheduled payments in 2018 and Q1 2019. BV has increased to C$3.21/share vs C$2.31 share price.