Strad (SDY.TO) – Going Private – 20% Upside

Current Price: C$1.99

Offer Price: C$2.39

Upside: 20%

Expected Closing Date: Late April'20

Management information circular

 

On the 23rd of Feb'20 industrial matting and equipment rentals company Strad announced that it is being taken private by the management (holds 21% of SDY) for C$2.39/share in cash. Conditions include approvals from 2/3rds of total shareholders and a majority of disinterested shareholders. So far 17% of unaffiliated shareholders including the largest owner - Ewing Morris & Co (holds 16.1%) are supporting the transaction, while the company notes that some other owners have confirmed the approval verbally. The meeting will take place on the 20th of April and the closing is expected shortly after that.

Overall, given the 4 year high price, current market environment and support from the largest shareholder, the approval seems likely.

Before the market fall, SDY used to trade at 2% spread, which then increased significantly and at one point even reached 121%.

So far the company has mailed the proxy statement on the 20th of March and three days later announced the receipt of an interim order of the court to hold the shareholders meeting online. This indicates that the merger is still ongoing.

The main risk is that the transaction gets terminated. Apparently pipeline, oil and gas is one of the largest customer segments of SDY, so the demand for company's services is directly impacted by the prices of these commodities and activity levels (drilling, exploration etc.) in the industry. Given the current oil & gas situation (as well as the outbreak of COVID-19) it seems that there are more than enough reasons for the buyers to re-consider the acquisition.

Current offer is a result of an intense bidding war of 5 unnamed bidders (excluding the management). It started in April'19 with a cash & stock offer valued at $1.90/share and then slowly escalated to the current price levels. The management decided to join the show in Nov'19 and in December has presented a $2.13/share in cash offer that was then raised several times. The last price bump from a bidder (who started the bidding war in April'19) came on the 28th of February and was priced at $2.43/share (cash & stock), but then due to the started oil war (beginning of March) the bidder fell off.

Major shareholders:

SDY

 

 

Note: Recent market crisis has exploded spreads of numerous M&A situations. Although the return might seem attractive, the risk - both of transaction termination and materially increased downside - has increased substantially and there have already been several instances (e.g. TTLO) of merger cancellations.

2 COMMENTS

    1. Ilja

      Transaction closed on the 23rd of April and resulted in 20% profit in 3 weeks.

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