Quick Ideas – Summaries

Here you can find short summaries for all currently active Quick Ideas.

Quick Ideas section is for short posts on potentially interesting and actionable investment ideas with more emphasis on making the situation available to members quickly and less emphasis on the extensive initial research and preparation of full write-up.

The aim is not only to get the core case info quickly on SSI but to encourage members to share their ideas as well.

You are welcome to share your Quick Idea here.

Quick Ideas section is curated by Ilja.

 

Summaries and Updates

The 'Upside' is indicated relative to the share price at the time of the update rather than the initial write-up.

Last updated on the 30th of June.

 

Hertz (HTZ) - Pending Delisting - 50% Upside (very risky)
Pending delisting of bankrupt HTZ stock should result in a steep sell-off after many retail holders will be forced to close their positions. Robinhood alone shows 155k HTZ holders and the broker does not allow to trade in delisted OTC stocks. The risk is very high here as HTZ is extremely volatile and the borrowing fee stands at 200%/year. Therefore, this is more of a case study to track a delisting of an overhyped & bankrupt company.

TMAC Resources (TMR.TO) - Merger Arbitrage - 9% Upside
Canadian gold miner TMAC Resources is getting acquired by Chinese mining giant Shandong Gold for C$1.75/share in cash. Shareholders have already approved the merger, however, the main issue lies with the regulatory consent as the buyer is a Chinese firm, while the assets of the target company are located in a strategic location.

Gilat Satellite Networks (GILT) - Merger Arbitrage - 35% Upside
Israeli satellite services networking communications equipment Gilat Satellite Networks has agreed to combine with its US peer Comtech. Consideration stands at 0.08425 CMTL + $7.18/share in cash, so the target company currently trades below the cash portion level. Borrow is available and cheap. Closing is expected in H2'20. All conditions except approval from Russian regulators (likely not to be an issue) have been satisfied, however, the market expects the price of the offer to get amended (as it was recently done with another acquisition of CMTL).

Tiffany (TIF) - Merger Arbitrage - 12% Upside
This is a potential merger with the elevated risk of termination and also an interesting case to track and see how easy merger agreements can be broken due to COVID-19. Luxury good giant LVMH is acquiring jewelry retailer Tiffany for $135/share in cash. There are rumors that LVMH wants to cut the price of the proposal and is closely monitoring the financial condition of TIF (to amend the terms if TIF breaches the covenants).

58.com (WUBA) - Merger Arbitrage - 4% Upside
Largest Chinese online classifieds company 58.com (listed on NYSE) is getting acquired by a consortium of PE firms and Jinbo Yao (founder and CEO - so management buyout) at $56 per each ADR share. Buyers seem credible (holds 44% of voting shares, while 2/3rds approval will be needed) and despite the opportunistic timing, it seems likely that the company will accept the proposal. A definitive agreement has already been signed (with a sweetened price), so the chances of things going south here are minor.

Forescout (FSCT) - Merger Arbitrage - 47% Upside
IoT cybersecurity company Forescout agreed to be acquired at $33/share in cash. However, the buyer is now citing material adverse effects and wants to terminate/amend the transaction. Litigation from FSCT side has started - thus this should serve as an interesting case study on how easy it is to break merger agreements due to COVID-19 MAE. The trial is set for the week of the 20th of July.

TearLab (TEAR) - Merger Arbitrage - 3% Upside
TearLab agreed to be acquired by health technology fund Accelmed Partners II for $0.0586/share in cash (total consideration amount is ~$736k). Liquidity is limited. Shareholder approval has already been received and there seem to be no further major hurdles left. Overall, the buyer looks credible and it seems that the transaction should close shortly (information statement should be mailed in the first half of July).

Delphi Technologies (DLPH) - Merger Arbitrage - 6% Upside
Autoparts manufacturer Delphi Technologies has agreed to get acquired by its larger peer BorgWarner for 0.4307 BWA per each DLPH. Shareholder approval has already been received, while a number of regulatory approvals remain outstanding (all required filings have already been made). The odds of the buyer walking away seem relatively low. Closing is expected in H2 2020.

Northview Apartment REIT (NVU-UN.TO) - Merger Arbitrage - 4% Upside
Canadian REIT Northview Apartment is getting acquired by two large PE firms - Starlight Group (real estate investment) and Kingsett Capital (real estate investment/development). Consideration stands at C$36.25/unit in cash. Shareholder and court approvals have been received, while regulatory and lender approvals remain outstanding.

Craft Brew Alliance (BREW) - Merger Arbitrage - 7% Upside
Brewing giant Anheuser-Busch is acquiring the remaining stake in craft brewing company Craft Brew Alliance for $16.50/share in cash. The buyer already holds a 31% stake in BREW. Shareholder approval has been received and the only remaining hurdle is an antitrust blessing. The antitrust decision had to be announced by the beginning of May, however, got delayed likely due to some issues regarding potentially concentrated market share in Hawaii. In June BREW has agreed to sell its Hawaiian Kona assets, which should incentivize regulators towards finally providing a consent.

Carroll Bancorp (CROL) - Merger Arbitrage - 6% Upside
A tiny all-cash bank merger. Carroll Bancorp is getting acquired by Farmers and Merchants for $21.63/share. Shareholder approval was received, while regulatory consent remains outstanding (shouldn't be an issue as this is a tiny transaction). As of Q1'20 BV of CROL stood above the requirement stated in the merger agreement, so it is quite likely that the consideration won't get adjusted. So far, no updates were given regarding the financing that has to be secured by the buyer. By the end of April, the buyer has reassured of its intention to proceed with the merger and indicated that the process is ongoing at the expected timeline.

Bristol-Myers Squibb (BMY-RT) - CVR - 163% upside
Bristol-Myers acquired Celgene and as part of the consideration issued contingent value rights ($9/CVR) conditioned on FDA's blessing for 3 certain candidates are granted. One candidate has already been approved, while lico-cel is expected to be approved by Dec'20 and ide-cel by Mar'21. So far lico-cel review has been extended and while the timeline for the decision is tight (Nov'20) it still fits in the required timeframe for the CVR. Meanwhile, ide-cel BLA was requested to be resubmitted with additional details (the company expects to comply by the end of July), which increases the risk of process dragging beyond the Mar'21 deadline.

Fitbit (FIT) - Merger Arbitrage - 13% upside
Google is acquiring wearable band maker Fitbit for $7.35/share in cash. Shareholder approval has already been received, but there are regulatory concerns due to a large amount of customer data being transferred to Google. Regulators in the US, EU, and Australia have all expressed their concerns with this merger. The deadline for the EU regulator's decision is set on the 20th of July (will either approve or extend the transaction for another 4 months).

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