Performance – December 2020


During December 2020 we’ve posted 6 new ideas.


A Quick 2020 Review

Happy New Year to all.

The year has been truly challenging with the turbulence and substantial uncertainty in the markets. However, as with every crisis, such times provided numerous investment opportunities. And we did our best to highlight the most interesting special situations to our members.

A couple of SSI stats from 2020 worth mentioning:

– The annual performance of ideas posted on the main page has been highlighted by our tracking portfolio result: +60% for the year 2020.

– A total of 49 ideas were posted on the main page.

– 89 cases were featured in the Quick Ideas section.

– We’ve also published 3 in-depth articles on different special situation types.

– One of the most profitable ideas was Ashford Hospitality Trust (AHT-PG), which resulted in +80% return (200% for unhedged) in one month. However, returns for several other ideas were almost as lucrative.

So all in all, 2020 turned out to be quite exciting performance-wise. As always, we want to thank our members for their frequent new idea contributions and active participation in discussions.


December Update

We’ve done some year-end cleaning and together with expired cases, we’ve also closed a number of situations for which attractiveness has decreased over time or there is no clear catalyst in sight anymore. In total, 17 ideas have been closed in December. The best performing one was Countrywide (CWD.L) merger arbitrage, which resulted in +53% in one month.

22 active ideas are still available on the site.

Below you will find a list of all ideas closed during the month.


Tracking Portfolio – Dec’20 Return +6%

Dec20 performance

Disclaimer: These are not actual trading results. Tracking Portfolio is only an information tool to indicate the aggregate performance of special situation investments published on this website. Quick Ideas are not part of the tracking portfolio. See full disclaimer here.


Individual Performance Split – Dec’20

The graph below details the individual MoM performance of all the active/closed cases (excluding Quick Ideas) during December.

dec20 attribution



Ideas Closed During December 2020

Countrywide (CWD.L) +53% In One Month
Countrywide, one of the largest real estate agencies in UK, received a preliminary offer at £2.50/share in cash from its peer Connells Group (private). Although the proposal was still at a non-binding stage, the situation seemed interesting as the company had certain upcoming issues with debt covenants and this takeover presented a better pathway than the extremely dilutive recapitalization transaction recently proposed by another firm. The buyer seemed credible and the strategic rationale was sound. Certain activist, which owned 10.5% of CWD.L also was expected to support the offer. The offer price appeared to be relatively low, but kind of justifiable due to the weaker performance of CWD.L compared to the peer firm. Eventually, Connells not only provided a firm offer but also increased the price by 30%. The amended consideration seemed quite full and as the spread narrowed down significantly, the idea was closed with 53% gain in one month. Several weeks later, the buyer has increased the price even further – to £3.95/share.

Driven Deliveries (DRVD) +35% In One Month
This was a risky all-stock nano-cap merger in the cannabis industry. Driven Deliveries signed a definitive agreement to be acquired by Stem Holdings for 1 STMH per each DRVD share. Shareholder approval of both companies was required. Consent from DRVD side was in the pocket. Given the strategic rationale of the transaction, the buyer’s shareholders seemed likely to vote in favor as well. Additionally, the merger was conditioned on a $20m equity raise (combined) by both companies, which was a harder risk to handicap. Liquidity was limited, however, plenty of borrow was available on IB. In a few weeks, the spread turned negative without any explanation (no news or updates released) and the idea was closed with a 35% profit in one month.

Great Canadian Gaming (GC.TO) +17% In One Day
The thesis was spot on, however, it was posted just a little bit too late as the expected news were released before the market open. Great Canadian Gaming was subject to an acquisition by the prominent PE fund Apollo at C$39/share in cash. However, major shareholders with a combined 38% stake opposed the merger, while the meeting date was just a few days away. Media rumors suggested that Apollo intends to increase its bid. The offered price seemed low and definitely had headroom for improvement. Several other aspects also indicated that the upwards amendment is likely. Eventually, two days before the meeting, Apollo increased its offer to $45/share.

Powerleader Science & Technology Group (8236.HK) +13% In 1 Month
Chinese equity investment firm Powerleader Science & Technology Group was getting taken private by its parent for HK$3.92/share in cash. The main risks were shareholder approvals – consents from both the buyer and the target companies were required. However, the strategic rationale behind the transaction seemed convincing and several other favorable aspects (i.e. price, timing) indicated that the vote might pass. As expected, all approvals were granted and the transaction closed generating 13% return in 1 month.

Link Administration (LNK.AX) +13% In 1.5 Month
Australian superannuation fund administrator Link Administration received a preliminary non-binding takeover proposal from a consortium of PE firms PEP and Carlyle Group at A$5.20/share. This offer was quickly rejected and a few days later the consortium revised the proposal to A$5.40/share. The board stated that the new offer is still undervaluing LNK, but allowed the consortium to proceed with due diligence. The consortium owned 17%, while PEP’s long history with Link also reassured that buyers’ intentions are credible. Aside from that, the historical business valuation, comparison with other peers, and recent transactions indicated that Link was cheap and there was plenty of headroom to improve the offer. Eventually, a competing offer was put on the table by financial tech giant SS&C at A$5.65/share, however, after completing the due diligence PE firms did not issue any updates, but rather lowered their stake from 17% to 12.6%. This indicated that any further bids from PE firms were unlikely and given a limited remaining spread on SS&C offer, the idea was closed with 13% gain in 1.5 months.

Reliv International (RELV) $300 In 2 Months
Nutritional supplements MLM retailer Reliv International announced intentions to conduct a 1 for 2000 reverse/forward stock split, in order to reduce the number of shareholders below 300, deregister from SEC and delist from Nasdaq. All fractional shareholders were expected to be cashed out at $3.75/share. 51% of shareholders (including 40% from directors) had already given consent for the transaction, and no further approvals were required. The major risk was offer cancellation or amendment of the terms, however, recent management change, the operational position of RELV, and large discount to BV indicated that the founding family might actually be interested to cut the costs of being public here and buy-out large part of the minority. The effective day got delayed a few times due to certain minor regulatory issues, however, according to IR the exchange should happen in the first half of Jan’21.

Altice USA (ATUS) +$174 in 2 Months
One of the largest cable providers in the U.S., Altice USA, has announced a $2.5bn dutch tender offer with odd-lot provision. The company intended to purchase 21% of outstanding class A shares (or 40% of the float) at the price range of $32.25-$36/share. Shares were trading in the middle of the range, while the size of the company ($19bn) indicated a high likelihood that the market is evaluating the eventual acceptance price correctly. Nonetheless, there were several arguments in favor of the upper limit pricing (i.e. abstaining insiders and very bullish CEO) and they’ve proved to be correct. The offer ended up undersubscribed and priced at the upper limit.

LF Capital Acquisition (LFACW) +13% In 4 Months
SPAC LF Acquisition was merging with the privately-owned green technologies homebuilder Landsea Homes. In connection with the merger, the company intended to buy back all public warrants at $1.85 per warrant, plus a new warrant equivalent to 0.1 of the current one (to limit future dilution). Shareholder approval seemed likely as those who didn’t like the deal had already two redemption opportunities, while the $35m backstop agreement added additional safety. The additional condition was for LFAC to have at least $90m cash on the balance sheet, which was very reachable given $129m left on the balance sheet after the recent redemptions. Despite a few meeting date extensions, shareholders eventually approved the offer and it is now set to close in the first half of Jan’21. The idea was closed with 13% profit in 4 months.

Sirius International Insurance Group (SG) +13 in 4 Months
Reinsurance provider Sirius International Insurance Group was subject to acquisition by its peer Third Point Reinsurance (TRPE). One of the merger consideration options offered 0.743 of TPRE + two-year contingent value right (CVR), which guaranteed that in two years after closing, shareholders will have received a total sum of equity and cash of $13.73/share for each share of SG. SG shareholder approval was guaranteed, while 18% of TPRE votes were already secured. There were several strong strategic reasons for the merger and the price seemed favorable for the buyer. Involvement and equity commitment from Dan Loeb added additional safety as well. Eventually, shareholder approval was received and closing of the merger is now expected in Q1’21. The main reason for the remaining spread is the opportunity cost of locking-in capital for 2 years. So far the idea has generated a 13% return, while an additional 10% is expected to be generated in the upcoming 2 years.

MVB Financial (MVBF) 8% In 2 Months
MVB Financial announced a tender offer with an odd-lot provision for 20% of outstanding shares. Consideration stood at $18.00-$20.25/share ($45m in total). In anticipation of an improved offer, shares were already trading above the upper limit, so this was a bit different dutch tender offer play – a bet either on the eventual price increase or substantial under-subscription of the offer which was expected to push MVBF price upwards after expiration. Directors owned 14% of MVBF and were not intending to participate. The offer seemed to be priced very cheaply and the value proposition of the bank was sound. Eventually, the tender was priced at the upper limit and significantly undersubscribed (22% participation). This drove MVBF share upwards generating 8% return in 2 months.

Consol Coal Resources (CCR) +4% In 1.5 Months
Consol Coal Resources (coal MLP) received an offer from its general partner Consol Energy, which owned 62% of the target company. Consideration was 0.73 CEIX for each CCR, while plenty of cheap borrow was available on IB. The target company’s shareholder approval was guaranteed, while the buyer’s shareholders seemed likely to give their consent as well. Shareholder approval was granted and this arbitrage generated 4% gain in 1.5 months.

Aimia (AIM.TO) +21% In 2.5 Years
Loyalty program operator/owner Aimia traded at a large (65%) discount to its SOTP valuation. Announcement of the new turnaround strategy, potential major asset sales, and activist investor involvement seemed likely to catalyze the discount narrowing. After a number of back and forth exchanges, the company has sold its largest asset, however, the discount to updated SOTP remained significant. Eventually, the activist, Mittleman Brothers (owned 18%) followed by a few other minor holders intensified their campaign pushing for governance changes and agitating to replace the legacy directors. The campaign succeeded and the board was reconstituted with activist investors taking over. Aimia saw some large structural and strategic changes turning it into an investment holding firm. At this point, the discount to a new SOTP fluctuated around 50% and it seemed that activist control and new initiatives should finally have a positive impact. However, the pandemic hit the airline industry and Aimia’s largest remaining asset – 50% stake Aeromexico loyalty program (PLM). Aeromexico was sent into bankruptcy putting the future of PLM under the question mark. Therefore, despite a few successful short terms investments/initiatives from the new management, the discount has only narrowed slightly (now remains at around 35%). Given the risk of the airline loyalty business, some of this discount is now definitely warranted. Taking into account the remaining uncertainty the idea was closed with 21% return in 2.5 years.

Fuchs Petrolub (FPE.DE) +2% In 5 Months
German manufacturer of automotive lubricants Fuchs Petrolub had two classes of shares with pretty much identical economic value and dividends. Despite that, FPE common shares (with voting power) were trading at a large discount to FPE3 (the preferreds). This was partially explained by preferred shares being included in indices and common ones not. This discount used to fluctuate around 9% on average, however, the discount increased to 20% after the market turbulence in March’20. There’s seemed to be a play on swift discount mean reversion. However, in half a year the discount narrowed only slightly. With no apparent catalysts ahead, the idea was closed.

Riviera Resources (RVRA) – Upside TBD
Riviera Resources has been in a slow liquidation mode for the last 2 years. The company has recently sold all of its upstream assets and issued a $1.35/share distribution. The remaining distribution size is estimated to be up to $0.52/share (more than 100% upside from the last trading price), however, the exact timing was not provided. Moreover, certain minor assets (valuation unknown) are expected to be sold shortly. The company delisted on the 18th of December, so we are removing this idea from the active ones. The eventual return will depend on the size of the final liquidating distributions.

BMW Group (BMW.DE) -1% In 5 Months
BMW Group has two classes of shares – ordinary voting (BMW) and non-voting (BMW3) preference shares. Both classes are almost identical from an economic perspective, however, due to significantly smaller free-float and no voting power, preferred BMW3 shares were trading at a discount to ordinary BMW shares. With the market turbulence caused by COVID, the discount has widened from the average 16% to 24%, which seemed like an opportunity to play on the expected discount mean reversion. Despite that, in 5 months the discount did not converge, and with no apparent catalyst ahead to induce the reversion, the idea is closed now with -1% in 5 months.

Grifols (GRFS) -1% In 5 Months
Spanish pharmaceutical and chemical manufacturer Grifols has two classes of shares – voting class A (GRF) and non-voting class B (GRF-P) preference shares. Both classes are almost identical from an economic perspective, however, for certain reasons Class B shares were trading at a discount to class A shares. Due to the market turbulence caused by the pandemic, the discount has widened from the average 28% to 36%, which seemed like an opportunity to play on the expected discount mean reversion. Despite that, in 5 months the discount did not converge, and with no apparent catalyst ahead to induce the reversion, the idea is closed now with -1% in 5 months.

TMAC Resources (TMR.TO) -26% In 6 Months
Canadian gold miner TMAC Resources was getting acquired by Chinese mining giant Shandong Gold for C$1.75/share in cash. Shareholder approval was guaranteed due to the support from the largest shareholders, while the buyer seemed credible as well. The main risk was regulatory approvals as due to the pandemic Canada has increased the scrutiny of takeover reviews The fact that Shangdong is a Chinese state-owned enterprise, while certain TMAC properties are located in the Arctic (increasingly considered a strategic location) did not help the situation either. Nonetheless, there was some chance that the national security review would not be launched and the existing spread/downside seemed to be worth the risk. However, after all, national security was launched and eventually, the merger got blocked by the regulators. This resulted in a 26% loss in 6 months.


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