Current Price: $2.77
Offer Price: $2.86
Upside: $270 (for 2999 shares)
Expiration Date: TBD
This idea was shared by Enoch.
Important: The situation has developed and the offer price has been changed. For an overview of the current situation please refer to this comment. The write-up below acts only as a background of the situation.
This is a relatively risky opportunity to arbitrage reverse stock split.
CCUR Holdings intends to go private via a 1 for 3000 reverse stock split transaction. Shareholders holding less than 3000 shares will get cashed out at $3.06/share, so buying 2999 shares could result in a total profit of $300. Shareholder approval has already been received. The expected effective date has not been announced yet.
There are a few positive angles here:
- Odd-lot shareholders are being cashed out at 55% discount to BV vs 25% discount pre-COVID, 41% on March'20 and 52% on Sept'20. The main business segment, merchant cash advance business, of the company has been strongly impacted by the COVID with 50% drop in revenues in Q3 CY'20. The company expects this negative trend to continue until the pandemic is over, however, assuming an eventual recovery in 2021/2022, the transaction seems quite opportunistic.
- Cash is not an issue. As of Q3 CCUR had $18m cash (no cash burn).
- The transaction did not get traction in the media/retail investor forums yet, however, this is likely due to a rather limited upside and the announcement being released just before the holidays.
However, this situation is not 'risk-free':
- The company has reserved the right to cancel the transaction or amend its terms if the offer becomes too expensive or will not reduce the amount of holders below 300 (to deregister from SEC). As of the date of the announcement the company had 3731 shareholders, while only 235 of them owned more than 3k shares. The total cost of the transaction was estimated to be $3.6m, or 3.6x the annual cost of being public (around $1m/year). Thus, there's a risk that increased participation of odd-lot arbitrageurs could significantly raise the transaction costs, which may result in cancellation or amendment of the reverse split.
- In the last days 5 trading days after the announcement, the volume has spiked up significantly - the average daily volume was 76k shares vs over 9k in November.
- Three weeks before the announcement, CCUR CEO has resigned, which adds a bit of uncertainty as well.
The company has two operating segments:
- MCA - merchant cash advance business. This is essentially a certain type of lending to SME's, which have a large number of customer card transactions (usually retail, travel industry, etc.).
- Real estate operations - commercial loans to builders, developers, and commercial landowners. This segment was not impacted by the COVID (although it generates only a fraction of total revenues).
JDS1, Dimensional Fund Advisors, and a few other shareholders have agreed to support this transaction. JDS1 owns an asset manager of CCUR.