CCUR Holdings (CCUR) – Reverse Stock Split – $270 Upside

Current Price: $2.77

Offer Price: $2.86

Upside: $270 (for 2999 shares)

Expiration Date: TBD

Proxy

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.

 

CCUR

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).

Shareholders:

JDS1, Dimensional Fund Advisors, and a few other shareholders have agreed to support this transaction. JDS1 owns an asset manager of CCUR.

22 COMMENTS

  1. Zulu Investor

    Does anyone know why this dropped 7% today? I am assuming its more due to the volatility in the overall markets. I didn’t see anything company specific for CCUR.

    1. nostradamus

      Not quite. Read today’s filing: they have been ripped off it seems. Difficult to say what does means for this transaction though.

  2. Writser

    Check their filings again.

    “On January 12, 2021, the Company was due the return of $8.5mm in deposits. Upon inquiry to Wright Brothers and following repeated unsuccessful attempts to contact it or its principal, Debbie Mercer-Erwin, CCUR learned that on or around December 17, 2020, Ms. Mercer-Erwin had been arrested by law enforcement and that all assets of Wright Brothers had been frozen.

    In addition to the deposit funds mentioned above, the Company was also due the return of a further $5.5mm in deposits on January 25, 2021.

    CCUR is currently fully cooperating with authorities to expedite the receipt of all deposit amounts that are due. CCUR has been told by authorities that it is not the subject of any investigations related to Ms. Mercer-Erwin or Wright Brothers. At present, the Company has only received a limited amount of information and is unable to say conclusively whether or not all of the funds are accounted for. The Company is therefore unable to make any definitive conclusion as to the recoverability of its deposits and the specific timing for their return remains uncertain. “

  3. Michael Lax

    This is from the SEC filing,” In the event that any funds held at Wright Brothers are discovered to be missing, CCUR is an Additional Insured under certain insurance policies maintained by Wright Brothers and that the Company has confirmed to be in force. These insurance policies have been issued by Sentinel Insurance Company, Ltd and Underwriters at Lloyd’s, London (Illinois) and carry a Primary Crime Policy Limit of $5mm and Excess Crime Policy Limit of $15mm.”

  4. Terence

    Potential loss is half of market cap? Market cap before the news: 8.9m shares x $3/sh = $27m. Receivable from Wright without insurance is $14m. Correct? If so, going private arb is risky.

    1. Ilja

      Agreed. Even before this announcement, this situation was on the riskier side. But now, it’s very likely that the transaction will be canceled. Might be a good time to jump out now given that the loss now is still minor.

  5. Ilja

    We’re bringing this one back among the active ideas – potential upside stands at $270 or 3%. CCUR intends to conduct a reverse stock split and delist afterward. Initially, the company aimed to cash-out odd lot holders (less than 3000) at $3.06/share. However, after getting defrauded by one of its clients and writing down $13.8m of deposits, the price was adjusted to $2.86/share. At the current $2.77/share price, this still represents upside of $270 or 3%. Effective date has not been set yet.

    CCUR estimates to cash out 3496 shareholders. Total cost of the reverse split is calculated at $3.3m. The risk of termination still exists, however, due to relatively limited upside and low visibility in the media/forums, it seems quite unlikely that it will get canceled because of too many arbitrageurs.

    Management seems to be getting a good deal – the transaction is carried out at a discount to net cash, so they are likely highly incentivized to take CCUR private, especially if they expect to eventually receive anything from the $13.8m that has been written down.

  6. g4734g

    Were they not insured on some or all of that 13 million? Curious how shareholders with more than 3000 would ultimately monetize if the shares are private and no longer trade?

    1. sminte

      The shares will still be traded on OTC, though they may be restricted depending on your broker.

      This situation has a lot of hair on it, and you will be getting into bed with some historically shady actors.

      Note also: They recently sold off their merchant advance business.

  7. Chris

    Fool me once shame on you, fool me twice shame on me.
    I think their credibility is pretty low.

  8. Brian

    Reverse split to be effective at midnight

    Date/Time Event Type Eff/Ex Date/Time Symbol Issue Name Market
    04/21/2021 00:00:00 Reverse Split/CUSIP Change 04/22/2021 00:00:00 CCUR CCUR Holdings, Inc. Common Stock Other OTC
    Comments
    Shareholders owning fewer than 3,000 shares pre-split, such shares will receive $2.86 per share on a pre-split basis.
    Details
    Previous Value Current Value
    Symbol CCUR CCURD
    Issue Name CCUR Holdings, Inc. Common Stock CCUR Holdings, Inc. Common Stock Common Stock
    Class

  9. Jim Rivest

    Levine from Bloomberg wrote the following:

    I have nothing really to say about this [lawsuit] and don’t even entirely understand what is going on, but I do feel like I’m obligated to quote it here:

    A former CCUR Holdings Inc. shareholder filed suit in Delaware against its board—including a brother of convicted junk bond scammer Gary Singer—claiming it wrongly wrote off insured funds seized in a drug bust when cashing out investors.

    The lawsuit, docketed Tuesday in Delaware Chancery Court, targets a 3,000-to-1 “reverse stock split” being undertaken by CCUR, a holding company that owns real estate and merchant cash advance operations, which holds warrants to buy 8 million shares of Spartacus Acquisition Corp., a SPAC with $200 million behind it. … Anyone with fewer than 3,000 shares got cashed out, the suit says. …

    CCUR’s board allegedly dropped the cash-out price even further, to $2.86 a share, following the arrest on federal cocaine trafficking charges of Debra Lynn Mercer-Erwin, owner of Wright Brothers Aircraft Title Inc., which was due to return $14 million in deposits to CCUR.

    But the seized funds were insured, and the board adjusted the price based on the unjustified assumption that the company won’t see its money again, according to the complaint.

    Setting aside the mechanics, and the question of insurance, it is not great when you have to lower your merger price because your assets were seized in a drug bust (of someone else’s drug business, but still). You never really see that in big-time public-company M&A, though I suppose it would violate the “compliance with law” (and “no material adverse effect”?) representations and possibly lead to a renegotiation of the price there too.

  10. crandyhill

    So does this mean we have more money coming? LOL.

    BTW; The weird part is I’m pretty sure I got paid but IB still lists a position in my accounts called “CCUR Holdings Inc – Cash Out”, with symbol “CCUR.CSH”

    1. nostradamus

      You got paid only yesterday. Position should be removed now.

  11. GraemeA

    Same here. The imposition of a price much below liquidation value by controlling shareholders (which I assume are management) is highly anti-shareholder and anti-capitalist. I did not see any fairness opinion on the US$ 2.86 price or any verification that it is indeed fair. Controlling shareholders should give the non controlling shareholders a fairer price or at least a choice to reject this US$ 2.86 offer, which was unilaterally chosen by controlling shareholders and is clearly below liquidation / fair / intrinsic value.

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