SSI WEEKLY NEWSLETTER
This weekly newsletter intends to share the most interesting event-driven situations I’ve looked at over the week as well as other updates and highlights from SSI.
Here is what you will find in this week’s newsletter.
- Portfolio Idea Updates: BHIL, MSTR
- Quick Pitch Updates: MON:V, EQLS:L, LFCR, GRFS, IDA:AX, PGH:AX
Disclaimer: All content on Special Situation Investments site and in the newsletter is not and should not in any circumstances be considered as investment advice or trading recommendation. All information presented is strictly for illustrative and educational purposes only. Please carry out your own research and due diligence.
PORTFOLIO IDEA UPDATES
Benson Hill (BHIL) — spread keeps widening without news
BHIL’s shares sold of sharply during the week and currently sit at $3.9/share vs $8.60/share non-binding offer. There have been no updates from management (see also response received by SSI member TheRick), so it is hard to guess what is actually happening behind the scenes. This situation is concerning, and suggests that somebody knows more than is being revealed to the public. At the same time, given thin trading liquidity, it’s also possible that some larger position exits are simply overwhelming limited buyers amidst the information vacuum. We should hear an update soon, likely this or next week. This is a very high-risk/high-reward play at this point. If the buyout falls apart, BHIL will run out of cash and will need to raise fresh funding urgently. Full BHIL write-up.
Microstrategy (MSTR) — new short-seller
It was a very volatile week for MSTR, with NAV premium still hovering at ‘stratospheric’ levels and company continuing to use this to play the arbitrage that I intended to profit from myself – i.e. sell MSTR shares (short) and buy Bitcoin (long). Andrew Left is also shorting MSTR. He disclosed the position (long BTC, short MSTR) on X, calling MSTR “completely detached from BTC fundamentals” and “overheated”. MSTR plunged over 20% on the day, but then recovered partially the next day (Friday). Saylor’s response was basically, “a lot of people don’t understand our core business.”
The premium to NAV currently sits at around 225%. Although the arb has been working in the opposite direction thus far, I continue to believe that MSTR’s bubble is unsustainable, and the premium should eventually normalize closer to historical levels (30-50%). Full MSTR write-up.
QUICK PITCH UPDATES
Indiana Resources (IDA:AX) — dividends announced, significant upside remains
Quick recap: Indiana Resources is one of three junior miners that have been litigating against Tanzania (besides MON and WINS). Back in August, IDA reached a settlement with Tanzania for US$90m, payable in three installments: $35m, $25m and $30m. The first two have already been received, while the last payment is expected by March 2025.
IDA announced a special dividend of A$0.05/share, nearly 50% of the current share price. The record date is December 9, with distribution expected on December 20. This payment will total A$32.6m, leaving IDA with A$15.4m in cash, which management plans to use for further exploration. The company will issue a second dividend in May 2025, after receiving the final US$30m payment from Tanzania. With expenses covered and exploration funds already allocated from the first two settlement installments, it’s likely that most of this final payment will be returned to shareholders. The second dividend could amount to A$0.06–A$0.07 per share.
Summing it all together: the announced dividend (A$0.05) + expected dividend (A$0.06-$0.07) + retained cash at 50% (A$0.01-A$0.02), we get total value of A$0.12–A$0.13 per share. That’s 15%-25% potential upside in 6 months. IDA guest pitch.
Montero Mining and Exploration (MON:V) — settlement with Tanzania announced, further upside remains
MON has also announced a settlement with Tanzania just ahead of the arbitration hearing that was scheduled for late November. The settlement totals US$27m (C$38m) and will be paid in three installments: US$12m (already received), US$8m (due by January 31), and US$7m (February 28). This is a decent outcome overall. Jeremy Raper (who is also a major shareholder of MON) and Idea Hive have both shared their thoughts on the situation in the comment section.
Management has yet to disclose its capital allocation plan, as well as details on the litigation/admin costs that will cut into the settlement proceeds. With reasonable assumptions, the company should have C$20-C$23m (C$0.38-C$0.42/share) of net cash available for distribution compared to C$0.32/share current price. The key question is how exactly the settlement receipts will be split between the parties and what part of MON’s entitlement will be distributed to shareholders. We’ll hear from management soon, but I believe that most of the cash will be paid out. Even if the company proceeds with developing its projects, it will most likely seek a partner to handle the exploration. Presence of the activists also increases the odds that management will be kept in check. MON quick pitch.
Equals Group (EQLS:L) — PUSU extension, spread widened
PUSU date for the pending 137p (including a 2p dividend) takeover offer has been pushed back yet again, now to December 11. While due diligence is complete and the necessary documentation is progressing, the delay stems from the buyer group’s internal negotiations regarding one of the consortium members Railsr (a fintech firm). The note on this was rather cryptic, stating that the group is weighting “the basis on which Railsr will be contributed in parallel with the Possible Offer”. I’m not exactly sure what that means, but it kind of seems that buyers are discussing Railsr’s valuation within the context of the buyout. Why that is being done now, instead of ages ago, is beyond me. While this does not seem to directly effect the buyout itself, any further delay in signing of definitive agreement is concerning. The spread has widened from 10% to 16%. EQLS quick pitch.
Pact Group (PGH:AX) — pressure from minority equity holders
Quick recap – Pact Group’s chairman Raphael Geminder (owns 88% of PGH) launched a bid to take the company private by squeezing out minority shareholders. Despite the significant increase in the tender price from A$0.64/share to A$0.84/share, his offer fell short of satisfying two required conditions – securing 90% ownership threshold and approval from 75% of minority shareholders. A group of minority shareholders, including two investors with a blocking stake, have vocally opposed the offer as too low. It is anticipated that Geminder will return in mid-2025 with an improved bid.
Dan, the author of the guest pitch, has shared an update following the recent weakness in PGH’s price. Check it out in this comment. During the latest conference call activist minority investors took an aggressive stance, grilling Geminder on his compensation, track record, and previous threats of delisting (a key risk, though likely with low odds). Geminder’s responses were notably less confident compared to his tone during the takeover process, suggesting a potential shift in his view of delisting as a feasible option. The improved bid is expected to come at A$1+/share, offering a potential 25%+ upside above current levels. PGH guest pitch.
Lifecore Biomedical (LFCR) — no further clarity after investor day
LFCR’s long-awaited investor day proved to be a bit of a dud. No new material information or updates on business prospects were revealed. Management reiterated its projection of c. 12% annual revenue growth from FY25 through FY28 and maintained its 25% medium-term EBITDA margin guidance (compared to 15% margin expected in FY2025). Disappointingly, management expressed little optimism about capacity uptake from GLP-1 drugs. Any meaningful effects, if any, would be mostly indirect – with GLP-1s expected to consume a large portion of CDMO industry capacity, limiting availability for other treatments and indirectly increasing demand for LFCR services. Although the stock price reacted positively (+14% during the week), there’s still no clear path to increased utilization of LFCR’s capacity. The company currently trades at 21x FY2025E adjusted EBITDA, which is certainly not that cheap considering the leverage and the execution risk surrounding capacity utilization. LFCR quick pitch.
FAILED: Grifols (GRFS) — dissappointing offer from BAM was swiftly rejected
The arbitrage between two Grifols share classes and the expected price convergence upon rumored buyout to Brookfield Asset Management (BAM) has failed. BAM revealed its buyout offer of €10.5 per Class A share and €7.62 per Class B share, which the Grifols’ board rejected as significantly undervaluing the company. A renewed bid from Brookfield seems unlikely. With discussions ongoing since July, this was probably their best and final offer. Rumors of BAM seeking to substantially undercut Class B holders proved accurate as well. Even if the bidder returns, any new offer will likely maintain a similar price gap between Class A and Class B shares. While the class share arbitrage thesis has failed, the discount between share classes has barely moved (now at 22%), allowing the arbs to exit at breakeven levels.
SSI member snowball remains optimistic that BAM may return with a better offer for Class B shares and has shared some interesting thoughts, including background info on the buyer, in this discussion.