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.
- New Ideas: SGRP, DGL:L, NWOR:L, RWI:L
- Portfolio Idea Update: MRL:L
- Quick Pitch Updates: EQC, EQLS, PAC, FETM, RNEW:L
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.
NEW IDEAS
In case you’ve missed it, a new portfolio idea has been posted on SSI this week.
SPAR Group (SGRP)
A high number of red flags suggest that Highwire Capital’s acquisition of SPAR Group at $2.50/share is likely to fail. These include buyer’s lack of credibility, incomplete financing arrangements, and stock sales by SGRP’s founders. Shareholders approved the transaction 1.5 months ago. However, the process has been dragging on with minimal updates from the company. It is likely that Highwire is struggling to secure funds for the acquisition, despite willingly offering to pay 60% more for SGRP than any other bidder in the process. If the deal breaks, SGRP could nosedive by 30%+. Full SGRP write-up.
Yesterday, I’ve also shared 3 new Quick Pitches focused on interesting merger arbs in UK at a non-binding stage.
National World (NWOR:L)
The play revolves around a consolidation in the UK-Irish regional newspaper sector. Media Concierge is targeting National World. The £0.23/share (9.5% upside). The buyer is NWOR’s largest shareholder (28% stake) and former business partner. Confirmatory due diligence has already been completed. With negotiations already in advanced stages, definitive agreement will likely be signed before Christmas. NWOR:L quick pitch.
Direct Line (DLG:L)
UK insurer Direct Line is being acquired by the industry giant Aviva. The offer includes £1.297 in cash + 0.2867 AV shares + £0.05 dividend, currently worth £2.71/share. The spread stands at around 10%. Dividends on the hedged AV shares would reduce it by 2%, however, the dividend is due on April and I expect the definitive agreement to be signed sooner. DLG:L quick pitch.
Renewi (RWI:L)
Waste management company Renewi has been approached by Macquarie Asset Management, with the final bid at £8.7/share. The remaining spread is 7.5%. Management has indicated they will support the offer if it becomes binding. The only remaining hurdle is the completion of confirmatory due diligence, which Macquarie is currently conducting. Macquarie is a top-tier buyer and it seems to be very interested in RWI, having already approached the company 3 times over the last 14 months. RWI:L quick pitch.
PORTFOLIO IDEA UPDATE
Marlowe (MRL:L) — stock buybacks have been restarted
As expected, Marlowe has resumed stock buybacks after pausing them since mid-November, ahead of the half-year results. The company has wasted no time, repurchasing £1.9m worth of shares this week – around 0.7% of the current market cap. Despite the agressive pace, the share price hasn’t budged. MRL remains cheap, trading at 7.4x 2025E EBITDA. Over £22m remains in the current buyback authorization. Full MRL:L write-up.
QUICK PITCH UPDATES
PLAYED OUT: Equity Commonwealth (EQC) +25% in a Week
EQC’s stub has re-rated to the $1.50–$1.70/share range – close to the higher end of management’s $1–$2/share liquidation guidance. The easy money has been made, and any remaining upside now carries considerable risk. The return can be viewed as either +1.5% in a week or +25% in a week on the stub price, given that the $19/share dividend paid out last Friday was essentially risk-free. I prefer the latter ;). EQC quick pitch.
PLAYED OUT: Equals Group (EQLS:L) +15% in 3 Months
EQLS and the buyer consortium have finalized the binding agreement. The buyout price was slightly improved – the dividend portion was raised from 2p to 5p, bringing the total offer to 140p. That’s a solid outcome overall. As anticipated, the spread narrowed after the announcement and now stands at 4%. With the transaction expected to close in Q2 2025, the remaining upside is not worth the wait. The idea has delivered a 15% return in under three months. EQLS:L quick pitch.
Pacific Current Group (PAC:AX) — buyback price announced
The company has finally provided an update on its planned tender offer of up to A$300m (50% of the market cap). The board intends to execute the buyback at A$12/share, though the wording suggests that the price could still change. The stock price has went up by 5% in recent days and is now trading at A$11.60/share. Shareholder meeting is expected in late January or early February. If approved, the offer would close around March 2025.
I was expecting a slightly higher price, but the buyback at A$12/share should still be highly accretive to NAV. If PAC goes through with the full A$300m tender, the current price still implies around 30% discount to pro-forma NAV (A$16-A$17/share). So I think the setup remains attractive, and I wouldn’t be surprised if the stock gradually moves up as the tender gets closer. PAC:AX quick pitch.
Ecofin U.S. Renewables Infrastructure Trust (RNEW:L) – assets sale, NAV drop
RNEW announced a sale of most of its solar assets for net proceeds of US$34.5m. The price is below the book value of the assets, so, as a result, RNEW’s NAV will drop from US$0.65/share to US$0.53/share. Daniel, author of the guest pitch, has shared his thoughts on the development in this comment:
Good news that the worst quality assets are out of the window. Net cash is around 10¢ per share. So a fifth of NAV is cash, and the discount to NAV is now 32%. The market is implying ~25¢ realisation from assets booked at 40¢. Utility scale solar is more liquid, and with Whirlwind priced at almost a complete write-off I think there’s still attractive 25-40% upside, with the possibility of a nearer term capital return.
Fentura Financial (FETM) — shareholder approvals received
This standard community bank merger between FETM and COFS is steadily moving toward completion. This week, shareholders on both sides approved the deal. The spread has narrowed slightly and now sits at 7%. The remaining upside likely reflects lingering uncertainty around regulatory approvals, but as I’ve mentioned before, significant pushback from regulators seems unlikely. FETM’s illiquidity may also be contributing to the spread. The transaction is on track to close in Q1 2025. FETM quick pitch.