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 Quick Pitches: EM, RVNC
- Portfolio Idea Updates: SGRP, CURN
- Quick Pitch Updates: DK, WOW, HEPS, RNEW:L, MTTR, BELFB
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 QUICK PITCHES
The start of the year has been very productive so far, with 4 new Quick Pitches posted already on SSI.
Revance Therapeutics (RVNC)
Revance Therapeutics, maker of the Botox competitor Daxxify and distributor of RHA fillers in the US, is facing two acquisition bids. Crown Labs, an aesthetics and skincare company pursuing Revance since January 2024, revised its offer to $3.10/share from $6.66. Teoxane, the manufacturer of RHA fillers and a 6.2% stakeholder in Revance, made a surprise bid of $3.60/share last week. The stock was trading in the middle of the two bids and it seemed there was a decent chance of a bidding war.
That didn’t take long – on Friday (January 17) Crown raised its offer to $3.65/share but demanded that the board responds (accept or reject) on the same day. The stock is now trading slightly above this increased offer price. Management has yet to reply but is likely to accept the offer unless Teoxane quickly counters with a better one. As noted by SSI member MT21, another potential way to play this is to buy common shares and sell $4 calls (though they are fairly illiquid), which would protect the downside but limit the remaining upside to 12%. RVNC quick pitch.
Smart Share Global (EM)
Smart Share Global received non-binding privatization proposal at $1.25/ADS from a consortium of founders/senior management and Trustar Capital. Spread is currently 12% (versus 20% at the time of the write-up) after deducting ADS cancellation fees. The offer comes at a wide 25% discount to net cash ($1.68/ADS), so it is not hard to see why management might be interested in taking EM private at this lowball price, especially when the operating business is not burning any cash and likely has some value as well. EM sports a list of prominent shareholders, so this is not your usual US-listed Chinese microcap. This deal checks all the boxes for a successful close. EM quick pitch.
Destination XL Group (DXLG)
Destination XL Group received a non-binding proposal at $3/share from its largest shareholder, Fund 1 Investments, which holds a 21% stake. Management has acknowledged the offer and is in the process of reviewing it. Spread is at 9% and the bidder noted: “we are prepared to increase our proposed price”. The downside to pre-announcement trading prices seems to be quite limited. DXLG quick pitch.
Luna Innovations (LUNA) – trading has moved to Expert Market
LUNA plunged 57% on 25x average trading volume following a Nasdaq delisting notice and forced selling. While the sell-off was driven by non-economic factors, creating an opportunity on its own, the setup is even more compelling as the stock has dropped over 90% from 2023 levels due to a pending financial restatement and an information vacuum. There are reasons to believe the business is still performing well, and the equity could be worth multiples of the current price. I expect the issues to be resolved soon, with the company either relisting on Nasdaq at much higher levels or being sold. The first catalyst should come out this month with the promised update on the business performance in 2024.
New development – Prescott Group Capital Management has filed a 13G with a 9.4% stake. The 5% threshold was breached on January 6, amid the sell-off. Prescott is a relatively small hedge fund. LUNA quick pitch.
PORTFOLIO IDEA UPDATES
SPAR Group (SGRP) — another delay in securing financing
SGRP announced yet another delay in its pending sale to Highwire Capital at $2.50/share. The financing commitment termination date was pushed to February 15. The press release stated that “all other terms and conditions of the financing commitment remain the same as in the previous agreement,” However, the status of the financing remains unclear. This further strenghtens the likelihood that Highwire is either struggling to secure funding or is losing interest in the deal altogether. SGRP’s stock is already down 15% from the write-up levels, but if the merger falls apart as expected, the price could go down another 25-40%. Full SGRP write-up.
Currency Exchange International (CURN) — strategic review for EBC
It seems CURN has been unable to turn around its struggling Canadian operations. A strategic review has been initiated for its Exchange Bank of Canada (see the quote below). Hopefully, the upcoming annual results, expected by the end of January, will provide more clarity on the situation. Full CURN write-up.
Special Committee of independent directors is actively considering a range of strategic options for its wholly-owned subsidiary, Exchange Bank of Canada (“EBC”), a federally chartered non-deposit-taking Canadian Schedule I bank. The strategic review aims to explore opportunities to maximize long-term value for shareholders and focus the Company’s resources towards its profitable U.S. operations.
QUICK PITCH UPDATES
PLAYED OUT: Matterport (MTTR) +15% in 7.5 months
The spread on MTTR / CoStar merger has narrowed to 6%. Given the remaining regulatory uncertainty and potentially massive downside if the transaction fails, it doesn’t seem to be worth sticking around any longer for this arb. By my count, the idea has delivered c. 15% for unhedged positions and around 20% for hedged positions. The market seems quite certain this deal will close under the new FTC chair. If you think otherwise, this could be an interesting point to short MTTR. MTTR quick pitch.
PLAYED OUT: Bel Fuse (BELFB) +21% in 4 months
BELFA/BELFB spread narrowed 6.5% – so I decided call this share class arbitrage as fully played out. In total, 21% return since posting. I have trimmed this position a bit earlier (mid-December), so my own total return is less generous. BELFB quick pitch.
Delek US (DK) — another acquisition completed by DKL
DKL completed the acquisition of Gravity Water Midstream for $285m. The deal was done at an attractive multiple (<5.5x EBITDA) and was touted as synergistic. The more important aspect is that pro-forma DKL “will be approaching greater than 70% of its EBITDA coming from third-party sources.” Higher independance of DKL is positive for the deconsolidation thesis and SOTP value unlock for DK.
DK now trades at $19.8/share compared to $24.5/share value of its DKL stake. On top of that, management values DK’s standalone operations at $29.8-$36.7/share (most probably overly optimistic), based on mid-cycle earnings. Sum-of-the-parts discount here remains very wide, but that is unlikely to change until management shows a clear path towards the deconsolidation of DKL. There was a bit of insider buying late last year. DK quick pitch.
WideOpenWest (WOW) — share price dropped below the offer
Over the last few months, WOW’s share price has slid from trading at 10%+ premium above the $4.80/share takeover offer to now trading at 7% discount. Idea Hive, the author of the pitch, shared a brief update on the situation this week. The decline in WOW’s stock mirrors the broader cable industry slump, with peers like CHTR, CABO, and CMCSA also seeing similar drops. Another reason might be increasing market concerns about the prolonged timeline – 8 months have passed since the non-binding offer. WOW’s management reiterated in November that the sale process remains active. The buyers have solid reputations. A resolution is likely in the near term.
D-Market Electronic Services & Trading (HEPS) — several regulatory approvals received
The sale of Hepsiburada’s controlling stake to Kaspi has secured four regulatory approvals. However, it still awaits clearance from Turkey’s Capital Markets Board. There is still a chance that the activist could strong-arm Kaspi to also bid for the remaining minority shares. HEPS is trading at around $3/share, significantly below Kaspi’s $4.75/share offer for the controlling stake. HEPS quick pitch.
Ecofin U.S. Renewables Infrastructure Trust (RNEW:L)
Shareholders approved the liquidation proposal. RNEW’s chairman is set to step down from the board this month, with wind-down specialist Brett Miller taking over. RNEW currently trades at $0.30/share – 43% discount to its most recent NAV of $0.53/share.
Daniel, the author of the idea, has also shared a small update referencing recent remarks from one of RNEW’s equity holders:
Asset Value Investors, which is a well-known activist in this space (those who read my Hipgnosis writeup will recognize the name) published their December commentary and, despite being disappointed with the valuation of the first sale, are continuing to hold. AVI have been invested in RNEW since the tornado event in 2023 and, indeed, are overweight in the renewables sector as a whole. One reason they remain confident is that Trump-IRA uncertainty could make existing projects more attractive.