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 Pitches: SAGE, NKTR
- Idea Updates: BOOM, EPIX, DXLG, ACC:OL, FNCH, PAC:AX, RWI: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 PITCHES
In case you missed it, a new portfolio idea was added to SSI this week:
SAGE Therapeutics (SAGE) — Expected higher offer
SAGE Therapeutic has recently received a $7.22/share bid from its major shareholder and main drug partner, Biogen. SAGE’s management rejected the bid as too low but has launched a strategic review. After multiple drug development setbacks and with a bid now on the table, continuing as a standalone company seems unlikely – making a sale to Biogen the most probable outcome. With SAGE’s large net cash position and the strategic importance of its key drug to Biogen, there’s ample room for the suitor to raise its offer. Full SAGE write-up.
Also, a new Guest Pitch was posted:
Nektar Therapeutics (NKTR) — Cheap shot at a blockbuster drug
NKTR is developing a promising treatment for atopic dermatitis. The company has been left for dead after a string of bad luck (including a faulty data analysis by its former partner, Eli Lilly), despite having a shot at a blockbuster drug. The risk/reward skew seems substantial. The stock could be a multibagger if NKTR’s trial data (expected in Q2 2025) doesn’t disappoint. Meanwhile, the potential downside is somewhat limited – NKTR already trades at a wide discount to cash and has a hidden asset: rights to milestone payments and royalties for another drug. These rights alone could be worth close to NKTR’s market cap. NKTR guest pitch.
IDEA UPDATES
DMC Global (BOOM) — reduced takeover bid from Steel Connect, rejected by management
Steel Connect has lowered its takeover bid for DMC Global to $10.18/share (down from the previous $16.5/share). The suitor highlighted that it had already conducted significant due diligence and based the new offer on BOOM’s management projections for 2025-2027.
BOOM wasted no time rejecting the bid, saying it was made at cyclical lows for DynaEnergetics (one of BOOM’s businesses) and ignored the ongoing turnaround at Arcadia (another segment). Management emphasized that Arcadia is well-positioned to benefit from rebuilding neighborhoods devastated by recent California wildfires. It was also noted that BOOM’s business is stabilizing and that Q4 adj. EBITDA is expected to beat the high end of the previous guidance. That’s nice to see, even if the market doesn’t seem to give much credibility to management.
Management also rejected STCN’s proposal to fund the buyout of the remaining Arcadia stake, and claimed that STCN is not being serious or willing to engage in good faith.
BOOM’s share price went up by 9% over the week and is now trading with 18% spread to the revised offer. The company remains cheap, trading at 4.8x 2024E EBITDA.
What is unclear to me is what exactly Lichtenstein (STCN’s founder) is trying to achieve here. BOOM’s management signaled a while ago that it’s not selling at lowball prices. I’m curious to see what’s the endgame with all this recent effort and escalation. Full BOOM write-up.
Finch Therapeutics Group (FNCH) — stock price took off
FNCH’s share price jumped by 25% this week, despite no news on the pending litigation. Trading volume on Monday spiked 10-20x above the normal levels. The company now trades at a $24m market cap, compared to its recent $30m award. There’s still plenty of potential upside left on the table – depending on the judge’s post-trial decision (expected by the end of this quarter), FNCH could win additional in $10m-$20m in future royalties, $30m-$60m in enhanced damages, and $20m+ in attorney fees. FNCH guest pitch.
Destination XL Group (DXLG) — spread widened to 20%
DXLG’s share price has kept drifting lower over the last couple of weeks, with no news or updates from the company. The spread to the $3/share non-binding takeover bid from its largest shareholder, Fund 1 (owns 21%), has now widened to 21%. The stock price has basically returned to pre-announcement levels. It remains to be seen how this setup will unfold. Management is still reviewing the offer, but it’s unlikely they’ll sell without a significant increase in price. DXLG quick pitch.
ESSA Pharma (EPIX) — Q4 update
EPIX released its Q4 update. Strategic review is still ongoing, and cash burn was in line with expectations. The stock is trading at $1.73/share compared to an estimated $2.18/share NAV as of mid-2025. The situation still looks interesting, given management’s background and seemingly aligned incentives, plus the presence of activists Tang Capital and BML, which hold 19% combined. However, it’s concerning that EPIX still hasn’t announced any layoffs or restructuring yet. EPIX quick pitch.
Pacific Current Group (PAC:AX) — buyback booklet released
PAC has released its buyback booklet and the tender launched on February 10. Expiration date is March 7, with payment is expected by March 18. The company is buying back $300m worth of shares (half of its market cap) at A$12/share. The stock price is holding steady at A$11.80/share, implying that a sizable portion of shareholders is expected to tender. The buyback is NAV accretive, and if fully subscribed, pro-forma NAV could rise from the latest reported A$13.47/share to A$16+.
The wildcard here is the top three shareholders – River Capital (22.4%), Perpetual (15.8%), and Regal (10.7%) – who still haven’t disclosed whether they’ll tender or not. If they don’t, and the buyback is fully subscribed, their stakes would surge to 43%, 30%, and 21% respectively. Their decision will serve as a major signal of how they perceive PAC’s value and whether any significant near-term catalysts, such as another buyout attempt, might be in play.
I still like the setup – the stock trades below the tender price and well below pro-forma NAV. The company is gradually selling assets, returning cash, and seems to be heading toward liquidation. PAC quick pitch.
PLAYED OUT: Aker Carbon Capture (ACC:OL) +23% in 2 months
A quick recap: Aker Carbon Capture sold its operating business for cash and a 20% stake in a newly formed JV. Post-transaction, the company was trading at 20% discount to net cash (7.5 NOK/share), with the JV stake being completely ignored by the market. A catalyst in a form of large capital return seemed likely.
As expected, this week ACC announced an extraordinary special dividend of 5.8 NOK/share, payable in two installments: 4.82 NOK/share on March 7 and 0.98 NOK/share on April 29.
ACC’s share price jumped by 14% after the announcement and is now up 23% from write-up levels. The company is now trading at only a very slight 3% discount to net cash, however, the JV value is still priced at zero. My previous low-end target for ACC was 8.78 NOK/share, suggesting another 20% upside from here. But with uncertainty around withholding taxes on the upcoming distribution and no clear timeline for the market to acknowledge the JV’s value, I’m calling this one played out. ACC:OL quick pitch.
PLAYED OUT: Renewi (RWI:L) +7% in 2 months
Another non-binding UK arb wrapped up. Renewi has signed a binding agreement with Macquarie at the original 870p offer price. The spread has narrowed to 2%. Closing is expected in Q2 2025. RWI quick pitch.