Guest Pitch: SAGA Pure (SAGA:OL)

Mandatory Bid/Privatization (at 1.31 NOK/share)

This idea was shared by Olve.

 

Elevator Pitch

Norwegian billionaire Øystein Spetalen has been tidying up his empire. Recently, he surpassed 50% ownership in SAGA Pure (SAGA), triggering a mandatory bid under Norwegian securities law. With SAGA shares trading at the mandatory bid level, this presents a low-risk opportunity—essentially a free bet—that Spetalen will offer a premium to take the company private. There is a 40% spread to SAGA’s NAV, which consists mostly of cash and marketable securities. In a very similar and ongoing situation with SDSD, Spetalen agreed to push the mandatory bid as high as 90% of NAV.

 

Background

Øystein Stray Spetalen (“ØSS”) is a Norwegian investor (~Top 50 richest Norwegian, worth roughly 5 BNOK). He has made most of his fortune with short term speculation, but in recent history he also has held quite a few large (or controlling) stakes in small companies (<$1B) listed on the Oslo Stock Exchange. Similar to Kjell Inge Røkke (discussed in Aker Carbon Capture, an idea recently featured at SSI), ØSS has a “so-and-so” reputation with regards to treating minority investors fairly. Recent examples include Standard Supply (STSU) delaying capital return to shareholders (despite promising so during its listing), and the topic of this writeup, SAGA Pure, a heavily criticized investment company.

SAGA-critique has been (among others) that the company does way too few investments (i.e. just sitting on cash), and a recent related party transaction to buy ØSS’s stake in “Valhall Arena Group” (a holding company for a sports arena) announced in November of ’24 and closing in Q1 2025. The latter made a bit of a circus in the Norwegian Financial Press, see (here, here and here).

Suffice to say, a long history of abuse has led to the “Spetalen” companies trading at substantial discounts – and for good reason. In the last year or so, ØSS seemingly has started to get fed up with the discounts, and has started liquidating stakes and/or attempting to take his companies private. Examples include:

• Paying out capital in Standard Supply, preparing for liquidation;
• Selling his stake in Dolphin Drilling to Svelland Capital;
• Exceeding the mandatory bid limit for SDSD via subsequent share accumulation and confirming that he will make a bid for the remaining shares of the company.

On March 6th, he also crossed the 50% ownership threshold in SAGA, triggering a mandatory offer for the remaining shares. Norwegian Securities Law requires such a bid to be at the minimum the highest share price paid by bidder in the 6 months leading up to the trade triggering the bid. Further, the bid has to be announced at the latest 4 weeks after trade triggering the bid, it has to have a 4-6 week acceptance period, and the transaction should close within 2 weeks after the end of the acceptance period. In other words, we are likely looking at a bid in early April. Relevant part of Norwegian Securities Law can be found here. It’s in Norwegian. There should be an English version somewhere, however Google Translate does a reasonable job.

On the day the 50% ownership threshold in SAGA was exceeded, the highest price paid by ØSS was 1.28 NOK/sh, implying, but not stating, that this would also the minimum mandatory bid price. However, during the other days ØSS was accumulating SAGA shares (during Nov and Dec) trading prices reached highs of 1.33 NOK/sh. While it is unclear if ØSS himself was making purchases at these daily highs, there is a chance that the mandatory offer price will be above the 1.28 NOK/sh.

 

What is SAGA worth, and what could ØSS be willing to pay?

At year end of 2024, SAGA’s book equity was ~1.79 NOK/sh. As the holdings consist of mostly cash and market securities, we’ll use that as a starting point and make the adjustments for the subsequent events.

SAGA’s acquisition of Valhall’s stake had yet to close at the year end One can consider the transaction value neutral (i.e. value it at book), but to be conservative, I chose to mark it down a bit. SAGA paid 52m NOK for a 60% ownership of a 110m NOK EV. Applying a 7x multiple to Valhall’s ’24 EBITDA leads to a markdown of 3 cents per SAGA share.

This year, SAGA was also buying shares in SDSD below NAV. Similar to SAGA, SDSD in its current form is primarily an investment/holding company. So far, SAGA has acquired 75M shares in SDSD at an average price of 1.83 NOK/sh (compared to SDSD’s 2.03 NOK/sh NAV). NAV change for SAGA due to these purchases amounts to roughly 0.031 NOK per SAGA share. ØSS is also facing a mandatory bid situation for the remaining SDSD shares, at a minimum price of 1.9 NOK/sh. He has confirmed that the bid will be made through SAGA. I think the remaining SDSD minority holders will happily sell at 1.9/share. The discount to NAV is tiny, and nobody really wants to be a minority holder when ØSS gets control. Major shareholder of SDSD Apollo (Arne Fredly’s holdco, another Norwegian financial acrobat and business partner/friend of ØSS), and other friends of ØSS (e.g. Espen Western, through Titan Ventures) have already sold at similar prices in private transactions. If ØSS acquires the remaining shares of SDSD at 1.9 NOK, it would create additional value for SAGA, amounting to approximately 0.078 NOK per SAGA share.

This results total SAGA NAV/sh at 1.87 if we take into account full value accretion from mandatory pending SDSD buyout. Or 1.79 NOK/sh if this value accretion is excluded.

So on one end of the spectrum we have a mandatory bid price of 1.28 NOK/sh (or maybe up to 1.33 NOK) and on the other end we have SAGA’s NAV of 1.79-1.87 NOK/share. The stock currently sits at 1.31 NOK/sh, so just above the mandatory bid price.

SDSD situation might serve as a good reference of how high ØSS is willing to take a company private. After triggering the mandatory bid threshold at SDSD he kept accumulating further shares in SDSD in turn increasing that mandatory bid price from 1.64 at the day of exceeding the threshold (4th of March) to 1.9 (6th of March). I think this shows that he is willing to pay up to 90ct on the dollar to get that dollar – if that is what it takes to get the shares he wants.

Just to be clear – I don’t necessarily think “a real bid” will be at 90% of NAV (he will probably try to get away with less, given the shareholder base of SAGA vs SDSD) – I think of it more like a mark of how much he could be willing to bid (and still think it’s a “good deal”), and that the actual bid will end up somewhere in between the 90% mark and min bid, if he indeed wants to take it private now. Regardless, I think this is a “free shot on goal” (or a very cheap one) and it’s worth to wait for the first mandatory bid.

 

Risks and pushbacks

• ØSS intentions with regards to SAGA are not clear
  There is also no guarantee that ØSS has any intentions of taking SAGA private or even substantially increasing his ownership stake at the current time. He could choose to keep it public a while longer and keep buying cheap shares on any pullbacks. There is some logic to consolidate his “investment cos” into one as well, if he intends to stay public. I just think that it is “not totally unlikely” that he actually wants to take SAGA private, and that it makes a lot of sense from a pure value point of view (SAGA is trading below cash). If he wants to, he can easily fund it (ØSS is reportedly worth ~5B NOK), and would have to bid substantially above today’s share price. If one believes that it is not entirely unlikely, I think it’s a very asymmetric bet to make, with a short time horizon to see how it plays out (i.e. opportunity cost is fairly low).
• Retail shareholder base.
  One big difference between SDSD and SAGA is SAGA’s lack of other large, “non-ØSS” shareholders. As mentioned above, SDSD had Espen Western, still has Fredly, and also had a few other semi-famous names from the Norwegian finance scene in its shareholder register. Screwing over those guys comes with a bigger cost for ØSS than screwing retail shareholders. This somewhat increases the probability of a “stink bid” for SAGA. On the other hand, there are quite a few smaller, private investors that got pretty loud around the Valhall transaction. Many of those guys have been shareholders of SAGA for a long time. ØSS knows they won’t sell at prices near the current trading levels. Based on the discussions I’ve seen on retail boards and chat rooms, most retail holders are saying they won’t sell anywhere near the minimum mandatory bid. To some degree, the cat’s already out of the bag – ØSS has started taking control of his holdcos and appears to be moving toward taking them private. At least, that’s how it looks to just about everyone watching. And that perception alone could affect investors’ willingness to sell at the minimum bid. The gradually increasing bids in SDSD up to 90% of NAV also set a mark/psychological anchor for what many investors will be willing to accept in a take-private of SAGA. ØSS is aware of the situation and shareholder frustration, so he shouldn’t expect to get many shares in the bid if they just bid the minimum.
• Why hasn’t ØSS bought more SAGA shares after triggering the mandatory bid threshold, as he has done with SDSD?
  In SDSD, he was quite active after crossing the threshold – but mostly by buying large blocks from known holders, like Titan and Espen Western. That’s not as easy to do in SAGA. The shareholder base is more spread out, so it’s harder to find big chunks of stock without showing his hand. If he started buying decent volume in the open market, it would likely get noticed right away, maybe even intraday, and he’d have to file disclosures. That would make it obvious he wants to take the company private and could push expectations higher. If he wants to buy it at, say, 15–20% above the current price, it’s probably smarter to stay quiet and let the minimum bid price anchor expectations. It’s also worth noting that he hasn’t kept buying SDSD after the 6th of March either, even after the price dropped to 1.86. Fredly, on the other hand, has been picking up small amounts over the past few days.
• Why isn’t the market seeing the clear similarities between the SDSD and SAGA situations?
  I actually don’t think the market is treating them all that differently. When ØSS crossed the bid threshold in SAGA, the stock jumped – likely because people expected follow-up filings showing more buying by ØSS, similar to what happened with SDSD. SAGA’s price went as high as 1.38. But when no further purchases came, it faded back to current levels. Right now, SAGA trades slightly above the “stated” minimum bid, but around or just below where I think the actual minimum is, based on the November trading day. SDSD, on the other hand, trades slightly below the stated 1.90 NOK minimum, though at a much higher percentage of NAV. So I think the market is saying that there’s little to no chance of a higher bid in both setups. That said, in SAGA, there’s more room to raise the bid and still get a good deal, if you’re ØSS.