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 Pitch: WEX
- Portfolio Idea Updates: SGRP, OCI:AS, CURN
- Quick Pitch Updates: FNA, SLRN, RNEW, WOW, PAC, BEST
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 PITCH
WEX Inc. (WEX) — Tender Offer with Odd-Lot Provision
Payments services provider WEX has launched a $750m tender offer, aiming to repurchase ~12% of its outstanding shares. The tender range is set at $148-$170/share. Odd lots will be accepted on priority basis. At the current price of $150.4/share, the potential returns for odd lots range between -$230 and +$1940.
I have no strong view on the final tender pricing, but the losses for odd lots are capped, and investors are risking only 1.6% to gain optionality—either from a random upward move in WEX’s share price until the tender expiration (March 25) or from the tender offer being priced above current levels. CONTINUE READING…
PORTFOLIO IDEA UPDATES
PLAYED OUT: SPAR Group (SGRP) +40% in 3 months
Over the last month, SGRP’s share price has gently slid into my target range. Meanwhile, there have been no further updates on Highwire’s offer—I am guessing the financing still hasn’t been settled, and we will see another extension on March 17.
So while the offer is still ‘officially’ pending, I think the market already gives very limited probability for SGRP to be sold at $2.5/share. Thus, I am closing this short position with a nice +40% in 3 months and moving on. Full SGRP write-up.
OCI N.V. (OCI:AS) — good news for the asset sale
The Natgasoline JV dispute has been resolved – OCI’s JV partner has irrevocably withdrawn the appeal. This paves the way for OCI’s 50% stake in the JV to be included in the ongoing methanol business sale to Methanex. Closing is expected in Q2.
OCI is trading at €11.4/share, compared to €15/share in pro forma net cash. The market is assigning no value to OCI’s European nitrogen operations, which generate €0.65/share in annual mid-cycle EBITDA. Full OCI:AS write-up.
Currency Exchange International (CURN) — Q1 earnings update
Disappointingly, the Q1 earnings call offered little detail on the EBC exit. Management pushed further clarification on exit costs and other specifics to the next quarter. However, they repeatedly emphasized that the company is fully exiting Canada and refocusing entirely on its U.S. business.
What I found to be quite positive is that this exit will free up capital, and CEO Randolph Pinna explicitly stated he is “in favor” of accelerating share buybacks once that capital becomes available. For now, though, repurchase activity will remain minimal.
The waiting game continues. Full CURN write-up.
QUICK PITCH UPDATES
WideOpenWest (WOW) — earnings due today, spread increased again
WOW’s earnings have just been released. The press release contained only the same boilerplate language, stating that the review of Crestview Partners’ $4.80/share non-binding takeover offer is still ongoing. It will be interesting to read the call transcript once it becomes available.
The spread continues to be very volatile – this month it has increased again from -3% to current 13%. Some of this was likely influenced by the overall market turbulence. WOW’s peers are also down this month: ATUS fell by 16%, CABO by 9%, CHTR by 5%, and CMCSA by 3%. Despite that, the investment thesis remains intact and WOW/Crestview are expected to eventually come to an agreement. WOW guest pitch.
Paragon 28 (FNA) — HSR review period expired
US antitrust approval is in the bag, clearing what was the main “potential” hurdle for FNA’s buyout by ZBH. There are still a few other regulatory approvals pending (from a couple of EU countries and South Africa), but those are expected to be straightforward. Shareholder approval shouldn’t be an issue either. With closing anticipated in Q2, this looks like a done deal. However, FNA is still trading at $13/share, effectively giving away the $1/share CVR “for free”. FNA quick pitch.
Acelyrin (SLRN) — several updates, Tang keeps buying
Tang continues to build the position in SLRN, now at 8.8%. He has been buying shares almost daily over the last couple of weeks, at around $2.7/share. Meanwhile, the ALMS merger consideration is hovering at or below $2/share. SLRN responded with a poison pill, limiting Tang’s stake to a maximum of 10%.
I am struggling to see what Tang’s game plan is. A higher offer seems unlikely. Even if activists somehow convince shareholders to reject the merger with Alumis, management will likely go ahead with the previously planned Phase III trial, which would quickly incinerate SLRN’s cash. SLRN quick pitch.
Ecofin U.S. Renewables Infrastructure Trust (RNEW:L) — asset sale closed
RNEW successfully completed the disposal of its distributed solar assets, netting $33.5m. The majority of these proceeds ($23m) were used to repay the company’s revolving credit facility. The liquidation process is ongoing and could be wrapped up within a year. RNEW continues to trade at a 45% discount to its NAV. RNEW quick pitch.
Pacific Current Group (PAC:AX) — update on the buyback
66% of the tender offer has been filled as of March 13 (compared to 51% last week). With PAC’s share price hovering at A$11.3-A$11.6, the gap to the A$12/share the tender price seem to be persuasive. Roughly 1/3rd of all outstanding shares have been submitted so far. One more week to go – the offer expires on March 21. PAC quick pitch.
PLAYED OUT: Best Inc (BEST) +19% in 15 months
After some unexpected delays, Alibaba’s privatization of BEST has finally closed. Those who participated since the initial write-up earned a +19% return. BEST quick pitch.