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: LWAY, OCFT, CKPT
- Portfolio Idea Updates: KRON, LQDA, OCI:AS
- Quick Pitch Updates: WEX, WOW
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:
Lifeway Foods (LWAY) — Company Sale
The long-running, notoriously bizarre founding family feud at Lifeway Foods is finally coming to an end. The events of the last several months, and especially this week, strongly suggest the company is about to be sold to its largest shareholder, Danone, at $27/share or higher. The next major catalyst is the AGM in June, during which two founding family members, who control a combined 27% stake, are expected to overhaul the board and kick off negotiations with Danone (which owns 23% and has already made two offers recently). Full LWAY write-up.
Also, two new Quick Pitches were posted:
Checkpoint Therapeutics (CKPT) — Free CVR
CKPT is being acquired by an Indian pharmaceutical giant Sun Pharma. The consideration includes a cash payment of $4.1/share plus a non-transferable CVR, which could pay up to $0.70/share. CKPT trades at $4.07/share, offering an opportunity to get the CVR for “free”. The buyout is expected to close in Q2 without any major hurdles. CKPT quick pitch.
OneConnect Financial Technology (OCFT) — Privatization
OCFT received a non-binding acquisition proposal from its parent and 65% owner Ping An Group at $7.98/ADS. The spread is now at 17%. The merger will require approval from 75% of disinterested shareholders, with no more than 10% of minority holders voting against it. Both conditions seem likely to be met, as minority shareholders essentially have little choice but to support the transaction. OCFT is being acquired at approximately net cash levels, meaning the buyer is paying little to nothing for the operating business. OCFT quick pitch.
PORTFOLIO IDEA UPDATES
Kronos Bio (KRON) — reassessment after Q4 earnings
Kronos released Q4 results, showing net cash as of Dec’24 at $112m. Accrued expenses and payables, which also include previous restructuring costs, stood at $10m. So far, both cash and liabilities have come in slightly higher than my initial estimates.
But the two key uncertainties in this situation are still: 1) what happens with the $32m of non-cancellable lease liabilities; and 2) the remaining timeline for the strategic review to wrap up.
Previously, I had assumed the lease termination cost at $8m (slightly more than 1 year’s rent), but as argued by SSI member mescms (here and here), this might be overly optimistic, given the oversupply of lab space and potential difficulties in exiting leases.
Let’s revise the NAV (net cash) scenarios:
Scenario No. 1 (same estimates as in the original calculations, but updated for Q4 figures and with one additional quarter of cash burn):
- $112m cash as of Dec’24
- less $8m for Q1’25 and Q2’25 cash burn
- less $2m further severance
- less $10m accrued expenses and liabilities
- less $8m lease termination
This equals to $84m or $1.38/share NAV at the end of Q2’25. Meanwhile, the share price closed at $0.87/share on Friday.
Scenario No. 2 (updated for Q4 figures, one additional quarter of cash burn, and with a full lease liability):
- $112m cash as of Dec’24
- less $8m forQ1’25 and Q2’25 cash burn
- less $2m further severance
- less $10m accrued expenses and liabilities
- less $32m lease termination
In this case, NAV lands at $60m or $0.99/share.
The Scenario No. 2 illustrates probably the worst that can happen with these lease liabilities. The payments extend over six more years, so it’s possible that a settlement at around half of the full amount could be negotiated with the landlord. Overall, at the current share price, the risk-reward still looks favorable. Full KRON write-up.
Liquidia (LQDA) — Q4 results
LQDA held its Q4 earnings call this week. Things are lining up for a potentially big summer. Yutrepia’s FDA approval is expected around May 23, and management is optimistic they’ll get a more favorable label than Tyvaso, thanks to Yutrepia’s much higher dosing ceiling. The sales team is in place and ready to execute. The current financing runway is enough to carry the company through to profitability. Liquidia now has a $1.3bn market cap, while its main competitor, UTHR, is at $14bn. Once commercialization starts this summer, the gap between those two market caps might not stay that wide for long. Full LQDA write-up.
OCI N.V. (OCI:AS) — interim results
OCI released H2 2024 results, and once again, management provided no real clarity on its strategic direction or capital allocation plans. It was simply reiterated that the strategic review remains ongoing and that all options remain open.
The pro-forma net cash position, after accounting for the full proceeds of all four asset sales, remaining debt and capex for the Clean Ammonia plant, stands at €2.9bn. However, €0.36bn of that is locked in escrow for Fertiglobe sale indemnifications, and it’s unclear how much of that will actually be recovered, as management has given mixed signals during the conf. call.
Either way, this net cash balance—escrowed or not—still looks favorable compared to the company’s €2.3bn market cap. On top of that, investors are essentially getting the EU Nitrogen business for free. It is currently a money-losing operation, but mid-cycle EBITDA has been guided at $150m.
My main concern is that we’re running out of catalysts for the shares to re-rate. Without a clearer strategic direction or a tangible event to drive valuation, it’s getting difficult to see what would move the stock meaningfully higher from here.
- Three asset sales have already closed.
- €14.5/share in dividends has already been distributed.
- All hurdles have been cleared for the fourth asset sale, which is set to close in Q2 2025, meaning this is likely already priced in.
- Management has already communicated a number of times that there will be a “further extraordinary distribution of up to $1 billion” in Q2 2025, so this is probably already reflected in OCI’s share price as well.
QUICK PITCH UPDATES
WideOpenWest (WOW) — Q4 earnings update
WOW released its Q4 earnings this week. While the sale process has taken longer than expected, it’s still very much in motion. Idea Hive, the author of the guest pitch, has shared his updated thoughts following the earnings release:
I think the Q4 earnings call was confirmatory of the buyout thesis. Management highlighted costs associated with “M&A activity” as one of the factors behind unusually high non-recurring expenses over the last several quarters. But, more interestingly, it was mentioned that the company has been “examining bids”—plural. It’s possible this explains the prolonged timeline since the non-binding offer was made public in May 2024: the company might’ve attracted interest/offers from other parties, which has now led to a full-blown company sale process.
WOW’s share price has jumped nearly 20% over the last week (vs peers up 3-12%), and the stock is currently trading just above the $4.80/share bid. I believe there’s substantial headroom for any suitors to offer $7/share and still make out like bandits. Meanwhile, the potential downside at the current stock price remains well protected. With the investment thesis intact and favorable risk-reward, I continue to like the setup.
Then on Friday, rumors started swirling that the sale talks had recently progressed and a deal could be finalized in the coming weeks. However, Bloomberg mentioned that the latest offer price couldn’t be learned, and that the parties still haven’t agreed on all the terms yet. WOW’s share priced went up another 5% to $5.13/share. WOW guest pitch.
PLAYED OUT: WEX Inc. (WEX) +$600 In 1 Week
I’ve noted in last week’s pitch: “investors are risking only 2% to gain optionality—either from a random upward move in WEX’s share price until the tender expiration…”
Well, that random upward move has happened. WEX’s share price climbed from $151/share to $157/share this week. Given the tender range of $148–$170/share, the opportunity is no longer as compelling, so I have exited my position with a $600 gain. The tender offer expires on March 25. WEX quick pitch.