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: NIOX, NZM, SAGA
- Quick Pitch Updates: EPIX, ALLK, PAC:AX
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
I posted a new Quick Pitch yesterday:
NIOX Group (NIOX:L) — Merger Arb
Last week, asthma diagnostics firm NIOX Group received a non-binding takeover proposal from Keensight Capital at 81p/share (9% spread). This follows an approach at 78p from the same bidder last month. Management said it’s ‘minded to recommend’ the latest offer and has granted access to due diligence. The put-up-or-shut-up deadline is April 17.
Management also disclosed that it had already been quietly running a limited ‘private sale process’, reaching out to a handful of potential buyers. Negotiations with them are still ongoing. Keensight’s bid was described as ‘unsolicited’, so it seems that it wasn’t one of those initially contacted parties. That leaves the door open for a competing bidder to step in. But even if no rival bid emerges, a sale to Keensight seems likely. Read the full NIOX quick pitch.
Also, two new Guest Pitches were posted earlier this week:
NZME Limited (NZM:AX) — SOTP value unlock
NZME is a major player in New Zealand’s media scene. It presents a classic sum-of-the-parts value unlock opportunity, now that management has announced a strategic review of OneRoof, the company’s rapidly growing real estate classifieds business. In addition, two prominent activists are very likely to overhaul the board next month and accelerate OneRoof’s monetization. Upside to the estimated SOTP valuation stands at 35%+. NZM guest pitch.
SAGA Pure (SAGA:OL) — Mandatory Bid/Privatization
Norwegian billionaire Øystein Spetalen has been tidying up his empire. Recently, he surpassed 50% ownership in SAGA Pure, triggering a mandatory bid under Norwegian securities law. With SAGA shares trading close to the mandatory bid level, this presents a low-risk opportunity that Spetalen will offer a premium to take the company private. There is a 40% spread to SAGA’s NAV. SAGA guest pitch.
UPDATES
Essa Pharma (EPIX) — risk / reward has improved
EPIX is down ~13% over the last month, even though nothing material has changed in the underlying setup. The strategic review remains ongoing, and in the latest Q1 results, management noted that an update is coming “in the near future”. Activist investors BML and Tang still own a combined 19% stake. At current levels, there’s 42% upside to estimated mid-year NAV of $2.18/share.
So EPIX looks interesting, especially as a part of a potential “net-net biopharmas in strategic review” basket, alongside KRON, HLVX and ALLK. EPIX quick pitch.
Allakos (ALLK) — risk / reward has improved
ALLK’s share price has declined to $0.235, below the $0.27/share level at which Kevin Tang acquired his 10% stake this year. The strategic review remains ongoing, and in the most recent update, management reiterated its mid-year cash estimate of $0.37–$0.42/share.
If the company pursues a reverse merger (which seems like the most likely outcome), change-of-control packages and some extra costs would bring ALLK’s net cash to approximately $0.27–$0.33/share. In addition, the company holds $1 billion in federal NOLs, which could be worth another ~$0.20/share. The fact that Tang was buying shares at net cash levels suggests that he sees realizable value in those NOLs.
If ALLK doesn’t secure a deal and opts to liquidate instead, the expected recovery range will be $0.20–$0.28/share. At current levels, the risk/reward looks attractive, although timeline remains the key risk. I continue to monitor the situation and will reassess in case the strategic review drags out. ALLK quick pitch.
Pacific Current Group (PAC:AX) — tender results were interesting
PAC’s tender ended up undersubscribed, though only slightly. The company repurchased A$265m worth of shares versus its A$300m target. In total, the company bought back 42.2% of its outstanding shares at A$12/share. The pro forma NAV now sits at around A$14.60/share. The stock price has held up pretty well post-tender (now at A$11.9). The discount to NAV is at 18%.
An interesting wrinkle: River Capital, one of the major shareholders, not only opted not to tender its shares but actually increased its position at current prices. As a result, its stake jumped from 22.51% to 40.48%. On the other hand, Regal Funds, which previously owned 10.7% of PAC, seems to have sold nearly all of its shares in the tender. However, I think Regal’s exit is more reflective of fund’s liquidity needs than any specific view on PAC’s fundamentals.
In 2023, River Capital and Regal Funds attempted to acquire PAC at A$11.12/share, which was only a 7% discount to the A$11.92 NAV at the time. When GQG made a competing A$11/share cash offer, River refused to sell. Then last year, River increased its stake from 19% to 21% following a series of PAC’s asset sales and the buyback announcement. Now, River Capital has nearly doubled its ownership.
Given this context—and with PAC’s discount to NAV still significant—another take-private attempt in the near term wouldn’t be surprising. PAC quick pitch.