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: ADIG:L, SLRN
- Portfolio Idea Updates: SAGE, SWTX, OCI:AS
- Quick Pitch Updates: PAC:AX, EM, FETM
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 PITCHES
In case you missed it, two new Quick Pitches were posted on SSI this week.
Abrdn Diversified Income And Growth (ADIG:L) — Liquidation
ADIG is a £140m investment trust undergoing a wind-down. It currently trades at a 30% discount to £0.68/share NAV. What was supposed to be a drawn-out multi-year liquidation, might now wrap up much faster. The company has announced it is in talks to sell the whole portfolio in one go. While it is unclear if anything will pan out from those discussions, investors are paying very little to wait and see. The potential downside seems limited. ADIG:L quick pitch.
Acelyrin (SLRN) — Merger Arbitrage
Yet another busted biopharma play with a pending merger and Tang on the frontlines. One month ago, Acelyrin agreed to be acquired by Alumis in an all-stock transaction. Merger consideration is equivalent to $2.1/share at current prices. Two weeks later, Tang lobbed a $3/share cash + CVR offer, that the management has since rejected. SLRN stock trades in between the two offers and the spread is wide (15%+) on both sides. SLRN quick pitch.
PORTFOLIO IDEA UPDATES
Sage Therapeutics (SAGE) — lawsuit settled, CMO resigned
Two new developments took place this week in this potential buyout setup:
- SAGE and Biogen settled their lawsuit over a supposed partnership violation. SAGE had previously argued that Biogen’s public offer weakened its negotiating leverage in a sale process. It seems a reconciliation is underway.
- SAGE’s Chief Medical Officer is stepping down, with the Chief Scientific Officer stepping in to cover the role. Hard to say if this signals anything for the buyout thesis, but CMO is a key figure in any biopharma company, overseeing the drug pipeline from start to finish. A leadership shake-up at this level during an ongoing strategic review and a pending buyout offer is worth noting.
SAGE is now trading at $7.50/share – 4% above Biogen’s $7.22/share bid. Full SAGE write-up.
OCI N.V. (OCI:AS) — update on the pending Methanol segment sale
OCI provided an update on its pending methanol business sale to Methanex. Regulatory approvals are still outstanding, and closing is expected in Q2 2025.
The uncertainty around OCI’s 50% stake in Natgasoline JV hasn’t been resolved yet. Natgasoline JV accounts for around 40% of the transaction’s total value. JV partner previously sued OCI “over certain shareholder rights”. OCI won the initial ruling, but the partner has since appealed. The Supreme Court is set to issue a final decision in Q2. If the Natgasoline case drags on past the methanol business sale closing date, Methanex will still move forward with acquiring the rest of the assets. The Natgasoline stake would just be put on hold, with the buyer keeping an option to acquire it later once the legal dust settles.
OCI remains undervalued, trading at €11.2/share – a deep discount to its €15.2/share in pro forma net cash after the methanol business sale closes. At current prices, the market is effectively assigning zero value to OCI’s European nitrogen operations, which generates €0.65/share in annual mid-cycle EBITDA. Management has previously indicated plans to return another ~€4.4/share in dividends once the sale is completed. So there are multiple catalysts lined up over the next few quarters to help push OCI’s share price higher. Full OCI:AS write-up.
SpringWorks Therapeutics (SWTX) — a couple of new details
Merck KGaA, the potential buyer of SWTX, reported quarterly earnings this week. The takeover talks talks remain ongoing. On the call, Merck’s CEO reaffirmed interest in M&A within Healthcare segment (where SWTX would fit) but emphasized that they “will remain extremely disciplined in executing our M&A agenda.”
Shortly after Merck’s conference call, SWTX canceled its participation in Barclays’ Healthcare Conference, which had been scheduled for next week.
I continue to expect an offer for SWTX at a significant premium to current levels. Full SWTX write-up.
QUICK PITCH UPDATES
Pacific Current Group (PAC:AX) — tender extension
PAC announced results of its A$300m (50% of the market cap) buyback. Interestingly, only 51% of the tender had been filled. The company extended the offer for another two weeks, until March 21. It’s quite likely that at least some of the major shareholders (River Capital, Regal Funds, and Perpetual) did not participate.
All of this seems positive for PAC. Ownership % of the major shareholders that did not participate will increase substantially post-tender, and there’s a chance we could see something interesting from them soon – maybe another buyout attempt. Management has previously hinted that if the tender isn’t fully subscribed, they will consider returning the remaining capital through on-market buybacks or other means.
Surprisingly, PAC shares are trading at A$11.50, half a dollar below the A$12.00 tender price. The market seems to be pricing in a post-tender selloff, but that’s hard to square with the fundamentals and the underlying dynamics of this setup. Depending on how many additional shareholders tender over the next week, PAC’s pro-forma NAV will go up to A$14.4-$15.5/share. The stock is already trading at a 20%+ discount, and the market seems convinced that the discount will widen even further after the tender. All the potential catalysts (further capital returns, a possible buyout, or a liquidation) are left ignored. It almost feels like I’m missing something here.
One recent development that might’ve scared investors was that PAC’s chairman sold his entire stake in the company (71k shares) at an average price of A$11.95/share just before the tender deadline. I am hesitant to draw any negative conclusions, as there may have been various reasons for why he sold. The fact he didn’t wait several extra days to tender for a higher price instead strongly suggests there might’ve been some urgent personal liquidity needs at play.
I continue to like this situation and will wait for the tender offer results before reassessing. PAC:AX quick pitch.
Smart Share Global (EM) — spread has widened
The spread to the $1.25/ADS non-binding bid for EM has widened from 3% to 6%-7% (assuming a $0.05 ADS fee). With two months having passed since the announcement, a definitive agreement should be reached within the next few weeks or months. There’s also a chance the offer gets a slight bump – it currently comes at a steep 25% discount to net cash, while the company’s operating business is at breakeven. EM quick pitch.
PLAYED OUT: Fentura Financial (FETM) +9% in 4 Months
Another community bank merger closed successfully. The idea has delivered +9% in just over 4 months, although it’s worth noting that trading liquidity was quite limited. FETM quick pitch.