Merger Arbitrage: 18% Upside (at C$1.55)
I have first covered Thunderbird Entertainment, the Canadian animation and film studio, three years ago (here and here). Back then, the activist Voss Capital bought a meaningful stake in TBRD and pushed for a board refresh and for a launch of a formal sale process. The campaign worked. Unfortunately, just after the sale process got underway, the writers’ strike knocked the entire industry off balance and TBRD ultimately remained public.
Few years down the line, the story has come back a full circle. The company is getting acquired by its close peer Blue Ant Media (BAMI:TO). The consideration is a mix of C$1.77/share in cash and 0.2165 BAMI shares. At the current prices, the consideration adds up to C$1.83/share, and the arb spread stands at 18%.
Voss Capital and several other major holders who collectively own 37% of TBRD, have agreed to support the transaction (two-thirds of votes cast will be needed for approval). The antitrust risk looks low. The industry is highly fragmented and the combined company will still be much smaller than WildBrain, the only remaining public peer. The offer will be funded from BAMI’s cash on hand and available credit facilities. On a quick read, everything points to a straightforward closing in Q1 2026.
The cash portion is capped at 44% of the total consideration. So if every single TBRD shareholder elects to receive cash option, then everyone will be prorated and end up with 56% of merger consideration received in BAMI stock and the rest in cash.
The main reason for the spread seems to be BAMI’s extremely tight float, which results in limited borrow availability and makes hedging complicated.
However, and this is key, I think this arbitrage setup can be played unhedged. Let me explain why.
The core assumption here (and I will elaborate in more detail on it below) is that major the shareholders, Voss Capital and others, will elect to receive all of the consideration in BAMI stock.
If these key shareholders (the 37% that have already agreed to vote for transaction) elect stock consideration, then the cash portion for everyone else jumps to 70%. If half of all shareholders elect stock, the cash portion for the rest would be close to 90%. In these scenarios, exposure to BAMI’s share price becomes pretty negligible: if 70% of the consideration in cash, BAMI stock would need to fall by nearly by half from current levels for arbs to start losing money.
If my thinking is wrong, and most holders elect cash, the downside is still fairly limited. In that case (i.e. only 44% of consideration is received in cash), BAMI would need to drop by 29% to all-time lows in order before unhedged positions start losing money. So the downside on an unhedged position seems reasonably well-protected.
Ok, now, let’s go back to why Voss Capital and friends are likely to opt for BAMI stock instead of cash.
The buyout announcement noted that the offer comes at a 50% premium to the pre-announcement levels. However, that figure is based on a temporary decline in TBRD’s price, which started in the second week of October. Just before that, TBRD reported weak fiscal Q4’25 results (ending June 2025): revenue dropped 9% and adj. EBITDA fell 40%. For comparison, the company had been growing revenue at 8-12% clip for the last three years. The recent slump was driven mostly by production delays that pushed work into next year. More importantly, and unusually, management scrapped guidance for the year ahead and offered only a very vague comment that “entertainment industry is evolving”. This created a lot of uncertainty, which sent the stock price down by 30%.
On the same day the buyout was announced, TBRD also released fiscal Q1’26 results (ending September). Guidance was suddenly reinstated, projecting mid-high single digit revenue growth next year, with stable adj. EBITDA margins. In other words, the business appears to be tracking very close to historical trends. Without the buyout, the stock would likely be trading near early October levels.
The offer also looks cheap on relative valuation. It implies just 3.4x FY26 EBITDA guidance. Including the expected C$7m of first year synergies, the multiple drops to 2.6x. BAMI itself trades at 6x adj. EBITDA, while WildBrain trades at 8.3x. TBRD is a growing, consistently profitable business that has zero debt.
Another interesting detail is that in fiscal Q1’26 TBRD was buying back shares at an average price of C$1.77 (C$0.5m repurchased). And now, just a few months later, management is selling the entire company at that same price.
It is hard to believe that Voss Capital and the other major holders would sign off on a buyout this opportunistic unless they planned to elect stock and roll into the combined company.
Why would they bother? The entire industry is dealing with two massive structural headwinds. Consumer attention is drifting to short-form platforms like TikTok and YouTube, and AI is starting to reshape parts of the production workflow. You can easily see this pressure in stock prices of production studios, all of which have fallen sharply over the recent years even though financial performance has held up relatively well so far. A few years ago, TBRD traded at 150% higher levels, and the adj. EBITDA multiple was many times higher (8–11x). WildBrain traded at 12x versus the current 8x. Streaming platforms (main clients) are cutting spending. This makes scale increasingly important for smaller studios that want to win larger deals and invest in new technology. The synergies in consolidation deals like this are also enormous. The C$7m of cost savings expected first year is roughly 35% of TBRD’s projected FY26 EBITDA.
Overall, it would not be surprising if, after the previous failed sale process and the current industry headwinds, TBRD’s management/key shareholders (Voss sits on the board, by the way) decided that the best way forward is to roll their investment into a larger peer. On the M&A call it was mentioned that there was no formal process, no other bidders and the merger resulted from direct talks between TBRD and BAMI. With a small tinfoil hat on, one could even argue that they “kitchen-sinked” TBRD’s Q4 results announcement to make the eventual buyout an easier sell to everyone else. If my thinking is at least directionally correct, the incentives for both sides of the deal are to spend as little possible to cash out the minority investors, which kind of explains why the cash portion of the consideration ended up at a low-balled C$1.77/share.
New to the site… I don’t have any way to buy on foreign exchanges, but I do see THBRF on Fidelity. Would it get the same result buying there? It’s currently (close on 2025-12-01) US$1.11, which is C$1.55, so same as the alert price. C$1.77 converts to US$1.26, but I’m not sure what would happen to the BAMI share, as Blue Ant isn’t on Fidelity. (Answers to this would also apply to WNDR / WONDF)
You would need to contact your broker to check how they would treat merger consideration for THBRF, but I think you would still receive cash portion in CAD and BAMI shares listed in Canada.
From my understanding the OTC shares should also get purchased. I think it would be up to your broker who would likely “get” the BAMI shares but then just pay you in cash.
Sidenote but happy to say I’ve owned this one since before the merger announcement, was a pleasant surprise to wake up to.
Assuming you bought in the 30 days before the announcement then
I’m in the same boat. Did you find out anything from fidelity?
I owned THBRF in Fidelity and decided to hold all the way through the payout. The payment was finally issued last night. They paid $0.73 USD per share for the cash portion of the payout. In a separate line item they also automatically cashed out the blue ant shares BRMIF I had been issued at a rate of $5.93 USD per share. This was the equivalent of $0.565 for each THBRF share owned.
Combined, the payout was $1.295 per share. My gain was 15%. Not too shabby for a 2 month play. This was only slightly below the estimate from the original post on 12/1. Note: The CAD gained 2.4% on the USD between 12/1 and 2/3.
One could argue that the BRMIF payout was generous at $5.93 which equals $8.11 CAD Bami.to. I wonder how they were able to do this considering brmif barely trades at all. Bami.to is selling off today.
I don’t know how to edit my post but this is a correction. Fidelity labeled the BRMIF payout as cash but in fact it was shares. So I now own the BRMIF shares which I am going to hold.
How to identify the long and short positions’ proportions and how to rebalance then over time?
If you just want to lock the spread, hedge using the 0.2165x BAMI exchange ratio. No need to rebalance for a simple merger arb.
0.2165 is over-hedging.
If you elect to receive cash, then the highest % you will receive in shares is only 56% of 0.2165.
In fact, if you follow dt’s train of thoughts, I think unhedged is better:
If the key shareholders elect to receive shares, then we will receive fewer shares than expected, and in the meantime BAMI is less likely to fall (or more likely to rise) afterwards because the key shareholders are not going to dump their BAMI shares immediately.
We should choose to over-hedge only If we believe that the key shareholders don’t elect to receive shares and there will be a lot of selling pressure when folks dump the BAMI shares they are allocated and that they don’t want to keep.
Special meeting is due January 12. Remaining spread stands at 11%.
https://investors.thunderbird.tv/investors/news/news-details/2025/Thunderbird-Entertainment-Group-Inc–Announces-Filing-and-Mailing-of-Information-Circular-and-Receipt-of-Interim-Order-in-Connection-With-Plan-of-Arrangement-With-Blue-Ant-Media-Corporation/default.aspx
Thanks for the write‑up on this, DT. I’ve been looking at the circular and wanted to sanity‑check a few points.
– BAMI is extremely illiquid, with only ~34K shares trading from Dec 1–10 and ~49K in November. This deal will add ~5.8M shares to the float (assuming the $40MM cash limit is reached), and then another 10M shares come off lock‑up in February and 10M more in May (roughly 92% of the current outstanding shares). That’s enormous relative to current volumes, so I’d expect meaningful downward pressure on the share price. Curious if you have thoughts on this dynamic.
– I’m also trying to understand why key shareholders would opt for stock over cash. Given the liquidity situation, you’d think they’d want a premium for taking shares, since even mild selling pressure could move the price materially. But today the stock consideration is actually at a discount to cash.
– The trade seems quite leveraged to the BAMI share price. If ~90% elect cash, the breakeven BAMI price is around 6.20 — roughly tangible book value. That doesn’t seem like an extreme downside scenario. Do you have thoughts on that? There’s also a feedback loop where a falling BAMI price makes cash elections more likely, which would reduce total consideration.
– Finally, do you have a view on where BAMI should trade? Using the pro forma financials, it looks like the EV/EBIT would be about ~7.7x at $8.10 and ~6.2x at $6.10. These multiples don’t strike me as especially cheap, which feeds into my concern about where BAMI might trade once the float expands.
Thanks again for the write‑up, would love to hear your thoughts.
Hi Chris, thanks for the questions.
This is a unhedged arb, which works only if major TBRD holders elect to take stock. I’ve outlined why I think that’s likely in the write-up, but the key point is that, amid ongoing industry headwinds, TBRD needs scale. It is quite possible that existing holders view this not as an exit, but as a rollover into a larger, better-positioned operation that will eventually become a roll-up. The fact that they accepted such a low merger price reinforces that view. It is hard to believe they would be willing to exit at this price and timing unless they saw a longer-term play.
I agree there may be some selling pressure in BAMI after the deal closes, but if the core shareholders holders stay put, that pressure should be manageable. I do not have a strong view on where BAMI will ultimately trade, but the core thesis here is that if I am directionally right about TBRD’s major shareholders, most of the consideration for everyone else will effectively be in cash, and exposure to BAMI price will be meaningfully reduced. In that case, the stock would need to fall substantially for the trade to lose money.
Valuation is a black box. There are very few public comps left, and the industry has changed, so historical multiples don’t matter anymore. That said, I do believe that some fundamental support exists. The remaining public peer, WILD.TO, was trading around 8.3x adj. EBITDA just a month ago and the stock price has since rallied 30% after announcing a certain asset sale. On rough back-of-the-envelope numbers, pro forma BAMI would trade around 4.5x adjusted EBITDA at current prices. Could the price drop by 50% to 2.7x EBITDA? Maybe, but that would be a somewhat extreme outcome, and even then the whole trade would be only 3% under water.
Assuming the C$40m cash cap is reached and major holders do not sell the newly received BAMI, the remaining holders would own roughly 2m new BAMI shares, which would be ~7% of the pro-forma share count. So it’s not that massive in absolute terms, but, of course still very significant relative to current liquidity. The float and liquidity will increase post-merger and this should bring new investors that will help to absorb some of the selling pressure. It’s not like everyone else besides TBRD’s major shareholders will be just dumping shares indiscriminately either.
Overall, I think it’s a pretty interesting quirky little arb. We’ll see how it goes, but it’s hard to see any meaningful downside assuming the major TBRD shareholders elect to take stock. But if I’m wrong on that part, the downside could turn out to be much larger.
Thanks for sharing all of that. As you point out, the thesis seems to rest on the idea that major TBRD shareholders will want to take stock in this deal. When I look at the background to the arrangement section of the circular, there is nothing to suggest that major shareholders are looking to rollover their holdings rather than choose cash.
From June to October, the Strategic Review Committee and its advisors rejected exclusivity unless the cash component increased, they asked for more cash in every counterproposal and they explicitly told Blue Ant they needed “enhanced certainty” and more cash at closing because they wanted protection from volatility in BAMI’s share price. The cash cap moved from $16M to $40M as a result. If major holders were eager to take stock, they could have reflected that in the support agreements and the TBRD board/BAMI likely would have wanted them to if that were the case. But those agreements only commit them to vote for the deal, not to elect stock or lock up any BAMI shares.
It’s also clear TBRD had limited leverage in the negotiation. They had already run a full strategic process (with 85 potential counterparties contacted) without a successful outcome. They had two inbound proposals during the exclusivity period, but they were dismissed as “not actionable” and inferior to the Blue Ant LOI. This dynamic – a failed sale process, limited alternatives and a push for maximum cash – seems consistent with shareholders looking for an exit and taking the only deal on offer at the time. I wouldn’t personally it as being “such a low merger price” based on these disclosures.
So while the deal may still work as an arb, I don’t think it’s prudent to assume that major holders will elect stock. If anything, the negotiations described in the circular suggest the opposite. And all of that is before considering that the cash consideration is already more attractive than the stock component at current prices, and that BAMI shares are extremely illiquid and highly likely to face selling pressure for the reasons I discussed.
Even if major shareholders are aligned, they still need to sell the deal to minority holders, since their approval will be required. The size of the cash portion is particularly important for that. Also, it wasn’t only the cash, but the stock consideration (exchange ratio) was also increased during the negotiations.
The 85 parties that were contacted came from the 2023 strategic review, which ultimately went nowhere, in part because the writers’ strike disrupted the entire industry. The current acquisition did not come out of a formal process at all, but it resulted from direct discussions with BAMI. Management previously said there were no other bidders this time, although the circular notes that two unsolicited parties did reach out but their proposals were deemed “not actionable” and “inferior in value.” That could mean a lot of things, depending on how management views the long-term value of BAMI stock.
The key questions to me are:
– Why would management and major shareholders agree to sell at C$1.77/share when the company had been buying back stock at the same price a few months ago?
– Why would they seemingly kitchen-sink the guidance in Q4 results, only to follow up with a business-as-usual outlook in Q1, which came out at the same time as the buyout announcement?
– Why would they agree to such a low, almost nonexistent premium and a very low valuation multiple if the business outlook actually turns out to be stable?
One explanation is that management and key shareholders were simply looking for a way to sell the deal to remaining shareholders, and are interested in BAMI stock themselves.
That said, your pushback is fair. It’s entirely possible that I could be wrong. Still, for now, I think the core thesis holds, even if it’s a bit of a quirky, speculative bet.
Got notification from Fidelity today about needing to choose stock or cash. It seems me that cash is the safer play, given the low trading volume of BAMI, and the risk of the price dropping once shares are issued, but the shares are (currently) yielding a higher profit. Is that correct? What are people taking for payout?
Just asking that, by my math, the fractional share of BAMI at current prices and currency conversion would be around US$1.25, but the cash is around US$1.29.
Yes, the BAMI stock consideration is currently below the cash option, and there is a risk it could fall further. The idea is to opt for cash on the assumption that most major shareholders will choose stock, which would increase the final cash portion received.
A hedged trade can backfire too. If I am hedged with 56% BAMI stock and elect cash, and receive more cash than expected, and BAMI stock rallies, then I am net short BAMI and screwed.
I’m voting no on the deal. Thunderbird is worth significantly more than the offer and my feeling is the board including Voss just wanted to be done with this tiny part of their portfolio. I believe the company wasn’t fully shopped and would sell for a lot more in another year or two. Blue Ant’s stock price is so illiquid, it would be almost impossible to sell the stock post closing and they really do not have any plan for the company. review this investor’s thoughts on deal: http://www.noblueant.com as I think this argument is strong enough to convince other shareholders to vote NO on the merger.
Two updates on TBRD:
– ISS recommended shareholders support the merger, citing the 50% premium and immediate liquidity.
– Shareholder meeting has been moved to January 22, 2026 due to a transfer agent mailing oversight/administrative reasons.
immediate liquidity on 40% of your thunderbird shares..the other 60% no liquidity at all
We need about 18% No votes to kill the deal; I think it’s a good possibility if everyone votes. I’m confident we will do much better owning Thunderbird without BlueAnt involved. The board just wanted out and were frankly lazy and probably compromised.
Do you think there’s any chance the price will be raised?
Like most other arbs I will vote yes to the deal. If I can lock in 9% profit (and very high IRR) by buying TBRD and hedging 56% of of it with BAMI short, why would I choose a much uncertain path by voting down the deal?
it’s if it’s voted down, then yes, but i believe there are others interested in the company as well. We are going to be stuck in this Blue Ant illiquid company that has no plans at all to create value. I’d rather stick with Thunderbird and do massive buybacks trading at less than 3X Adj. EBITDA.
Sieve Capital, owning 7% of TBRD, voiced opposition in an open letter.
It’s intriguing why they waited until now, after the initial scheduled meeting date (Jan 12 ) and one week before the vote.
The meeting was moved on Dec 30 from Jan 12 to Jan 22 allegedly due to administrative errors. Why did Sieve wait until now? All the cases they make in the open letter are time-insensitive and could have been made any time after the merger announcement.
“VANCOUVER, British Columbia–(BUSINESS WIRE)–Sieve Capital, a concerned shareholder who collectively owns or advises 7.0% of outstanding shares of Thunderbird Entertainment Group Inc. (TSXV: TBRD, OTC: THBRF) today called on fellow shareholders to vote NO immediately on the proposed plan of arrangement with Blue Ant Media Inc. (TSX: BAMI), warning that the transaction forces shareholders into an illiquid, controlled structure while stripping them of real voting power.”
” Due to an administrative oversight by the Company’s transfer agent, the Circular was not mailed to all registered Shareholders on the scheduled mailing date of December 22, 2025. The oversight was identified on December 29, 2025, and the transfer agent immediately commenced remedial work to complete the mailing.”
I don’t think this makes much of a difference but my guess would be Sieve spent the weeks leading up to Jan 12 trying to negotiate a private sweetener (going public is the nuclear option). When the board didn’t budge and the meeting slipped, they used the extension to go hostile.
The extension was announced on Dec 30. And then Sieve didn’t act for nearly two weeks.
I doubt that they can stop the deal. The approval requires 2/3 of the votes cast, not 2/3 of shares outstanding. With 37% already agreed to vote yes, and both proxy advisory firms supporting the deal, it’s hard to rally retail votes against the deal.
Although I continue to think this arb will work out, these objections clearly put a dent in my thesis that major the shareholders will elect to receive all of the consideration in Blue Ant Media stock, resulting in higher proportional cash consideration to the others.
Blue Ant would also have the option to terminate the merger if holders of more than 5% of the shares exercise dissent rights (but this condition usually gets waived).Â
This time may be different. If Sieve exercises dissent rights and goes to court, the court may well award $1.77 cash (instead of BAMI shares), and BAMI doesn’t have sufficient cash available to cash out dissenting shareholders.
If all of the 6.57m shares voting against the deal choose to dissent, potentially BAMI may have to pay them C$11.6m in cash (i.e. C$1.77/share).
The Canadian dissent rights system is designed to protect shareholders from being stuck in illiquid shares of the acquirers, so it’s unlikely that the court will allow BAMI to pay of the dissenters in shares.
Justin, how do you estimate 18% of shares needed to bock the deal? Do you just assume 50-60% turnout and most minority holders voting against the merger?
Donville Kent had a webinar yesterday and part of it was on why they own Blue Ant. Apparently it is the same management that took Alliance Atlantis from $100 million market cap to it being sold at $2.1 billion with revenue growing from $132m to $1.2bln and EBITDA from $9m to $579m. They are long becuase “management knows what they are doing” and the combined entity of Blue Ant, Boat Rocker and Tunderbird results in a 2026 price to Ebitda or 2.9 and P/E of 3.7, with cash earnings of over $2/share and the stock at $8. YOu can contact them if you want to watch, but that was the gist of the pitch and may shine a light on why major shareholders would elect to take shares.
The shareholder vote approved the merger.
https://www.sedarplus.ca/csa-party/records/document.html?id=bc1ae896db763d4be4ed3d849c7d6951c940e30c08f64bbdbc78a82f47e100ab
As expected, the vote passed, shareholders have approved the merger with Blue Ant Media at a surprisingly high margin. I thought the % of votes against the merger will be higher, given all the voiced opposition from the activists.
63% shares participated in the meeting and out of those 79% were in support of the merger. Only 13% of all shares voted against the merger.
I am guessing TBRD shares now will quickly revert back to the previous trading levels (around C$1.57/share).
Management expects the transaction to close “in the coming weeks”.
Based on the actual elections disclosed (below), what will be the pro-rated consideration for someone who elected all cash?
From the PR:
“Shareholders of record of approximately 81% of the outstanding Shares elected to receive the Cash Consideration, subject to proration”
ah never mind, philip already stated this below.
If a shareholder doesn’t make an election, what mix of stock and cash are they deemed to have elected?
It says in the PR yesterday, if no election was made it was deemed an election for all stock/no cash.
According to the PR yesterday, 81% of shareholders elected to receive cash, which would indicate cash elections will be prorated at 54% cash and 46% Blue Ant stock.
Okay so it’s too late to make an election. I bought right before the vote
Anyone feel free to correct me if I am wrong, but I am in the same situation as I bought yesterday, and my understanding is that you will either inherit the election previously made for your shares, or more likely, you will generally get whatever election status your broker’s net position has locked in on aggregate.
no you get your own election
This is regarding a scenario where you bought shares after the election deadline and therefore you don’t get to make an election.
C1.75 af current Blue Ant trading levels. Not bad
Plus Donville Kent believes Blue Ant is a good hold so I guess I could live with holding if the price turns against me
I no longer think it is worth holding TBRD shares into the merger with BAMI. So closing this one out at a small gain of 6.5%.
More shareholders (81% of all) have elected cash consideration than I expected. Clearly at least a few (or even all) of the Voss and friends group (37% owners, that have pushed for this transaction) have also elected to receive cash, contrary to my initial expectations. The result is that cash elections will be prorated at 55%, with consideration per share paid as c. C$0.98 cash +0.096 BAMI shares. That sums up to C$1.78share at the current BAMI prices, or an 8% spread. That’s too small margin of safety given BAMI’s illiquidity and likely selling pressure following the distribution of new shares.
any word on timing of payment?
The merger should close “in the coming weeks”. After that, it might take a few days for the consideration to arrive.
Are you long and short TBRD now? Or how does closing the position work?
Probably by shorting 45% of his TBRD position.
Are any shares available to borrow?
5.3m TBRD shares available today at 12.6%.
long and unhedged. may hedge up to half my BAMI exposure
The idea was to go unhedged (long only), so I simply sold my TBRD shares. As for BAMI borrow, IBKR shows 100k shares available at 8%.
I think they’re imagining that by making an election, you’re locked into the transaction. If so, then selling your TBRD shares before the transaction will mean you’re short.
I think this question is related to the question of what happens at merger for someone who buys TBRD now.
How did you sell your TBRD shares? That means you didn’t make any election and your shares remained unrestricted for sale?
Yes, i did not make the election, so my shares are unrestricted. Wanted to have that flexibility with unhedged trade.
People who buy TBRD now, what election do they have? Would be pretty strange if they inherit the election of the shares they buy. Whereas if they default to a stock-only election, then the proration would change as arbs exit before the transaction.
Hard to believe the election could be inherited. More likely they would get stock, same as the shareholders who had made no election and received the default option (stock). Would be interested to hear more educated opinions though.
I agree, it would mean that the TBRD you buy today isn’t fungible.
But if the election changes to all stock then the proration for cash electors will drift in their favor.
I guess another possibility is that by electing, you pledged your TBRD shares, sort of like a tender offer. In which case you shouldn’t be able to sell, otherwise you’d end up short once the transaction goes through.
Only shares that did not make the election currently trade. The others are locked. All non-election shares automatically default to stock consideration.
not many will exit. There’s still a spread.
But for tracking portfolio purposes, you elected for cash, right?
Quick pitches are not part of tracking portfolio (only portfolio ideas are in it), so TBRD trade was not taken into account for tracking portfolio purposes.
$BAMI getting awfully cheap today if you want to get long. Everyone dumping shares into the illiquid trade.
Anyone have a Schwab account and STILL WAITING for the BAMI:TO shares? That’s Blue Ant shares in CA.
I got mine last week at IB and Fidelity.
Nothing at schwab and it seems a little ridiculous.