A tender offer is announced when a company intends to buy a part of its own outstanding shares. This can be done for various reasons, such as capital return to shareholders or maybe management simply thinks that shares are very cheap at the moment. Usually, the consideration comes in cash, and to incentivize participation, the offer is done at a premium to the share market price. Because of the premium, the offer might end up oversubscribed, and leave some of

When launching a tender offer the company also can opt to reduce its further administrative burden and cash out various minor shareholders. In this case, the tender offer may include an odd-lot provision. This provision means that holders of 99 shares will get accepted in the tender offer on a priority basis and won’t get prorated. Such situations provide a rather low-risk upside (yet capped) for odd-lot holders as it is very rare for an odd lot provision to get

SPAC is an acronym, short for “special purpose acquisition company”, which became extremely popular recently due to a record-breaking number of companies choosing to go public via SPAC.

A SPAC is a shell company with no operations, created in order to buy another company. So essentially, SPAC could be explained as a “bag of cash that exists for a purpose of a merger”. For private companies, SPAC is just an alternative way of going public. The whole procedure is this –

A reverse split is announced when a company intends to reduce the number of its outstanding shares. This can be done for various reasons, for example, to nominally raise the share price and keep it above $1.00/share, which is the level required to stay listed on NYSE and NASDAQ. Reverse splits include a split ratio (e.g. 1 for 100, so if you previously owed 1000 shares, only 10 will remain post-split), while the odd-lot or fractional shares usually get cashed

As a special situation liquidation can come in many different forms and stages – sometimes it’s a company that is selling all of its assets and intends to distribute the proceeds ex liquidation costs to shareholders, sometimes the company only intends to sell the assets and a lot of uncertainty regarding the sale still remains. The other times, it can be a company that simply has its assets in run-off and needs to wait a certain amount of time before

This special situation is closely related to the sum of the parts valuation of the company. There are many companies that trade at a significant discount to its SOTP and have their assets undervalued by the market. In such cases, an asset sale could become a catalyst for the share price increase as when the assets eventually get exchanged into cash, the market is much more likely to start recognizing that value.

Asset sale situations require a sum of the

This type of special situation revolves around holding companies or funds (e.g. closed-end) that trade at a discount to its NAV, have their assets listed on an exchange (straightforward valuation), and are easy to hedge. In essence, the idea is that a certain corporate event may eliminate the company’s discount to net asset value, however, all cases are different from each other so there are no ultimate rules here. For example, for a holding company, the discount elimination could be

When a company has more than one tradeable share class (e.g. additional nonvoting common share class or preferred shares) it is usual for a certain discount to exist among the classes. There might be various reasons for that – a voting benefit of voting shares, liquidation preference of the preferred stock, or the difference in free-float/liquidity/inclusion in major indices. Over the years this discount settles into a certain average and sometimes due to unexpected events (e.g. market crisis) or some

In certain jurisdictions (e.g. Honk Kong, Sweden), when a buyer acquires a certain level of ownership in the company (30% in both HK and Sweden), it must make a mandatory offer for all of the remaining shares of the company. The consideration also depends on the jurisdiction, but usually is either the last price or the highest price paid by the buyer in the last 6 months.

Mandatory offer situations might differ depending on the way the ownership threshold was

When the company becomes insolvent and is no longer able to repay its debt, it can file for Chapter 11 protection and proceed with a bankruptcy process. Depending on a particular case, the outcome of the bankruptcy might vary, but the most important question remains – is there any value to be left for equity holders? The answer to this question might provide two types of play:

Most of the time, when the bankruptcy is truly a result of a

Rights offering is another way of raising equity while giving the priority to current shareholders. Each shareholder is given an opportunity to acquire a certain amount of shares (e.g. 0.2 new shares for each currently held share) and to incentivize the participation, new shares are offered at a discount to the market price. Sometimes an oversubscription clause can be included as well, meaning that you can buy more new shares if someone else chose to abstain from exercising their rights.

Here you can find our recommended sources to expand your knowledge on special situation investing.

Above all, we’ve found that a very efficient way to learn is by analyzing past/already closed cases. SSI offers several hundreds of different special situations, where you can see the clear and concise picture of the whole set up, thought process behind the thesis, further developments, and additional valuable feedback from the members. This sums up to an experience that can be hardly compared to