This was a rather straightforward split-off transaction with an odd-lot provision. CBS Corp was divesting its radio business, which was merged with ETM. Existing CBS shareholders had an option to convert $1 of CBS stock into $1.08 of ETM stock. Holders of less than 100 shares of CBS were converted on priority basis without proration (further info here).
GHL has launched tender for 40% of the outstanding stock. The shares of the company were trading at all time lows and management indicated that they will not participate in the tender. On top of that chairman and CEO both pledge to invest additional $10m into newly issued shares at the same price as the tender. I reasoned that the tender is very likely to be under-subscribed and as a result of that the share price might jump after the tender results are announced.
This is exactly what happened. Even before the expiration shares traded above the tender price. The tender was only 30% subscribed and right after this was announced GHL shares jumped 10% resulting in 12% return over two week holding period (further info here).
The technical sell-off after the failed merger made DEST very cheap even for a struggling retailer. Bankruptcy was clearly not on the table and the company was priced as if the bankruptcy is imminent. Despite declining sales and store closures over the last year company managed to produce positive FCF and reduce debt balance. My expectation was that DEST stock was under strong selling pressure from arbitrageurs unwinding their pre-merger positions rather than actual reflection of company’s valuation.
Couple months later DEST reported somewhat positive results with lower decline in sales, continued cash generation and debt pay-down. Also it turned out that acquirer from the failed merger still seemed to be interested in the company or it’s parts and started carrying out proxy fight. With this background DEST share price recovered resulting in 90% gain over 3 months (further info here).
ADES is quite a complicated micro cap where the main value (and cash) is generated from tax credits of refined coal (RC) facilities. I argued that contractual cash payments from the tax credits part of the business are significantly higher than the current market cap. Management estimated these payments alone (almost fully FCF) to be worth $13/share undiscounted vs $9.8 share price. Big part of this cash flow was planned to be distributed to shareholders, including already announced tender offer, planned recurring dividend as well as any additional or incremental dividends. Further significant upside remained from unleased RC facilities and other parts of business. Thus we had a situation with a strong downside protection as well as material upside optionality.
As expected management initiated recurring dividends, returned cash through tender offer and announced new leases for RC facilities. Within 5 months share price approched my target generating 23% return (further info here).
OCB Bancorp was due to be acquired by BSRR – a far larger banking institution in Southern California – at $14/share. OJCB was at the time trading at $12.75, implying 10% spread. I attributed wide spread mostly low liquidity, low visibility and nano-cap nature of the deal. I saw limited risks of this deal falling apart – it made sense from business economics perspective and both sides seemed to be winning if the deal happens as planned. The largest question mark was OJCB shareholder approval, but with insiders owning 25% of the stock getting 1/3 of the remaining votes to approve the deal seemed very likely.
As expected OJCB shareholder approved the transaction and as a result of that the share price shot up to more than $14, generating a nice 10% return in 3 months (further info here).
Ferronordic was a non-listed company with a publicly traded preferred stock. Recently the company has initiated the process of launching an IPO, which would allow the preferred shares to get converted to common at 1300 SEK price. At the same time preferred shares could be redeemed by the company at 1200 SEK. The preferreds were trading at 1070 SEK at the time of write-up, offering 12% upside to redemption price and even higher upside to conversion price. Company successfully launched an IPO in Oct and preferred shareholders who opted for conversion will receive ordinary shares at 1300SEK valuation. Currently Ferronordic is trading 15% above it’s IPO price, for a combined return of 40% (further info here).
Carl Icahn launched dutch tender offer to acquire TPCA at $38-$45 per share (likely a step towards taking the company fully private). Shares were trading at $42.5 at the time. A number of factors pointed that the tender has a very high likelihood of being under-subscribed and therefore priced at $45/share. As expected, tendered shares were accepted for $45/share, resulting in 5.5% return in month. Subsequently TPCA share price shot up to $47+ in expectation of higher upcoming offer from IEP Thus non-tendering shareholders received an even higher return of 10.5% (further info here)
China Digital TV has sold its core business and announced special dividend of $1.5/share. Due to confusion on the ex-dividend date the shares have traded below this special dividend level on a number of occasion (as low as $1.33/share). I reasoned that after the dividend distribution the remaining stub would still have c. $0.55/share in cash. On top of that the remaining business which has showed very high growth rates in the past and operated around break-even in the latest quarter should also have some residual value. With all of that I assumed that the stub is unlikely to trade below $0.35/share (same discount to cash as before the distribution announcement).
$1.5 dividend has been paid out 2 weeks later (with no withholding taxes) and the stub traded in the range of $0.3-$0.4/share by the end of the ex-dividend day. Any investors that held out the position till the dividend payment realized generous 27% return in two weeks. (further info here)
AP alternative Assets (AAA) is a partnership vehicle established by Appolo. Its only remaining asset is the investment in Athene (ATH) – health insurer that IPOed in Dec 2016. AAA was (and still is) gradually liquidating its investment and already had made two distributions of ATH shares to unitholders. Partnership’s management communicated that it will distribute all of the ATH shares by March 2018 (or earlier) and then liquidate. At the time when I looked at this, AAA was trading at 8% discount to its NAV, all of which was comprised of ATH shares. I considered this to be close to risk free arbitrage opportunity - investors had an option to buy AAA shares, short corresponding amount of ATH shares and pocket the 8% spread.
The spread narrowed materially in 3 week resulting in 5% gain for the hedged position and then fully closed (8% gain) during the upcoming month when another distribution was announced. (further info here)
Back in Oct 2016 Energy Transfer Partners acquired 65% of PTXP and hinted its intention to buy-out the remaining public shareholders. Despite this PTXP was still trading significantly below the value at which ETP made the purchase and also at discount to its fair valuation. At the time when I published this idea (Feb 2017) ETP was pre-occupied with the merger of Sunoco Logistics and I reasoned that as soon as this merger is completed, the announcement will be made regarding the remaining public equity stub of PTXP.
That is exactly what happened – SXL/ETP merger was completed at the end of April and just yesterday ETP announced buyout of the remaining PTXP shares at $20/share. (further info here)
Tangoe was a company in a bit of a turmoil – financials were non-current, previously filled financials had to be restated, there was a pending class action lawsuit as well as ongoing SEC investigation. Despite this couple parties have expressed the interest to acquire Tangoe and shares were trading with a narrow spread relative to the expected acquisition price. However, in March TNGO delisted from NASDAQ and forced selling caused shares to drop 20%. This created a great buying opportunity. I reasoned that TNGO acquisition offer is still on the table as one the potential acquirers expressed their full awareness of financial mess TNGO was in and suggested that this situation did not reduce their interest. At the same activist investors were pressing the company to sell itself.
Just few weeks later, it was announced that Marlin Equity Partners have agreed to acquire TNGO at $6.5/share. (further info here)
Wingstop share price jumped +14% to all time highs after release of Q1 earnings due to good looking headline revenue and EPS numbers. However, the headline figures were misleading and were driven purely by non-cash accounting changes and one-time revenue item. In reality Q1 earnings showed hardly any positives with first ever decline in same store sales and continued deterioration in growth. I reasoned that such exuberant trading was likely caused by algorithmic robot trading or completely superficial retail investors who misread the headline numbers for huge improvement in operational performance. And due to that I shorted WING expecting fast share price correction at least towards pre-release numbers.
WING shares started dropping the next day and now stand close to the levels before the earnings release. All worked out exactly as expected with short position generating 10% in 2 weeks (option buyers generated multi-bagger 4x). (further info here)
LMT was divesting its IT Servicing business to Leidos in a split-off transaction. Every MLT shareholder could tender his/her shares and in return receive $1.11 of Leidos shares for every $1 of LMT shares tendered. Most importantly, tendering shareholders who own less than 100 shares were accepted on priority basis (i.e. their shares were not prorated). Thus the trade was straightforward – buying 99 shares of LMT and submitting these to tender. Market risk is eliminated by shorting Leidos.
Every invested dollar returned $1.11 after the tender, which resulted is $2700 of risk free gains in a month. Those that did not hedge out the market risk by shorting Leidos, realized even large gains of $7300. (further info here)
PG was divesting their cosmetics and fragrance assets to Coty in a split-off transaction. Every PG shareholder could tender his/her shares and in return receive $1.075 of Coty shares for every $1 of PG shares tendered. Most importantly, tendering shareholders who own less than 100 shares were accepted on priority basis (i.e. their shares were not prorated). Thus the trade was straightforward – buying 99 shares of PG and submitting these to tender. Market risk is eliminated by shorting Coty.
Every invested dollar returned $1.075 after the tender, which resulted is $650 of risk free gains in a month. (further info here)