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What’s an Oddlot Tender?
These are my favorite and will be yours too. When a company tenders for their shares it’s done on a lottery basis. That means that if a company tenders for your shares you’ll be lucky to sell your shares at a premium. BUT a little known provision exists called the “oddlot provision.” If you own 99 shares or less you are GUARANTEED to sell your shares. You also need to read through hundreds of an SEC filing to find the trade. Lucky for you, I’ve done the work for you.
Case Study: TWIN RIVER CASINO Modified Dutch Auciton (TRWH) 7/31/2019
https://www.sec.gov/Archives/edgar/data/1747079/000114420419032320/tv524062_exa1a.htm
Look at how long that is!
And here’s what you’re looking for:
The key is that if you hold 99 shares or below you are first in line for the share tender.
The tender was announced on 6/25/2019 and expired on 7/31/2019. The minimum price for the tender was $29.50, but what happened to the stock price in the meantime?
Yep, you could buy the stock and sell it for a profit, and since you’re the little guy and only own 99 shares you’re first in line this time.
You could have made 8.41% buying and holding your 99 shares for 6 weeks. That’s $210.87 in 6 weeks. Market up down or sideways. Who said there aren’t free lunches.
BUT. If you waited until a day before the tender you could buy your 99 shares for 25.21, handing you $424.71 and a WHOPPING 16.96% one day return. Do that everyday for a year.
What’s Deep Value and Special Situations?
Something different to every person. I’ll let you know what I like but it’ll be something dicey that you’d be embarrassed to tell your friends or colleagues you own. Sometimes it works out and sometimes it doesn’t.
I find situations I believe to have positive expected value. That means if you do them 10 times you might only win 3 or 4 times, but when you do you get more than a double. I never do it the easy way, Trust me.
There’s usually some regulatory tailwind that most people aren’t paying attention to or a headwind that the market thinks is blowing a little too hard.
OR it’s something that trades incredibly cheap. Buying a dimly lit cigar butt that’s priced like it’s not on because nobody in their right mind would own it.
SPACs? Headed to Space?
Not for the faint of heart, but SPAC (Special Purpose Acquisition Corporation) are “blank check corporations.” Basically you hand a famous business person your money and they have 2 years to find a company to “buy”. Usually it’s a piece of another business or a company a PE overlord wants to get rid of. Careful. These are an absolute minefield.
HOWEVER….
There’s also good money to be made in them. Each “UNIT” consists of a Warrant and the Stock. The stock is invested in treasuries that accrue risk free. SOMETIMES the stock trades below its liquidation value. Why? Well, hedgefunds that need to return money to investors just need their money back. You then “redeem” your shares for the liquidation value. It’s kind of like buying someone else’s Certificate of Deposit (CD) at a discount because they want their cash out now.
That’s the boring one.
Warrants are more interesting. There’s two strategies here. One is to play an announcement of a “De-Spacing.” The strategy here is simple. There’s management teams that are very reputable get good deal terms and the reverse merger preforms very well (Look at WSC). It’s simple. You buy the warrants a deal is announced and the warrants usually double overnight.
Well why doesn’t everyone do this? IF the management team can’t find a deal then those warrants you just bought….0. Yep worth 0.
There’s another way.
After a deal is announced the shareholders have to vote on whether they want in or out. Usually the warrants are trading very cheaply on an IV basis because we’re just not sure if the deal is going through, and if the deal fails those warrants are worthless (explain THAT to your investors). Why risk your job?
This is where our opportunity sits. Remember that liquidation value we talked about before? Well by looking at that and the proposed deal terms we can get a pretty good idea if the deal is going through. What happens when we’re right? Another double overnight.
Happy to connect via email at deepwatervalue@gmail.com or on twitter @deepwatervalue.
Safe sailing the choppy waters…
