Comments on: Blank checks: Fertile fishing grounds for liquidation value investors

By: Shell out for reverse mergers « Greenbackd

Shell out for reverse mergers « Greenbackd — Wed, 07 Oct 2009 05:02:08 +0000

[...] is an interesting graph. It show a comparison of compound average returns from shells and Special Purpose Acquisition Companies (SPACs), which we previously discussed in the post, Blank checks: Fertile fishing grounds for liquidation [...]

By: Jeff

Jeff — Thu, 23 Jul 2009 15:01:56 +0000

While the liquidation value argument is a key one that virtually eliminates downside. The really nice part of these companies is that if you buy the stock with the equity warrants either through purchase of the units or as seperate transactions you can virtually create a bet that has no downside risk (except potential fraud) and unknown upside. You do this by investing the gain from potential liquidation into the warrants.

The warrants act like rocket fuel if a transaction is done. You’ll notice if you dig into these things that the founders typically all hold warrants that were issued at significant discounts. Marty Whitman would call these discount securities. Also, with the hedgies like Loeb, Klarman, and others riding shotgun. You’ve got a very good chance that if a deal is going to get done it will be a good deal at a discount price significantly adding to the attractiveness of an investment in the warrants and the stock.

An example would be GHQ which has a deal set up to purchase Iridium Holdings for 5 times EBITDA through an all equity transaction which while dilutive will leave you holding shares of a company with no debt, a pile of cash, and a company valued at 5 times EBITDA when the comps are trading at higher multiples with leverage. All-in-all not that bad of a deal.

By: Shaun Noll

Shaun Noll — Thu, 23 Jul 2009 15:01:25 +0000

thats a very interesting investment strategy, i’m going to have to look into that and get back to you. would be interesting to pigghback Baupost into a SPAC.

By: Jeff

Jeff — Thu, 23 Jul 2009 14:49:23 +0000

LIA is not doing a deal. LIA is Liberty Acquisition Holdings Corporation. They have an international cousin set up by the same founders called Liberty Acquisition Holding (International) Company (Bloomberg Ticker: LIACS NA) that is doing a deal with a U.K. based insurer. These are different companies with similar names.

By: Ben

Ben — Thu, 23 Jul 2009 05:18:17 +0000

It’s a YTM thing….

By: Daniel M. Ryan

Daniel M. Ryan — Thu, 23 Jul 2009 05:10:55 +0000

In Canada, it’s different. “Capital pool companies” have two years to commit to buy a business or else they’re delisted, not liquidated. They may even stay listed by transferring their shares to a shell-company list called the “NEX Board.”

It shows you the difference between Canadian and American securities regulations. As a general rule, Canadian regs are tougher on the person, while U.S. regs are tougher on the company.

By: Ken

Ken — Wed, 22 Jul 2009 18:52:20 +0000

If I remember correctly Seth Klarman holds some SPACs as well. Need to go dig up his portfolio and take a look.

By: Toby

Toby — Wed, 22 Jul 2009 14:04:39 +0000

LIA looks to be doing a deal. Wonder if Loeb is displeased about that, or actually believed in the acquirers’ ability to do a knockout deal?

http://online.wsj.com/article/SB124628459346568125.html