KKR is effectively in control of the company via the $600MM convertible series B preferred stock issued in January of this year, the proceeds of which are in an escrow account. KKR is one of the original leveraged buyout shops and gives WMIH Corp access to deal flow and an experience management team. SPACs and "platform companies" are a current rage, add that with the M&A reputation of KKR and any WMIH acquisition could be met with investor enthusiasm.
WMIH Corp has cash of $670MM to use for an acquisition, $600MM in escrow and $70MM at the corporate level (I'm ignoring the cash and investments inside the runoff reinsurance company).
WMIH Corp has also granted warrants for 61.4 million shares at an average exercise price of $1.38 per share which will raise nearly $85MM. Add that with the $670MM in cash, plus the $750MM NPV of the NOL, totals $1.5B for WMIH.
The current share count doesn't include the dilution of the various warrants and convertibles in WMIH Corp's capital structure. KKR's series B preferred stock will convert to equity at the time of an acquisition at a price of $2.25 creating 266,666,666 shares, add in the 1 million shares of Series A convertible preferred stock and the warrants will add another 61.4 million shares to the current outstanding 202.3 million, or a total of 531.4 million shares. Using the $1.5B valuation number, that works out to $2.82 per share versus about $2.50 today. So you're merely getting an okay deal today for the shell, but the incentives and potential leverage in an acquisition are such that there could be substantial value creation once a deal is commenced.
- KKR is unable to find a suitable acquisition, pays the wrong price, or just simply takes too long creating an opportunity cost for investors.
- At the time of an acquisition, there will probably a rights offering, so keep that in mind when sizing a position. Trading around deal announcement, rights offering, and deal closings have been extremely volatile in these NOL shells, so even when there is good news, could be a wild ride.
Disclosure: I own shares of WMIH