This news hurt a little this morning, but there's a potential silver lining, I mentioned ZAIS Group (ZAIS) last year on the blog as the external manager of ZAIS Financial Corp (ZFC) that was being merged into Sutherland Asset Management (SLD). ZAIS Group at the time was a struggling structured credit manager, their flagship hedge fund was bleeding AUM (still kind of is) and their base management fees didn't cover their operating expenses (still don't). In February of this year, the company announced they were looking at strategic options and hinted at a going private deal which makes sense since this a controlled entity with the founder Christian Zugel maintain voting control of the former SPAC.
Since then, they've issued a sixth CLO and are warehousing a seventh, they've posted positive gains in their two main hedge funds for the year, and as a result are back to earning performance fees. Their accounting is a little tricky with consolidation accounting for some of their CLOs and not others, plus it was a micro-cap and very illiquid, I tried for a while to establish a position and come up with my own valuation, no real luck. But this morning, Christian Zugel filed a 13D in a manner similar to what Icahn did over at Tropicana (TPCA), but here he's already entered into a transaction with one major holder of ZAIS shares for $4 and wants the board to consider the $4 cash offer for the remaining shares he doesn't already own.
Disclosure: I own shares of ZAIS
I bought a lot premarket. Thought $3 was way too low given the situation. Flipped most of my shares around $3.60, bought some back and flipped them again. Crazy action (both price and volume) today.ReplyDelete
Nicely done - but why flipping them? Don't think the $4 transaction will happen as described?Delete
First of all there are some deal risks (somebody pointed out to me that, the promissory notes yield 8% (!)). Second, this was only a preliminary proposal, I'd say it takes at least until mid-2018 until the deal is completed. $3.60 seems like a somewhat sensible price.Delete
That promissory note is to Ramsey, to minority Class A shareholders it would be all cash with no financing condition, don't know if Ramsey negotiated a little extra vig for his time/loss since the SPAC closed. I don't know why it would take that long? Seems pretty straight forward, 2-3 months, probably done by year-end.Delete
I am slightly less optimistic, also I am no expert on this company so I require a little bit extra margin. The deal still looks ok at current prices and I still hold a little position. I just think it is _MUCH_ more attractive at $3.20 or lower than at $3.60 or higher. Stating the obvious, I guess ..ReplyDelete
That's fair, I should probably bring down my expectations. Thanks for your input.Delete
So COB owns almost 50%. Ramsey/Ramguard will own almost 19% post transaction. So they only need about 750k shares (Majority of shareholders excluding Zugel and assuming Ramguard will vote yes) to approve the deal. I think the BOD is highly likely to approve the deal (worst case scenario proxy fight, I guess?). Just a quick question, what is your conservative fair value estimate for ZAIS, In case the deal doesn't go through? Very nice find.ReplyDelete
That's tough. FSAM sold their CLO business to NEWS for ~3% AUM recently. ZAIS has $2.3B in CLOs, at 3%, class A shares have 67% of the economic pie and there are 14.5MM shares, I come up with $3.31/per share for the CLO business? Plus whatever the hedge fund management business is worth? It's tough to say what's included in that FSAM comp, if there were CLO notes/equity etc, just difficult to pin down with certainty what the fair value is of ZAIS, I guess that's why I had trouble with it before this deal was announced.Delete
One thing I didn't mention, the CEO (not Zugel) does have an incentive to get the deal done, he got paid $500k on 6/30, will get paid $500k on 9/30, and another $500k at the close of any transaction.
Great piece MDC! Always a fan.. This one is so confusing the spread is simply HUGE! Financing and due diligence are not conditions.. This could close really fast.. What are we missing!?! There is some good volume being exchanged!ReplyDelete
THe company is going on the road to talk about the split in the next week.ReplyDelete
Sorry -- which company?Delete
Thanks for the write-up. I got my shares bought out at $3.90 a couple days ago, but I'm happy to make a safe 20% for a 2 week holding. Only regret is that I didn't buy more! (As it always is on a winner!)ReplyDelete
You got a better price than me, I sold a decent chunk at $3.85. There seem to be algo buyers or something first thing in the morning? I still have a position.Delete
I think so too. That's when mine got sold. Early in the AM, ended up being the high price of the day.Delete
You mentioned Icahn and TCPA. That worked out well, you looked at all at Viskase (VKSC) at all? Company itself does not seem too appealing but it's currently trading around 50% below Icahn's implied valuation (if my math is correct).ReplyDelete
I have in the past, but great idea, I need to revisit. Icahn just did the same thing with tiny KDUS, it's a former NOL shell that he put a dozen or so Miami beach front properties into. I tried to buy after the hurricane but there was limited liquidity. VKSC could certainly be next.Delete
Yeah I got an alert on KDUS today and that is what reminded me of VKSC. I analyzed the individual KDUS properties about 6 months ago but did not think there was enough cushion at the then-current price (some of them were pretty neat, though: https://www.redfin.com/FL/Sunny-Isles-Beach/241-Atlantic-Isle-33160/home/43429458).Delete
There was a SA article written about KDUS: https://seekingalpha.com/article/4110354-carl-icahn-wants-take-cadus-private-1_3-shareDelete
Seems like Icahn is getting a great price.Delete
Has something changed on this? I thought it would be acquired so I am still in it.ReplyDelete
Nothing yet. I believe we're just waiting for the board to respond to Christian Zugel's $4 cash offer. I maintain a small position.Delete
There's a little back and forth happening, Zugel upped his bid to $4.10 after the board pushed back $4.30, hoping to get a deal finalized next week.
I'm positively surprised the board is actually acting against the founder / majority owner. I'd have expected the board just hired Duff & Phelps to make a few spreadsheets to show what a great deal $4 was.Delete
Yes, quite the surprise!Delete
Has been trending lower a little bit over the past few days while, afaik, the situation has only improved. I've been buying back some shares.Delete
Same, I've added this week, should get an update in the next 24-36 hours if the timeline holds.Delete
I put in a bid in at $3.70. We'll see if it gets filled.ReplyDelete
Nice price action recently. Hopefully means they will get the deal done.ReplyDelete
If I'm reading their new SC 13D/A filing from today correctly, still no agreement on a deal. Gotta say I'm pretty surprised.ReplyDelete
A little odd, on one hand I like that the committee is pushing back a little on the price, but if this deal falls through then what do we have? Zugel controls the company, there's not going to be a better offer from a third party. Would be curious to hear writser's take?Delete
I have nothing sensible to add :) Takes longer than expected. FWIW the way I see the latest 13D is that Zugel moved all shares from his wife, his trust and himself into an acquisition vehicle and gave himself exclusive voting rights. He did so last Thursday - why would he do that if he expects the deal to fall apart? That's just my guesswork though.ReplyDelete
I'd say there is still a big chance that there will be a deal around $4.10 within a few weeks. I'm still holding a position but, on the other hand, at current prices upside is smallish and downside probably material.
Also, what still holds and why I liked this deal in the first place: Zugel is the founder, chairman and chief investment officer, has voting control and the offered price and the counter proposal are less than 5% apart. Just seems common sense that there _will be_ a deal. The CEO is on the board. What's he going to do? Vote 'no' and piss of the guy that pays him $2m / year?Delete
Good catch on shuffling his holdings around, that's more the reason for the new filing versus just "nothing new" on the deal front.Delete
I'd assume this would trade sub $2 again if the deal broke, not a great risk/reward currently and the longer it drags on the more conspiracy theories enter my head. But the CLO industry is continuing to boom, as you mention he is ZAIS, so this should get done here soon but its curious why its taking such a long time to close a 5% difference in price? Probably a sign I'm too big in it, slowly trimming here and there now.
CEO resigned due to the transaction. Release says deal discussions continue. Had a mini heart attack when I saw the headline but positive signal deal will get doneDelete
Same, although I thought he had a retention bonus tied to the deal getting done? I'll have to go back to my notes when I get a chance.Delete
And we've got a deal! $4.10. Couldn't find a timeline, but July, 11 is the termination date. Will probably take another ~3 months to set up a meeting and close the deal.ReplyDelete
Finally, sweated that one out a little bit. Thanks for all the back and forth, made money a few different times since the deal was first whispered, now looking for the next one.Delete
Well done! The logic was always a deal was happening, but the delay did cause doubts!ReplyDelete