The company is effectively controlled by the Gabelli family, they own/manage the top three spots on the shareholder register:
The LGL Group, Inc. Declares a Warrant Dividend
ORLANDO, FL, October 29, 2020 – The LGL Group, Inc. (NYSE American: LGL) (the "Company") today announced that on October 27, 2020 the Board of Directors declared a dividend of warrants to purchase shares of its common stock to holders of record of its common stock as of November 9, 2020, the record date set by the Board of Directors for the dividend. Each holder of the Company’s common stock as of the record date will receive one warrant for each share of common stock owned. Five warrants will entitle their holder to purchase one share of the Company's common stock at an exercise price of $12.50. The warrants will be "European style warrants" and will be exercisable on the earlier of (i) their expiration date, which will be the fifth anniversary of their issuance, and (ii) such date that the 30-day volume weighted average price per share, or VWAP, of the Company's common stock is greater than or equal to $17.50. The warrants are expected to be issued on or around November 16, 2020, and the Company intends for the warrants to be listed and traded on the NYSE American on or around such date, subject to NYSE American approval.
In November 2019, we invested $3.35 million into LGL Systems Acquisition Holdings Company, LLC, a subsidiary that serves as the Sponsor of LGL Systems Acquisition Corp (NYSE: DFNS), a special purpose acquisition company, commonly referred to as a “SPAC” or a blank check company, formed for the purpose of effecting a business combination in the aerospace, defense and communications industries. Prior to a business combination, the Sponsor holds 100% of the shares of Class B convertible common stock outstanding of DFNS (the “B shares”) along with 5,200,000 private warrants at a strike price of $11.50. The B shares equal 20% of the outstanding common stock of the SPAC. Upon the successful completion of an acquisition the proforma ownership of the new company will vary depending on the business combination terms.
The Company is expected to own approximately a 43.57% interest in the Sponsor through its direct investment. Assuming the terms of the business combination are identical in capital structure as that of DFNS, the Company anticipates its economic interest will include approximately 8.7% of the SPAC’s pro-forma equity immediately following a successful business combination. There can be no assurances that this scenario and the resulting ownership will occur, as changes may be made depending upon business combination terms.
If DFNS is able to come to a deal, the value of the shares attributable to LGL could be worth ~$15MM, certainly material for a company of this size. A couple of the DFNS executives joined the LGL board in August, possibly signaling that being a SPAC sponsor isn't a one-time affair (the mania is showing signs of cooling, so maybe that's a bit of a stretch). Either way, it is some built in optionality inside of LGL, and could have a bit of double leverage, the SPAC shares and warrants inside of LGL and then the LGL shares and warrants.
Even though I play around with options quite a bit, not an expert at valuing the warrant itself, but if you plug in terms of the warrant into a calculator and use a 50% implied volatility, spits out about a $0.75 per warrant (need 5 of them for one share of stock). Could trade a bit like a spinoff and certain shareholders might be inclined to sell it immediately.
Disclosure: I own shares of LGL
Pretty funny to come across this name here since I went through all the steps you did above a few months ago (I bought then), and just went back to value the warrant this past week. Nice to be fishing in the same waters...ReplyDelete
Is it still possible to get the warrant if you buy the stock now on Monday 11/09/20'?ReplyDelete
I believe so, the record date is 11/9. But if you want the warrants, might be easier just to buy them in the secondary market, they'll be tradeable.Delete
Hey, great idea. One thing: The 43.57% share in the SPAC was reported in Q1, however, in Q2 the share in the sponsor was 62.2%, which is even higher. My calculation goes as: (4.3M shares x$10 + 5M warrantsx$1)*0.622 = $30M. Where am I wrong?ReplyDelete
I think it's 62.2% of the "initial at risk capital" but a lower percentage of the proforma company after, I pulled the language in the post from the Q2 10-Q, 8.7% of the deSPACed company.Delete
What is the number of the warrant on the market, thank'sReplyDelete
A french guy
When calculating the value via the volatility, do you account for the $17.50 cap?ReplyDelete
Good catch, I didn't, no. More just threw that in there as a reference point for when it starts trading, but my preference would be more to think of it from a fundamental point of view.Delete
With IRNT flying is their spac stake now worth more than the entire market cap of LGL? I could see this being a temporary condition, but this is great for LGL and the team...ReplyDelete
Yes, temporary, and really only good if it helps them get another SPAC IPO'd.Delete
Wait, so just so I'm understanding, they currently have an interest of 8.7% of the despacced company. The company currently has a market value of $2.1 billion. There's no way that the economic interest attributable to LGL is $180 million, right? That's 3x the market cap, and this doesn't even include the warrants they own.ReplyDelete
Something doesn't match up - on a previous call, they mentioned that their economic interest at $10 per share would be something like $15 million. At $24 per share, the economic interest using that formula would come out to roughly $36 million, not including the warrants they own.
Shouldn't these two match up?
Also, just as a quick disclaimer:Delete
DISCLAIMER: The Author may buy or sell long or short securities of this issuer and makes no representation or undertaking that Author will inform the reader or anyone else prior to or after making such transactions. While the Author has tried to present facts it believes are accurate, the Author makes no representation as to the accuracy or completeness of any information contained in this note and disclaims any obligation to update such information. The views expressed in this note are the sole opinion of the Author, which may change at any time. The reader agrees not to invest based on this note and to perform his or her own due diligence and research before taking a position in securities of this issuer. Reader agrees to hold Author harmless and hereby waives any causes of action against Author related to the above note. This note should not be construed as a recommendation to buy or sell any security or as investment advice.
It's a little unclear to me as well, would welcome others to comment. I haven't spent too much time on it because I don't think IRNT's share price reflects fundamentals, it has simply memed (I feel a bit guilty about throwing some beer money on IRNT Sept Calls, made a little money doing that) until the PIPE lockup ends. I also think its a bit complicated because LGL owns a piece of the sponsor and not the sponsor shares directly, although it sounds like their participation in the PIPE is direct. Unclear to me if Gabelli would monetize those shares, my guess based on his history it would be a buy and hold. But if it allows them to raise another SPAC inside the sponsor, then that's where it really benefits LGL longer term in my opinion.Delete
They are actually going through with the spin of the operating company and disclosed that 2,843,935 shares of IRNT were distributed to LGL from the sponsor. Interesting again for sure, the remainco will get some discount.