Dun & Bradstreet: Strategic Process Wrapping Up, Cheap Valuation

Dun & Bradstreet (DNB) (~$3.8B market cap) is a provider of commercial data to enterprise and government clients, they are known for their DUNS number identifier which functions as a social security number or CUSIP for commercial entities.  The DUNS number is fairly ubiquitous in business (D&B tracks roughly 600 million entities worldwide), the identifier is recommended or sometimes required by commercial and governmental organizations to do business with each other.  D&B does other things like provide credit scoring for small-and-medium sized businesses (Paydex score), data to analyze supply chains and corporate information supplying many CRM or ERP platforms.  This is a fairly good business featuring recurring revenue, high retention rates, high incremental margins on revenues, etc., all things that generally attract people to data companies, however, they're slow growing and seem to be perpetually in turnaround mode.

Last August, D&B confirmed reports they had received inbound interest from third parties and had hired Bank of America to assist with running a strategic process.  We're eight months into that process, about a month ago Bloomberg reported Veritas Capital is in talks to buy D&B for roughly the current market cap at the time, or $5.4B plus debt, which is approximately $12.25/share.  The article also hints at alternative structures where D&B sells their two units (Finance & Risk and Sales & Marketing) to strategic buyers; all along the way there have been reports or company disclosures of both strategic and financial buyers showing interest in D&B.  In the company's recent earnings call, management mentioned the process was creating a distraction (blamed it for impacting new business, leading to a slow-to-no growth quarter) and that the process would be complete by the end of the quarter.  The market didn't like the excuse and along with a broader selloff in markets, DNB now trades for $8.50/share making this an interesting event-driven setup.

D&B is no stranger to private markets and the leveraged finance community (hopefully making it easy to finance a deal), it was taken-private in 2019 by a consortium led by Bill Foley (of FNF, FIS, etc fame) via his Cannae Holdings (CNNE).  The company's time out of public markets was short lived, it was re-IPO'd the following year with Bill Foley being the Executive Chairman.  Foley's Cannae Holdings is a HoldCo of his investments which has perpetually traded at a discount to its sum of the parts value (not a bad comp for what Bill Ackman is trying to do with HHH), last year they internalized the management structure and brought Foley on as CEO formally.  D&B is Cannae's largest holding (~1/3rd of the portfolio), monetizing this investment could provide a catalyst to close the NAV gap (separately, another CNNE holding, Paysafe (PSFE) is also rumored to be sold).

The current market selloff has created an attractive entry point for D&B, the company is pretty aggressive with their adjusted financials, so while cheap, it's not quite as cheap as management or data aggregators might show.

Restructuring charges and transition costs add-backs make up almost 10% of adjusted EBITDA.  However, even using the non-adjusted EBITDA number, the company looks pretty cheap at current prices even if a deal fails to get over the finish line.  Management is guiding to $955-$985MM in adjusted EBITDA in 2025, if we back out some of these adjustments and assume some underlying growth, I think $800MM in true EBITDA is a reasonable expectation.

D&B has $3,344MM in net debt, the enterprise value is ~$7.1B, making the EV/EBITDA multiple in the 9x range, cheap for a recurring revenue data model (higher quality ones trade for double this valuation).  Who knows how far the current market fall will go, but this seems like a reasonable "heads I win (potentially a lot) and tails I don't lose much" (assuming a 6+ month holding period to churn out any broken arb selling) situation.

Disclosure: I own shares of DNB

Third Harmonic Bio: Strategic Alternatives, Keeping Options Open on THB335

Third Harmonic Bio (THRD) (~$155MM market cap) is a clinical-stage biotech that just released data on their Phase 1 study for lead candidate THB335 for the treatment of chronic spontaneous urticaria (hives).  Alongside the announcement (where the data is apparently good enough to prepare for a Phase 2 study, as usual, no opinion on the science from me), THRD disclosed they were going to evaluate a full range of strategic alternatives and implementing a 50% reduction in workforce (eliminating 27 positions).

Continuing a positive recent trend, Third Hamonic Bio is doing most of the heavy lifting for us, THRD disclosed their estimate for cash on 6/30:

Assuming no use of their ATM between 11/1 and today, I get the following back of the envelope liquidation value (again, this likely won't liquidate):

The shareholder base looks pretty good here, Atlas Ventures and OrbiMed Advisors own collectively about 25% of the company, other familiar names are present in EcoR1 Capital, BVF Partners and RA Capital.  A reverse merger is likely here, possibly with a CVR attached to THB335.  I added a small position to the growing broken biotech basket (need some more momentum in deal announcements to clear out room).

Disclosure: I own shares of THRD

CARGO Therapeutics: Broken Biotech, Significant Cash Position

CARGO Therapeutics (CRGX) (~$150MM market cap) is a clinical-stage biotechnology company that is developing CAR T-cell therapies for cancer patients.  Last night, the company issued a press release stating they're discontinuing the FIRCE-1 Phase 2 Study of their lead asset, firicabtagene autoleucel, due to a non-competitive benefit risk profile for patients.  The stock is down approximately 75% on the news.

Additionally, CARGO announced they are going to evaluate strategic options and are commencing a 50% reduction in force.  The announcement is not a full waving the white flag, they do have a Phase 1 ready asset in CRG-023 that just received an IND application approval from the FDA earlier this month.  CARGO currently plans to go ahead with mid-year launch of a Phase 1 study, but my guess is those plans could change by then depending on what happens with the strategic review.  CARGO was a late 2023 IPO and thus has a nice chunk of cash remaining on their balance sheet that could be attractive to a reverse merger partner and provides some margin of safety at these prices if the process drags out.

Above is my typical back of the envelope math on a potential liquidation value for CRGX.  The shareholder base here seems pretty vanilla, there are no cornerstone biotech investors owning more than 10%, the board is staggered and management owns very little stock.  It might need an activist or other push to get things moving here, but I like the discount to a large cash balance and added it to my broken biotech basket.

Disclosure: I own shares of CRGX

International Game Technology: Gaming Segment Sold to Apollo, RemainCo Cheap

International Game Technology (IGT) (~$3.5B market cap) is a gaming supplier, the result of a 2015 merger of IGT and Gtech that is currently being unwound.  The historical IGT business is a video gaming terminal (slot machine) business, it is being spun in Q3 2025, merged immediately with smaller peer Everi Holdings (EVRI) in a reverse morris trust and the combined IGT/Everi will then be acquired by Apollo Global.  The end result is a $4.05B cash payment, before taxes and expenses (estimated at $400MM), to RemainCo (the IGT name is going with the slot machine business) which will be a global lottery management business (itself the creation of a merger between Italian Lottomatica with U.S. based lottery operator Gtech in 2006).  The lottery business (think scratch offs, draw games, multi-state lotteries) is generally a good one, it grows at GDP+, has infrastructure like characteristics, reasonable capex requirements, high barriers to entry and stable competition. 

Assuming the deal with Apollo closes, the market is assigning a low valuation to RemainCo:

There are only a few lottery competitors, closest peer Scientific Games (now Light & Wonder, ticker LNW) sold their lottery business in 2022 to Brookfield for about 11x EBITDA, Intralot (Greek based) trades for 9.5x, La Fancaise des Jeux trades for 9x and The Lottery Corporation (2022 spin from Tabcorp in Australia) trades for 16x.  Proforma RemainCo is trading well below all of these at ~5x EBITDA.

One reason spinoffs sometimes work is they create pure plays that generally trade a premium to a conglomerate.  Occasionally there are some downsides to breaking a company up, here while RemainCo should trade at a premium to the slot machine segment, my guess is it's currently being discounted because of revenue concentration (in addition to the Apollo deal obscuring value) that becomes more apparent when you split the business up.

The Italy Lotto makes up nearly 40% of RemainCo's revenue, unlike the U.S. (where RemainCo will have contracts with 37 of the 48 states/territories that have lotteries), Italy runs its lottery at the federal level via two contracts (roughly equal in size).  One of those contracts (Italian Gioco del Lotto game) is expiring this year and the bidding process is competitive.  Lottoitalia (a joint venture that IGT owns 61.5%) has run the contract since the 1990s, good time to mention that IGT is controlled by an Italian family via their De Agostini holding company (~42% ownership, ~60% of the vote) who are the original owners of Lottomatica and generally seem to be doing right by shareholders.  One potential reason for raising a lot of liquidity this year is the Italian lotto contracts feature an upfront payment by the winning bidder, reported to be at least $1B but likely will end up being more.  IGT accounts for the upfront fee as an asset that is then amortized straight line over the 9 years of the contract (they do remove the upfront amortization in their adjusted EBITDA metric).  The request for proposal was issued a couple weeks ago with a March 17th deadline, a reported other bidder is a consortium led by Flutter Entertainment (FLUT), which admittedly is a formidable, well financed competitor (but lottery is currently a negligible piece of their business).  My guess is IGT/RemainCo will do what it takes to win the contract, even if it means overpaying on the upfront fee.  

But if they don't, the stock still seems pretty cheap to me:

By removing the $1B upfront fee and ~$250MM in EBITDA (my guess, hoping that's overly conservative), it would only take EV/EBITDA up to 5.5x.  The stock would probably fall a fair amount, but the potential for shareholder returns via a buyback would increase and potentially offset some of that decline.  They've publicly stated their plan is to paydown $2B in debt, uses for the remainder of the Apollo funds hinge on the Italian Lotto bid, but they've stated some will go to shareholders in form of a buyback or special dividend.

Incumbents are hard to beat, especially ones so deeply entrenched, I think the Apollo transaction and Italian Lotto RFP fears are obscuring a really good business that should trade at a more normal 8x EBITDA (discount to its peers for being controlled) when all the dust settles.  As always, appreciate feedback, especially if you're on the ground in Italy, please share any thoughts on the RFP process.

Disclosure: I own IGT Jan '27 LEAPs

Keros Therapeutics: Pre-SA Broken Biotech, Large Cash Position

Keros Therapeutics (KROS) (~$420MM market cap) is a what I'm labeling a pre-strategic alternatives broken biotech, the company in two separate press releases (here and here) announced the halting of all dosages in their Phase 2 clinical trial of Cibotercept (KER-012) due to observations of pericardial effusions, which is a condition where excess fluid accumulates in a membrane that surrounds the heart.  What I find interesting in this situation is:

1. KROS has a significant cash position, my estimates put it around $650MM for a reverse merger, much higher than beaten up biotechnology companies I usually highlight
2. KER-012 is described as KROS's second program, their most advanced asset, Elritercept (KER-050) was out licensed to Takeda for $200MM plus milestone payments, so this failure might be obscuring the larger story here
3. KROS doesn't screen like a classic broken biotech because of the Takeda payment and their liberal use of their at-the-market equity offering program

Below is my basic back of envelope math on a potential liquidation value (again, not predicting a liquidation, more as a base case valuation for a potential merger/reverse merger):

The company has not declared a review of strategic alternatives, hasn't recently announced a reduction in force related to the failed KER-012 trials, etc., so this a riskier situation than others, but I think the absolute cash amount and sale of their primary asset makes this an interesting broken biotech to watch.

Other thoughts:

• My ATM estimate is using their 10/31 sharecount, based on their previous cadence, they likely issued more shares well above the current price into their December data disappointment, so the above NAV might be conservative
• The Takeda deal for KER-050 includes $370MM in development milestones and $720MM in sales milestones (plus a tiered royalty structure), how much is that worth today?  I'm not including any value in my liquidation NAV

Disclosure: I own shares of KROS

Howard Hughes: Pershing Square's Offer

I'm a couple days late on this post and turned into a bit of a "reply guy" on Twitter/X (you can follow me @ClarkinM) spewing some incoherent thoughts on the proposed Pershing Square offer, humor me a bit as I try to more intelligently spell out the current situation and where it might go from here.

On Monday, Bill Ackman's Pershing Square issued a letter to the Howard Hughes board outlining a proposed transaction that would see Pershing Square use the $1B they raised from outside investors at the management company level to buy 11,764,706 shares of HHH for $85/share in a tender offer.  Then simultaneously, HHH would issue an additional $500MM in debt to repurchase 5,882,353 more shares at $85/share.  As part of this transaction, Pershing Square would formally take over management of Howard Hughes Holdings and turn the company into a diversified investment HoldCo with Howard Hughes Corporation (the real estate business) as one of HHH's investments.  Pershing Square would charge a 1.5% base management fee for their services with no incentive fee.

To get it out of the way, Bill Ackman will probably get his way, maybe there's a bump, but this transaction has been teed up for a while (even the 2023 HoldCo corporate restructure in hindsight points to this being the end game).  I don't expect a third-party white knight to come in save minority shareholders, the best HHH shareholders can probably expect is a small bump in the tender offer and/or a discount in the external management fee.  Bill Ackman's fiduciary duties are to his management company investors and no longer HHH since he resigned from the board, he wants to keep this company public (rather than raise a fund privately to buy it) for a permanent capital vehicle that would justify the $10.5B valuation he raised capital at last year.  It's clear now, there's no scenario where he takes HHH fully private.

But here are my list of problems with this transaction:

1. Bill Ackman states, "When we filed our 13D on August 6th of last year, HHH's closing share price the previous day was $61.46 per share.  Including the market value of the Seaport Entertainment spinoff, this $16.62 increase represents a 35% total return over the last 14 years, or a 2.2% compounded annual return, and the Company has paid no dividend since its inception.  The Company's stock price performance is obviously extremely disappointing.."  Make no mistake about this, Bill Ackman founded Howard Hughes, it was his design in the GGP reorganization, he was the Chairman of the Board from the 2010 spinoff until April 2024 when he stepped down (presumably to setup this deal), not to mention he sat down for his infamous Forbes Baby Buffett article in 2015 touting HHH (HHC at the time) as the next Berkshire.  It's very disingenuous to now throw stones at the company with the solution being he needs to be brought back and paid handsomely to turn this around.  Why didn't he implement this strategy before?  The answer comes back to his management company is really the "next Berkshire" for him and not HHH.
2. This proposed transaction goes against HHH's two major strategic shifts in the last 4-5 years.  After the failed strategic alternatives process in 2019, Ackman got on a conference call and pledged to cut costs and refocus the company (even highlighted how the cost cuts should be capitalized and improve NAV).  This transaction clearly goes against this strategy as it will saddle the company with a significant G&A (~$60MM/annual) burden due to the external management fee.  The second strategic shift was the simplification of the business, becoming more of a pure play master planned community developer.  They've jettisoned almost all of their assets outside of their MPCs, sold the more cyclical and management heavy hotels within the MPCs, spun off Seaport Entertainment Group (SEG), all in an effort to simplify the business (and all those decisions were made while Ackman was the Chairman).  Ackman then files his original 13D/A a week after the spinoff, not giving HHH a chance to re-rate following the hiving off of the cash sucking Seaport business.  Now his plan is to allocate the free cash flow from HHC and invest in private businesses (hasn't he always been a public market investor?), going back on the Seaport spin rationale, just doesn't make sense and can't have it both ways.
3. The tender price is simply too low, management put out a "conservative" NAV of $118/share, in order to compensate remaining shareholders (any tender would likely be pro-rated) for the additional burden, the price needs to be higher than $85/share.  We've seen in the past, REITs that went to an external management structure, the asset manager directly compensates shareholders for the switch.  Here its indirect and insufficient.  Post transaction, the new externally managed HHH will trade at a significant discount to NAV.  Yes, the levered buyback will bump up NAV a bit since it will be done at a discount, but I would still anticipate an externally managed HHH to trade $70 or below in the current environment.  Could he bring in PIPE investors to backstop the tender?  Or some special dividend with a PIPE similar to biotech reverse mergers?  Something to show that outside investors at the HHH level are willing to go along with this transaction and not just investors in his management company.  When has an externally managed HoldCo actually worked?

The only other option for HHH would be to turn him down but given his ownership interest, he could bring in more friendly directors (presumably the board is already friendly) at the next annual meeting to get something done here.  Seems like the dye is cast, but doesn't mean its a feel good deal, feels a bit like Michael Dell and DVMT to me.  I'm still a little bitter about that one, guessing I will be about HHH for a while too.

Disclosure: I own shares of HHH

Income Opportunity Realty Investors: TCI Tender Offer, Potential Squeeze Out

Disclaimer: This is very illiquid and only appropriate for small PA's like mine

Income Opportunity Realty Investors (IOR) ($75MM market cap) is the smallest piece of the ARL/TCI/IOR Russian nesting doll, in a previous life it was akin to a mortgage REIT (although its a c-corp), today they only own one mortgage, their main asset is a receivable from Pillar Asset Management, the external manager and affiliate of the majority owner of ARL/TCI/IOR.  IOR has no reason to exist, TCI and an affiliate (RAI) own 89.78% of IOR and are currently conducting a tender offer (deadline just extended to 1/29/25) at $18.00/share to push that ownership level above 90% in order to squeeze-out the remaining minority shareholders.

Plans for IOR.

 

Except as disclosed in the Offer to Purchase, TCI does not have any present plan or proposal that would result in the acquisition by any person of additional securities of IOR (except TCI may purchase additional Shares if available at attractive pricing or TCI may purchase all Shares tendered in the Offer if more than 100,000 Shares are tendered), the disposition of securities of IOR, an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving IOR, the sale or transfer of a material amount of IOR Shares (except TCI reserves the right to consider any such transactions in TCI’s discretion), any material changes to IOR’s present dividend policy, indebtedness, capitalization, corporate structure, business or any material change to the composition of IOR’s management or the IOR Board.

 

It is expected that, initially following the conclusion of the Offer, the business and operations of IOR will, except as set forth in this Offer to Purchase, be continued as a stand-alone business unit substantially as they are currently being conducted. TCI will continue to evaluate the business and operations of IOR during and after consummation of the Offer and will take such actions it deems appropriate under the circumstances then existing. Thereafter, TCI intends to continue to work with IOR’s management as a part of a comprehensive review of IOR’s business, operations, capitalization and management with a view to optimizing development of IOR’s potential in conjunction with TCI’s business.

 

After completion or termination of the Offer, TCI may seek to acquire additional Shares through open market purchases, privately negotiated transactions, or a tender offer or exchange offer or otherwise upon terms and at prices as TCI determines, which may be more or less than the price paid in the Offer. If TCI does not acquire sufficient Shares in the Offer, including any subsequent offering period, to meet the Minimum Condition which would then put TCI (assuming it acquires the Shares held by its Affiliate) under the short-form merger provisions of the Nevada Revised Statutes, without a vote of IOR’s remaining stockholders, TCI will likely seek to acquire additional Shares to place it in a position that the Minimum Condition would have been satisfied.

No Stockholder Approval Required.

Under the Nevada Revised Statutes, if TCI acquires, pursuant to the Offer or otherwise (including by acquisition of the Shares held by its Affiliate), at least 90% plus 1 of the outstanding Shares, TCI believes it could, and may in the future, effectuate a merger under the short-form merger provisions of the Nevada Revised Statutes without a vote of the IOR stockholders. If TCI does not ultimately acquire at least 90% plus 1 Share of the outstanding Shares, any merger or consolidation involving IOR and TCI would need to seek the adoption and approval thereof by a vote of IOR’s stockholders. Thus, assuming that the Minimum Condition is satisfied, upon consummation of the Offer, TCI (together with its Affiliate) would own sufficient Shares to enable TCI, without the vote of any other IOR stockholder, to satisfy the requirements to approve any merger or consolidation without a vote of IOR stockholders. 

Shares currently trade above the $18/share offer price, meaning we could see a bump to shake out some more shares prior to the squeeze-out.

The "receivable from related parties" is simply a cash sweep back to Pillar Asset Management, when some investors make the comment that management uses a company as their own personal piggy bank, that's literally what is happening here.  Pillar is taking a loan out from IOR without a maturity date, the interest rate used to be prime + 100, but somehow got amended to a flat SOFR (some 3% above prime typically) last year.  So that's the type of people we're dealing with here.

The squeeze-out is supposed to be done at "fair value", given we're talking about near cash and its a current asset (the receivable from related parties asset is governed by a "cash management agreement"), book value should be pretty close to fair value.

Book value is ~$29.71/share as of 9/30, it'll have moved up above $30/share at year end.  Now, I don't expect TCI/Pillar to pay full book, but somewhere between $18 and $30 leaves a lot of room for management to take advantage of minority shareholders while still providing some upside to a dormant stock.  The other big risk here is timing, although this seems pretty well spelled out of the eventual path, guessing the squeeze-out happens within 9-12 months after the tender closes.

Disclosure: I own shares of IOR

Soho House & Co: Go-Private Transaction

Another one shared by a reader and similar to 23andMe, Soho House (SHCO)(~$1.5B market cap) is a 2021 vintage IPO that failed to live up to lofty expectations and now after receiving some bad press and investor skepticism, management along with an unnamed consortium want to take it private.  Seems to be a mini-trend (MAPS is another one that was shared).

Soho House is a private social club that was founded in 1995 in London by Nick Jones (he still owns 5.2% of the company, presumably part of the go-private transaction), it now has 45 social clubs around the world, their growth strategy is to target opening 2-4 houses per year.  The clubs (~$4800/year dues) have a fashionable bend to them, cater to younger creative types rather than a stodgy country club crowd, many of the clubs have rooftop pools, gyms, bars, other amenities that young professionals enjoy.  The company has expanded to some ancillary business lines like beach resorts and even furniture sales.  Soho House counts around 200+k full members with another 100+k on the waiting list.  But this business does have its negatives, its hard and costly (heavy maintenance capex business) to keep up an exclusive luxury image and goes counter to the grow story that was pitched during the IPO.

Back in 2012, billionaire media/consumer investor Ron Burkle bought a majority stake in the company via his Yucaipa private-equity vehicle.  After taking the company public, Burkle remains the Chairman of the Board and owns ~47% of the stock, plus more of the vote due to super-voting Class B shares (the publicly traded stock is Class A).  Burkle is a pretty eccentric guy, he reportedly has ties to some Hollywood scandals, bought Michael Jackson's Neverland Ranch and Bob Hope's Palm Springs house, also owns a minority stake in the Pittsburgh Penguins among other private investments.  Soho House likely has some vanity and/or social identity appeal for Burkle; it must be fun to be the owner of Soho House and socialize with their celebrity clientele.

Last February, the company came under fire when GlassHouse Research published a short report with a target price of $0.  The primary arguments were persistent unprofitability, broken growth story, aggressive depreciation schedules and rising debt levels.  Following the report, the company put out a press release announcing they previously had formed a special committee to "evaluate certain strategic transactions, some of which may result in the Company becoming a private company."  Then a couple weeks after (3/18/24), Ron Burkle published an open letter to shareholders:

Dear Shareholders

This is my first note to shareholders since we bought control of the company over a decade ago.

With all that’s gone on recently and my understanding that there has been leaked confidential information from the special committee process, I thought I’d proactively share my thoughts with you directly in the event confidential information is indeed leaked.

I’ve made hundreds of investments in my life, but none with a business model I like better than Soho House. It’s hard to read that we aren’t profitable when our Houses are very profitable and create tremendous long-term value as an in-place network. I feel the real focus should be on mature Houses that are in their second 5-year period of their growth curve, when the profitability and durability of the units really kicks into gear. With approximately half our Houses still less than five years old, we have substantial embedded value that will grow as those Houses mature, even before adding a single new House. Our post five-year Houses contribute on average 35% plus House-Level margin, with some of our oldest Houses well above that, making the network more valuable with time. This a unique and really compelling feature of the business model.

Public companies always have a tug of war over short term vs. long term profits. I’d again emphasize that this (to me) should be about value creation more than anything. Today Soho House is a public company. The Board and its affiliates alone controls approximately 75% of the stock, there aren’t many shares in the public’s hands. We have bought back so much of the small float that at today’s stock price the company can almost go private without any of us writing a check.

When we went public I believed the market would reward growth, but it seemed to quickly switch to rewarding free cash flow and profit over our top-line growth. So at this point in time we have all the costs of being a public company with few benefits. The recent negative write up caused the company to have an outside audit firm be hired by an independent law firm. It’s expensive to be a public company, this year it will be even more for a forensic audit that confirmed there are absolutely no issues and took critical management time away from the business.

...

There has always been a lot of investor interest in Soho House, and now is no exception. It is one-of-a-kind. It’s not a hotel company and it’s not a food and beverage company. It’s a membership company with a lot of demand and very low attrition (which provides a large and growing base of recurring revenues in the multiple hundreds of millions).

The public market doesn’t seem to understand or fully appreciate the value of Soho House, and the interest from the special committee process has shown private buyers may be willing to step-up and close the gap. However, it’s not for me to opine on the fairness or the appropriate value of the company’s stock, especially if I am not intending to be a seller.

In closing, given the mere potential of leaked information involving the special committee process, I wanted to go the extra step to share with you directly how I see the Company, any proposal and the process.

Sincerely,

Ron Burkle 

Despite the usual complaints about being public and the strategic process, Soho House announced in May, it was unable to come to agreement with the third party despite the offer "reflecting a substantial premium over the current trading price".  The special committee was dissolved, process over.  

However, six months later in December, alongside a delayed Q3 earnings (to make things even more murky, this company has some accounting / controls issues) announced that a new third-party consortium offered $9/share and importantly, had the support of Burkle and his affiliates to roll their equity interest into the go-private transaction.

The offer, which is supported by Ron Burkle and Yucaipa, was the result of a thorough strategic review undertaken by Yucaipa and its financial advisors to enhance shareholder value, as Yucaipa believes the inherent value of the Company is not reflected in its current share price.

Given the strong language and management/board's 75% ownership block, seems like this is the best that minority shareholders can hope for here.  The accounting is extremely convoluted making it hard to value, insiders clearly have an advantage and this could be a take under.  But shares trade for $7.60/share, offering ~18% upside to the non-binding offer.  Management isn't really incentivized here to promote a stink bid (although, I don't like that the third party consortium isn't named), there is a share buyback plan in place, management hasn't been selling into it, why would they artificially raise the price?  Absent the stock trading a premium, seems like the natural course here would be for management to eventually squeeze out minority shareholders as Burkle suggests in his letter.

Unlike 23andMe, this is an actual business and not a science project, reasonable people can debate how much it is worth, but it doesn't have a shot clock on it in the same way.  Less upside, but it seems reasonable that the 75% ownership block finds a way to get this out of the press and public eye which can't be good for business.

Disclosure: I own shares of SHCO

23andMe Holding: Busted SPAC, CEO Wants Go-Private Transaction

I put out the call for reader ideas and as usual, received many good ones.  A couple intrigued me enough to start small positions, one of those is 23andMe Holding (ME) ($100MM market cap).  23andMe is a well known direct-to-consumer DNA kit company that went public in 2021 via a Richard Branson SPAC at a $3.5B valuation.  It came public with lofty expectations and a lot of hoopla, but it failed to create a sustainable business model beyond the one time novelty nature of getting your DNA sequenced.  The stock price has fallen 95+%.

23andMe was co-founded by Anne Wojcicki, she has an interesting backstory as a high profile Silicon Valley founder who enjoyed the spotlight when the company was a venture darling.  I imagine the fall has been challenging, her identity is tied to the company.  Back in April 2024, Wojcicki disclosed in an amendment to her 13D that she was exploring taking the company private:

On April 13, 2024, Ms. Wojcicki notified members of the special committee (the “Special Committee”) of the Board that she is considering making a proposal to acquire the Issuer in a potential go-private transaction. Ms. Wojcicki indicated that she was working with advisors and intended to begin speaking to potential partners and financing sources. Ms. Wojcicki stated that any proposal by her would be conditioned irrevocably upon the approval of the Special Committee and a majority of the unaffiliated stockholders of the Issuer. Ms. Wojcicki also indicated that she wishes to maintain control of the Issuer and, therefore, will not be willing to support any alternative transaction. There can be no assurance that the foregoing will result in any transaction or any other strategic alternative and or whether or when any of the foregoing may happen.

In July, she submitted her non-binding proposal for $8/share (split adjusted, the company did a 1-for-20 reverse split in October, trades for $3.75/share today).  The WSJ reported "directors wrote in a letter few days later they were disappointed because it offered no share-price premium and lacked committed financing.  The directors threatened to engage a consultant to find a sustainable business model if she didn't revise her offer quickly."  Then in September, the drama (its not often a $100MM market cap company gets repeated coverage in the WSJ) ratcheted it up further when the entire board (other than Wojcicki) resigned in unison:

Dear Anne,

We, the independent directors of the 23andMe Board, hereby tender our resignations, effective immediately.

After months of work, we have yet to receive from you a fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders. We believe the Special Committee and the Board have provided ample time for you to submit such a proposal. That we have not seen any notable progress over the last 5 months leads us to believe no such proposal is forthcoming. The Special Committee is therefore unwilling to consider further extensions, and the Board agrees with the Special Committee’s determination.

While we continue to wholeheartedly support the Company’s mission and believe deeply in the value of the personalized health and wellness offering that you have articulated, it is also clear that we differ on the strategic direction for the Company going forward. Because of that difference and because of your concentrated voting power, we believe that it is in the best interests of the Company’s shareholders that we resign from the Board rather than have a protracted and distracting difference of view with you as to the direction of the Company.

We are proud of what 23andMe has achieved in pioneering direct access to genetic information, and we have been honored to have had the opportunity to be part of those efforts.

 A few weeks later, Wojcicki amended her 13D again to include the below language:

In response to a request from the then-current Special Committee of the Board, I stated that I would consider third party takeover proposals for 23andMe. Whether I would ultimately accept such a proposal remained within my discretion. In the interim period, based on subsequent developments, it has become even clearer to me that the best path forward for the Issuer is for me to take the company private. Accordingly, in order to update my prior statement and avoid any confusion in the market, I am no longer open to considering third party takeover proposals for the Issuer. I remain committed to completing an acquisition of 23andMe. Towards that end, the Issuer is working diligently to repopulate the Board of Directors so that any proposals to acquire the Issuer can be properly considered.

Wojcicki likes to tout that she's unconventional, but this is very direct language and surprising to see in an SEC filing.  To help facilitate this potential go-private offer, three new independent board members were appointed at the end of October, none of which appear to own any shares.

In November, 23andMe shut down their drug discovery and development business (one business model they've tried out is that of a regular-way biotech, they had two clinical trials running) and laid off 40% of their workforce in order to meet their goal of getting to cash flow positive in their traditional consumer DNA kit business.  Progress is being made, but potentially not fast enough, in their 9/30 10-Q, the company had a going concern disclosure, they need to raise capital in order to fund operations for the next 12 months.  This is a time sensitive trade, although 23andMe doesn't have any conventional debt (they do have a fairly big fancy operating lease), they're running out of cash quickly.

The bet here is that Wojcicki is able to take the company private with the re-constituted board presumably picked as friendly.  Dealing with public shareholders and the bad press associated with a stock down so substantially is bad for the brand (both her and 23andMe).  I'm sympathetic to the view 23andMe might have some valuable data, brand (they own one of countless online pharmacies getting into compounded GLP-1s) and IP that might be valuable to someone, especially in the current artificial intelligence hype cycle.

Other thoughts/notes:

• Anne Wojcicki rolled over all of her equity into the SPAC, contributed $25MM to the PIPE at $200 (split adjusted) per share and hasn't sold any of her shares since.  She appears to be a true believer in the company and its mission, although she's likely fabulously wealthy after previously being married to Google co-founder Sergey Brin for years.
• She owns 22.8% of the stock and 49.9% of the vote due to the dual class share structure, Class A (the publicly traded class) has 1 vote and the Class B shares have 10 votes.  No other significant holders remain, Branson is long gone, etc. 

Disclosure: I own shares of ME