ToffCap's Monday Monitor #39

Interesting event-driven and special situations

ToffCap’s Monday Monitor is our weekly overview of interesting event-driven trades and special situations.

Disclaimer. ToffCap’s Monday Monitor is provided for informative purposes only. No due diligence has (yet) been performed on the names on this list. The list might change strongly on a regular basis. This overview does not constitute advice; always do your own due diligence. The list is dynamic; it continues to grow and change. If you have interesting additions to the list, feel free to contact us at contact@toffcap.com or on Twitter.

Important note: we’re going to take a bit of time off for the upcoming holidays. We’ll be back soon!

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This week’s additions and highlights

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1. SPIN-OFFS

• Vivendi (VIV France). Trying (again) to figure out ways to reduce the conglomerate discount. Now exploring a split of the company into several entities (Havas, Canal+ and an InvestCo). UPDATE: Recently provided an update on its spin project. So far Vivendi seems serious about the plans (and share price is reacting). UPDATE (July 15, 2024) Vivendi is said to be working on listing Canal+ in London. Target is IPO by year-end. This is yet another (good) step towards unlocking the significant SOTP value. UPDATE (November 11, 2024) We flag the upcoming shareholder vote for the spin-off(s) on Dec 9 (Havas, Canal+, Louis Hachette), and the publication of the information document. Share price down ~10% over the past few days (Nov. 11).

  UPDATE (December 16, 2024) Spin-off project approved. First trading day for the three companies (Canal+, Havas, Louis Hachette) is today (Dec 16), on LSE, ENX Amsterdam and ENX Paris. We expect quite some volatility around these names; they are significantly different businesses and will trade accordingly.

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2. STRATEGIC ALTERNATIVES & REVIEWS

(Potential take-outs, asset sales, M&A, etc.)

• PHX Minerals (PHX US). PHX recently announced that it will evaluate 'certain strategic alternatives to maximize shareholder value, including a potential merger or sale…'. Management has been a consistent buyer in the open market.

• Aadi Biosciences (AADI US). Our friend @Lord_of_Biotech flagged this net cash, negative EV busted biotech, currently assessing strategic alternatives. BUT there is some interesting action going on. Already two big funds in it after their announcement. They have a marketed product which itself could be worth as much as the company, but is to small to engage a whole sales team. In addition to the net cash they might have residual pipeline value.

• Bragg Gaming (BRAG Canada). Peer GAN to be taken out at >100% premium. Bragg is higher quality and profitable, trading at large discount to implied (similar) deal valuation. UPDATE (April 8, 2024) Reviewing strategic alternatives, which may include the sale of the company or of its assets, a merger, financing, further acquisitions, or other strategic alternatives. No timetable to complete the strategic review process has been established.

  UPDATE (December 16, 2024) Bragg concluded its review without a sale, stating that they "received multiple non-binding proposals", but that “none of the proposals received reflect the company's intrinsic value or current and projected financial performance”. However… the co came out with a pretty bullish statement, mentioning ao significant insider purchases and reiterating a bullish FY25 outlook. This does not feel like its over.

• Intevac (IVAC US). A lot is going on at Intevac. The company recently announced that it will "renew" its focus on strategic options. While the shares jumped ~25%, they are just back at the level of a few months ago. Also, a ton is going on: Intevac recently initiated a restructuring (ic cost slashing phase), a quarterly dividend (as of Q1 25), guided for ~$71m net cash and ST investments by year end (76% of the current market cap) and guided for ~$200m revenues from its HDD business over the next three years.

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3. NOTICEABLE LARGE BUYBACKS

• Pacific Current (PAC Australia). PAC seems to be on the verge of launching a tender for 50% of the market cap. PAC received several bids for the company at roughly AUD 11 per share that were rejected. NAV is at roughly AUD 12.2 vs the current share price of AUD 10.28 (June 14), suggesting the tender offer might come at a premium to the current share price. UPDATE (October 21, 2024) While the price shares barely moved since our initial highlight, Pacific continued to divest assets over the past few months. Wide gap with NAC remains and the company remains intent on closing it. PAC noted that a ruling from the Tax Office is expected 'later this year or early next'.

  UPDATE (December 16, 2024) PAC continues to sell assets and recently announced a $300m buyback at $12 p/s. That's 50% of the current market cap, after the recent move. Even at $12, the buyback seems pretty accretive for the company.

• Mondelez (MDLZ UK). While Mondelez has been in the news for trying to take Hershey (HSY) private, the company also approved a $9bn share buyback, ~11% of the current market cap. Buybacks have accelerated since Q1 24, a trend which might continue as this ex-growth company searches for ways to spend its massive cash flow. Might be interesting from a defensive point of view given the strongly depressed share price.

• ADF Group (DRX Canada). ADF recently bought back and terminated 8.4% of s/o. You know we love this stock. The (relatively small) sale from the main shareholders, Canada's new capital gain tax and a healthy breather after +130% ytd (June 28) are creating a nice entry opportunity after a stellar quarter.

  UPDATE (December 16, 2024) ADF announced it will be buying back another 10% of the shares. Management is clearly frustrated by the valuation ("it's a joke") and remains very confident that the order book will growing going forward, although in line with the lumpy nature of the business.

• Forum Energy Technologies (FET US). Forum recently announced a $75m share buyback, roughly 41% of the current market cap. The company also announced the receipt of $20m from its sale and leaseback transaction.

• REV Group (REVG US). REV is firing on all cylinders, and recently announced a $250m buyback, ~14% of the current market cap.

• Olin (OLN US). Chemco Olin, which has seen its share price drop almost 30% ytd on poor end market demand, announced a $1.3bn buyback (increase to $2bn), a whopping 30% of its market cap. A reminder that this is a pretty cyclical and cash generative company.

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4. INTERESTING INSIDER PURCHASES

• Strawberry Fields REIT (STRW US). Interesting insider action with insiders buying a LOT of shares in the open market after the company announced it raised 3.3m shares at ~$10.5m.

• DSW Capital (DSW UK). VERY large insider purchases in the open market by the founder/CEO (and largest shareholder) as well as another major shareholder. Every time we see this happening at a profitable micro-cap, one needs to stop and check it out.

• OneWater Marine (ONEW US). A flurry of insider purchases in August after a long period with little activity. OneWater is experiencing some market headwinds, but insiders seem confident this will not last. UPDATE (November 25, 2024) Insiders (ao the CEO) are back at it again, in size. Something's cookin'…

  UPDATE (December 16, 2024) Insiders continue to back up the truck on shares in the open market. Again, we feel that something is going on here…

• Profound Medical (PRN Canada). Profound is a medtech company with a long history of insider purchases in the open market (and no sales). While not profitable and cash burning still, yoy revenue growth has started to accelerate significantly over the last two quarters, with the sell-side projecting further strong growth in Q4. Interesting to keep assessed.

• Myers Industries (MYE US). Myers is another company with a long history of insider purchases (and few sells) with recently a flurry of open market purchases. Myers is active in the containers and packaging business, which has see quite a bit of consolidation over the past years. The company is down >30% ytd, mainly a result of slow growth and a pretty large acquisition which levered the b/s. Nonetheless, this is an interesting market with strong cash flow generation potential. Myers expects the acquisition to be EPS accretive as of FY25, with "with additional meaningful EPS accretion beyond 2026". ~7x ev/ebitda for what could be DD% ebitda growth over the medium-term.

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5. LIQUIDATIONS

• Asset Plus (APL New Zealand). Asset Plus is a debt free single asset REIT that is likely to wind up in the next 1-2 yrs. Shareholders will be requested to vote on a potential liquidation.

• XL Media (XLM UK). Pro-forma the sale of certain sports betting & gaming assets, XLM will be trading around net cash. High potential upside if you believe that the proceeds will not be wasted on M&A and that the company will be taken out. UPDATE (October 7, 2024) H1 24 results confirmed ~$20m cash balance (net after cost) excl. another $10m received on Oct. 2 and up to $12.5m to be received in April 2025. This on a ~$34m market cap (October 4). 'An initial return of capital to shareholders is expected in Q4'. UPDATE (October 21, 2024) XLM to sell its remainco (ic North American) assets for $30m in cash, $20m upon completion (in Nov.) and another $10m payable in April. What remains is a cash shell, solely focused on the distribution of the funds.

  UPDATE (December 16, 2024) Proposed to undertake an initial tender of up to $20m in the New Year, representing ca half the potential total available cash after taking account of expected costs, liabilities and further receipts due from the disposals (both deferred consideration and projected earn out). Cash at the end of October was $17.7m, with gross proceeds received in November of $20m. XLM will receive $7.5m on 1 April 2025 and estimates earn-outs of $3-4, possibly up to $5m. BUT XLM estimates its costs to be $11-13. Stock down big-time (scared by relatively high costs).

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6. NOTABLE 'RUMORS' AND REPORTED INTEREST

• Vestis (VSTS US). Reports that Advent International and Apollo Global Management are among the buyout firms exploring a potential acquisition of uniform supplier Vestis. Vestis is an old TMM highlight (the Aramark spin). At the time of the spin management guided for 5-7% organic growth and 4-6% EBITDA margin expansion over five years. The start was not good and VSTS has been undergoing a turnaround, with the first signs of improvements. We would not be surprised to see this one be taken private.

• SoftwareOne (SWON Switzerland). Once again reports that the company is for sale. UPDATE (May 6, 2024) Current board replaced by founders. Action continues. Very bullish sell-side projections. UPDATE (October 7, 2024) Are we finally going to see some action in this perennial takeover candidate? Bloomberg recently reported that Apax and large SoftwareOne shareholders have been discussing structures that would allow them to take SoftwareOne and Crayon Group (CRAYN) private and merge. SWON shares have been under pressure lately as it was also suggested that SWON was weighing a deal to takeover Crayon. Overall, a lot of action here.

  UPDATE (December 16, 2024) SoftwareOne confirmed that its in advanced discussions to take over Crayon (CRAYN). Both companies have roughly the same market cap and would create a major pan-European software reseller. SWON shares have imploded recently. Interesting given the strong volatility and ok-ish assets.

• Logility Supply Chain Solutions (LGTY US). Reuters reported that Logility Supply Chain Solutions is exploring a sale. LGTY provides supply chain mgt and enterprise software solutions. While this one is not growing (at all), revenues are sticky and cash flow generation is healthy. 20% of the market cap is net cash. Add the ok-ish GMs but low ebitda margins and this one seems ripe for massive cost cuttings (meaning we get it why someone would want to buy these assets). In addition, activists are pushing LGTY to explore strategic alternatives.

• Berkshire Hills (BHLB US). The WSJ reported that regional banks Berkshire Hills and Brookline (BRKL) are in talks to combine. A deal could be announced next week already.

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7. M&A / MERGER ARB

• Revance Therapeutics (RVNC US). The Crown/Revance deal spread blew out to 80% (give or take) after a 'going concern' disclosure at the recent result filing. This deal has been pretty dynamic to say the least, but it might be a good time to look at Revance; this biotech has strongly ramping revenues with >70% GPs and will soon be hitting operating profitability if it continues to grow a this pace.

  UPDATE (December 16, 2024) Crown Lab and Revance restated the merger agreement, slashing the price >50% to $3.1. Crown commenced the tender offer to acquire Revance; offer is expected to expire on January 13, 2025.

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8. ACTIVIST ACTION

• Daktronics (DAKT US). Old TMM favorite Daktronics recently made the news as Alta Fox (~12%) has been pushing for board changes in order to improve governance. Alta Fox believes that DAKT could achieve ~$40 p/s and ~100% upside through governance reforms, board refreshment and operational excellence. Needless to say that we agree.

• Riot Platforms (RIOT US). Activist Starboard Value was reported to have built a 'significant' stake in RIOT and has been pushing the company to move capacity towards big data-center operations. We have seen this before, and would transform the earnings profile from very volatile (ic Bitcoin mining) towards very stable given LT contracts. Might strongly rerate the company if achieved.

• Lionsgate (LION US). Spin-off of the movie / TV studio business estimated in September. Lots of action with bondholders forming a bond group to block the spin, and appear to be succeeding. UPDATE (Jan 7, 2024) Now intends to spin studio business via SPAC Screaming Eagle (SCRM US). UPDATE (June 17, 2024) SPAC-deal completed. UPDATE (August 19, 2024) Shares are roughly -30% since listing (August 16). Might be interesting to keep on the watchlist as SPAC listings often get (seriously) discounted while LION does have a few good franchises. Also, overall cinematic revenues are still been pressured by past Hollywood strikes, which should improve as of Q4 24. Still no coverage.

  UPDATE (December 16, 2024) Bloomberg reported that Anson Funds has been speaking with the studio behind The Hunger Games and John Wick about ways to unlock value. Anson believes Lionsgate is undervalued and that the company should consider a range of options, including a potential sale. We are not surprised; see our previous comments. This should be a strongly cash flow generative company with strong franchises in a sector that is recovering.

• NCR Voyix (VYX US). Speculation regarding the potential sale of the Digital Banking unit (roughly 25% of pre-corp ebitda). Sale would unlock the strong SOTP dynamics, with >70% upside on our (back of the envelope) estimates. Remainco seems cheap as well. UPDATE (August 19, 2024) Nice to see insiders buying in the open market in this battered names surrounded by speculation of a potential sale.

  UPDATE (December 16, 2024) Engage Capital recently made the news stating that the market is "failing to see the significant upside”. Sooner or later here…

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9. INTERESTING SITUATIONS

…but not exactly event-driven or special sit

• Cavendish Hydrogen (CAVEN Norway). @olvehe shared the interesting case of Cavendish Hydrogen. CAVEN is a microcap spin from NEL (that got really hyped during COVID), currently trading at a deep discount to NCAV that is mostly cash (negative EV). Cash burn is high, but early December an activist investor took control of the BoD. No specific action from the new chairman yet, but in the Norwegian financial press he mentioned pressing for a strategic review, and referenced a transaction in the space this July (McPhy).

• Coincheck (CNCK US). We highlight this recent de-SPAC. It took quite some time to close this one, but given the recent market hype, this one might provide an interesting opportunity for those willing to stomach some volatility. As the name implies, Coincheck is a crypto trading platform, one of the largest in Japan.

• Base Carbon (BCBN Canada). We present this weird but interesting micro-cap. According to Bloomberg Base Carbon "provides carbon credit solutions. The Company offers capital, development expertise, and management operating resources to projects involved primarily in voluntary carbon markets and the broader ESG economy". We have spent 5 mins on this one, but were surprised to see the net cash balance grow from basically zero in Q1 24 to >$18m in Q3 (~36% of the market cap). Again, we know very little (yet), but clearly something is going on in this pre-revenue company which should be exposed to secular tailwinds.

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10. MISCELLANEOUS

(Asset sales, out-of-bankruptcies, IPOs, up- and delistings, etc.)

• Magnite (MGNI US). We were recently struck by a comment in Crossroads Cap's Q3 letter on Magnite, mentioning that "in the event of a breakup of Google’s ad tech stack, Magnite stands to see its market become competitive again and gain share from Google, potentially resulting in 5-10x upside in MGNI’s equity and 50-100x upside in the LEAPs". We have not assessed this, but we like the asymmetric bullish claim and thought it a good flag.

• MoneyLion (ML US). MoneyLion is to be acquired by Gen Digital for $82 p/s in cash and a CVR, with each CVR potentially worth $23 in GEN shares if GEN's average volume-weighted average share price reaches at least $37.50 per share over 30 consecutive trading days from December 10, 2024 until 24 months after close. MLY currently trading at $87.

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December 16, 2024 Toffcap Monday Monitor #39

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