Another (premium) proposed take-private
Why I think the odds of both a definitive deal and a bump are high
I consider proposed take-privates my “bread and butter”.
Proposed take-privates happen when an insider (often the CEO, though it can sometimes be a sophisticated major shareholder or other controlling shareholder) offers to buy all of a company and take it private (the offer generally comes through a 13-D filing). Proposed take-privates are a weird little corner of the market that I think are perpetually undervalued. Given that belief, I try to look at every proposed take-private, and, to be honest, I think just about all of them are interesting set-ups. In fact, if you told me I could only invest in one type of event for the rest of my career, I think I would choose proposed take-privates.
Why do I love them so much? Simple: in a proposed take-private, you have a sophisticated insider who should know the business and its risks, opportunities, and (most importantly) intrinsic value better than anyone who is saying “I would like to own all of this business at XYZ price”… and it’s generally safe to assume that the reason the insider would like to own all of the business at XYZ price is because they think the business is worth a lot more than XYZ / the insider thinks they’ll make a whole lot of money buying the company for XYZ.
In my mind, that set up creates a kind of “heads, I win; tails, I don’t lose” set up: either the insider is successful and takes the business private, and you as a shareholder make some money (take-privates almost always trade below the initial bid, so you’ll make the spread to the bid plus the price bump that is typical alongside a successful take private negotiation)….. or the take-private fails and you’re invested in the business at a price lower than what an extremely sophisticated insider was willing to buy the whole company for, which is generally a very nice place to be (though you do run some risk that the management team had gotten delusional about what their business was worth).
A historical example might show this event set up nicely: in March 2024, Standard General offered to buy all of BALY for $15/share, a huge premium from the prior close. After a few months of negotiations, the offer was bumped to $18.25/share in July. It was obviously a great outcome for shareholders (of which I was one)…. but I did chose this example for a specific reason: Standard General had offered to buy BALY’s for $38/share a few years earlier. So the example not only shows the possible “bump” benefits of a bid but it also nicely illustrates that controlling shareholders are not infallible when they offer to take a company private!
In the early 70s, Buffett famously (infamously?) said he felt “like an oversexed guy in a harem” because there were so many cheap stocks. I kind of feel that way about proposed take-privates right now; in a normal year, we’re lucky to get a handful of proposed take-privates through the whole year, but there are close to 10 active proposed take-privates happening right now (on top of multiple interesting go-shops)1.
Why the rush of proposed take-privates right now? My theory is that the combination of wide open credit markets, declining interest rates, and a stock market that has left behind any business that isn’t directly exposed to AI (or memes!) has created a financial arbitrage that allows control shareholders to take full control of a company at cheap valuations without putting in much (if any) new money. Consider Golden Entertainment (GDEN; disclosure: long); as I’ve noted publicly, prior to its take-private deal, the stock was trading for well below the value of its real estate, creating the opportunity for GDEN’s controlling shareholders to take minority shareholders out at a huge premium by monetizing the real estate while also buying the remaining opco for themselves for a song2.
The premium side already has open research on multiple proposed take privates: