Value for sale (premium post)
One of the most lucrative areas for event investing I have found is when a major, sophisticated shareholder offers to take a company private through a 13-D. The event-driven thought process here is simple: the major shareholder generally has deep familiarity with the business and a long term view on value, and they understand that once they put a 13-D with an offer in public their relationship with the company will change forever. So it’s not a step that major shareholders take lightly, and they generally only do so when they think there’s a significant amount of value to be captured (they also don’t take it lightly because their credibility comes into play; if you make an offer and don’t follow through, all future offers will be questioned and it’ll be tough to make deals going forward).
However, when these situations come up, I’ve found it’s imperative on minority shareholders to be public with their views on both value and appetite for a deal for two reasons:
The large shareholder often is trying to take the company private because they see a lot of value in the company, so it’s imperative for minority shareholders to press the company on value so they aren’t sold for a song. A nice example of this would be WOW (disclosure: long), where I continue to believe the intrinsic value is far, far above today’s share price and I continue to believe a deal could make sense (and will happen despite the long delay!).
The large shareholder often makes the offer public because they’ve tried to do a private deal and ran into an entrenched / intransigent board. If you’re looking for a high drama example of this, check out Lifeway (LWAY), which Danone is trying to acquire and the LWAY board has responded by giving the CEO a ton of stock and claiming the shareholder agreement that’s guided the Danone / Lifeway relationship for ~25 years is void….. resulting in the CEO’s mother and brother (who are also major shareholders) filing the latest in a string of years of litigation against the company / CEO to force a sale. In cases like this (well, not quite like that; the Lifeway example is a spectacularly over the top example), minority shareholders speaking up can make it clear that the board will lose / be replaced if they don’t work maximize value, so being loud can increase the odds of a deal.
I mention all of this both to give background on why I think the situation I’m writing up is so attractive and to explain why I’ll likely