Weird Events, Part 2: Some quick hits $ADVM $DXLG $PETS $PGRE $WBD

The second in a series on the weirder corners of the event-driven market.

Tl;dr: ADVM, DXLG, PETS, PGRE, and WBD are all undergoing (or just underwent) a “weird” event, and I thought they were worth highlighting as unique / potential learning events / references for future events.

This post is the second in a series on weird events. You can find part 1 (which describes the series, the rationale for it, and then dives into STAA) here; part 3 (on LWAY) will come out in a few days.

Honestly, I started this series with STAA and LWAY alone in mind; they’re dramatic and crazy enough to more than cover the current weird events bucket…. plus the LWAY piece took way more time and effort than I had budgeted myself (recounting almost five years of family infighting is hard!). So I was tempted to end the series after only two posts…. but, as an aspiring stand up comedian¹, I’m a big believer in the rule of three, and I do know of a few pretty quirky current situations, so I figured I’d add an extra part to run through some of the weirder situations I’m aware of and bring us to a clean three part series.

Many of these situations are on the smaller side; it turns out that weird situations at mega-cap companies just don’t happen much! There are, of course, exceptions; Elon Musk in particular seems determined to make weird situations at mega-caps great again, and David Ellison and Paramount are dead set on recreating multiple Succession story lines over at WBD² right now. But, in general, large companies have so many different levels of bureaucracy and are run with such a degree of risk intolerance and professionalism that it’s hard to get a really quirky weird situation at them (many large companies would rather underperform for years than risk one embarrassing headline for management), so you generally find these events happening at smaller companies.

Background out the way, the five situations I want to discuss are (in alphabetical order):

• ADVM- “interesting” insider trades (disclosure: I was long this into merger close in insanely small size)

• DXLG: the delayed earnings signal (disclosure: long a tracking position)

• PETS: market doubts the take private (disclosure: long long a tracking position)

• PGRE: what is this, a bump for ants?

• WBD: who bids against themselves (disclosure: long, and it is certainly not a tracking position)

Let’s dive in:

• ADVM- “interesting” insider trades

ADVM was a tiny little biotech company that announced a deal to get bought by Eli Lilly in late October. It wasn’t a great acquisition for ADVM (at least in my opinion); I personally think the company kind of bungled their financing and was basically a distressed seller. The stock closed at $4.18/share the day before the merger was announced, and ADVM sold for $3.56/share in cash plus a CVR. The CVR could be potentially very valuable; if both milestones hit, it would be worth another $8.91/share. That is, of course, a big if; the tender docs valued the CVR at $1.72/share for a risk adjust fair value of the whole acquisition of $5.28/share ($3.56 in cash plus the risk adjusted CVR).

That price is a very, very small (and questionable) premium for a tiny biotech getting acquired by a giant company…. again, I think the company really bungled their financing and sales process (I’m not the only one who thinks that!), but what’s done is done (the deal closed December 9th) and we’re not here to talk about the process and its shortcomings (this quick rant aside!).

Instead, I wanted to highlight two things related to insider purchases and stock grants I don’t think I’ve ever seen in a merger before:

1. On the night of December 8th (i.e. after market close on the last day the stock traded), the CEO and COO filed form 4s that showed they had bought, in total, ~178k shares on the last two days the stock traded. That purchase is not a small purchase; ADVM had ~22m shares outstanding, so on the last few days of trading the CEO and COO bought almost 1% of the company on the open market. It also materially increased their ownership; the form 4 from the CEO noted he owned ~201k shares after the purchases, and he bought ~128k shares…. so more than 60% of his ownership came on these last second purchases. The COO buys similarly stocked him up; he ended up with ~80k shares and he bought 50k of them right before the merger closed.

   1. Why am I highlighting it? I’ve just never seen insiders so eager to get their hands on stock right into merger close before. Given that this merger has an enormous CVR component to it, I think it’s interesting that the insiders weren’t blacked out from buying before the deal closed. I’m also a little disappointed they timed their form 4s to come after the stock had stopped trading; if I saw a CEO and COO trying so desperately to increase their ownership in a CVR / right before a merger close, I can assure you I would not have had a basically meaningless position!

2. After the merger closed, ADVM filed a bunch of form 4s for directors and insiders. That’s not unheard of… but what is weird is that the COO, CMO, CEO, and CFO all had a PSU share acquisition listed in the filings. These are not small grants; the CEO was granted 500k PSUs, which is more than 2% of the company! If you read the footnotes of the form 4, it notes that the PSUs were granted on September 12 to vest two days after the completion of a change of control or a significant out-licensing³.

   1. Why am I highlighting this? PSUs granted to encourage a change of control obviously aren’t weird…. but these are enormous grants and I do not believe they were disclosed until the merger had closed (there were no form 4s filed in September or October, the only two 8ks filed in September and October make no mention of the PSUs, and I don’t see it in the Q3 10-Q…. that basically covers the whole range of filings, so unless I’m missing something I have no clue where else they could have been disclosed!). That is…. strange on a whole host of levels.

Maybe those two disclosures seem small / meaningless…. but as someone who traffics quite a bit in the weirder side of corporate governance and CVRs, I thought both the insider purchases and PSU grants were enormously informative in terms of the CVR’s expected value and the likelihood of an acquisition, respectively, and I could not believe how poor the disclosure around each of them were. I know I’m not alone; I ran this situation by a few friends and they were all perplexed by the timeline / lack of disclosure here (and all agreed the CVR was probably a massive buy with benefit of hindsight / insider signaling).

• DXLG: the delayed earnings signal

Long time readers will remember my open letter to WOW’s special committee last year⁴. That process ultimately lead to a small bump and a take private deal; generally a successful deal would be called a “happy outcome” but I’m not sure that appleis here as the deal took more than a year to come together and the premium was insanely small / materially undervalued the company (at least IMO!).

Why do I mention this? There was a really weird day on August 11. WOW was supposed to report earnings that morning; instead, they delayed earnings till after market close. After the market closed, WOW announced a definitive deal to go private alongside their earnings. Ever since then, I’ve had my eye open for companies that delay their earnings out of no where from morning to afternoon.

It happened again last week. DXLG was originally scheduled to report earnings on the morning of December 4. After market on December 3, they pushed earnings from the 4th to the morning of the 11th. On the morning of the 11th, they pushed earnings to after market on the 11th….. at which time they announced a merger of equals with FullBeauty.

What was particularly interesting here is DXLG had an activist (Fund 1) who had offered to buy them for $3/share last December, so you could have some idea the company was in play when they delayed earnings multiple times.

Obviously I will be on high alert for the next delayed earnings set up!

• PETS: market doubts the take private

On December 11th, SilverCape filed an amended 13-d with an offer to buy PETS for $4/share. PETS had closed at <$2/share the previous day, so the offer represented an enormous premium to the prior close. SilverCape noted that the deal would be financed with cash on hand from SilverCape / would not have a financing condition.

PETS is not an enormous company; with ~21m shares out, we’re talking about a <$100m transaction at SilverCape’s proposed pricing…. and the cash needed here is even lower because SilverCape already owns more than 10% of PETS (~2.6m shares) and PETS has ~$36m of cash (and no debt) on its balance sheet. It feels like a deal here is doable….

But PETS stock is trading for ~$3/share versus SilverCape’s $4/share offer. The market is expressing a lot of doubt the offer is real (or at least that the offer is likely to be completed). Why?

Well, one potential answer is that PETS just switched their auditor and has been unable to get their most recent 10-Q filed. SilverCape’s offer is subject to all sorts of due diligence (per the 13-D, “including, but not limited to, financial, tax, accounting, legal, compliance, human resources, IT and regulatory due diligence”), and the market might suspect that a business that cannot file financials and is seeing its sales fall off a cliff (sales in the most recent quarter were ~$44m versus ~$58m the year prior) is going to have a hard time getting through a diligence process.

Another answer might be the market is wondering who the heck SilverCape is. As far as I can tell, PETS is the only U.S. listed stock they have ever filed on. And I don’t just mean “filed a 13-D” on; I mean they don’t appear to have a 13-F or any other history in the U.S.! That is very strange for a buyer who is saying they have close to $100m in cash on hand to complete a PETS take private with no financing. That said, SilverCape has done several similar sized tender offers for Japanese companies (Digital Holdings for one), so there is some evidence that they are serious / have a decent bit of money. There’s also a decent bit of info on them (and a related company) available online, but perhaps that’s a story for another day…..

Fascinating!

• PGRE: what is this, a bump for ants?

I mentioned in both the WBD and MTSR pieces that one of my favorite event set ups is to buy a company who is under a merger contract where the proxy reveals there was a higher bidder who was rejected for some reason.

PGRE would fit that set up perfectly. In September, they announced a deal to sell themselves for $6.60/share to Rithm. If you read PGRE’s proxy, there was a sponsor (Sponsor A) who was offering $7.15/share; however, PGRE decided to go with the lower Rithm bid because of “significant risks and uncertainties that were still reflected in Sponsor A’s proposal”, including “inadequacy of equity commitments, closing certainty, recourse, enforceability and the inadequacy of the proposed reverse termination fee to compensate the Company for the harms if the transaction were to be terminated.”

PGRE’s special meeting to approve the Rithm deal is set for December 15th. On December 8th, Sponsor A (who is seems is Saray based on this 13-D) came back with an offer to buy PGRE for $6.95/share. That is a fascinating bid for two reasons:

1. It is a really small bump. Boards are allowed to consider certainty of closing and time value when recommending bids. If PGRE were to break the current deal in favor of the Sponsor A deal, they’d almost certainly need to schedule a completely new shareholder meeting, restart the regulatory process, etc. That means the deal probably wouldn’t close till mid to late March, while the current deal will probably close in <10 days (the delisting is scheduled for December 19th). Is $6.95/share in ~3 months worth more than $6.60/share a week from now? Yes, of course…. but in an uncertain world, I think a board could justifiably say “hey, we’d rather certainty of close now versus a small premium a few months from now” even if the “few months from now” deal included a rock solid contract. Speaking of rock solid contract….

2. The reason PGRE went with Rithm instead of Sponsor A is they thought Sponsor A’s offer had too many “inadequacies.”… so it’s really interesting that Sponsor A came back with an offer that seems even worse than the offer PGRE turned down back in September: lower price, “substantially less favorable terms,” “lack of clarity” on the reverse termination fee, and failure to “make progress in remedying or addressing many of the deficiencies” from their prior bids.

It’s just a really strange set up on all ends, and strange set ups always intrigue me. Sponsors are not dumb; I wonder if this first bid was a holding pattern to try to stall out the process because Sponsor A had line of sight to a more fully buttoned up offer but needed a weekend to close committed funding or something?

• WBD: who bids against themselves

I have a full write up on the WBD set up here, and not much to add to it (though I am obviously very invested in the outcome here / watching with baited breath!). But there is one thing I didn’t mention in that write up that I wanted to focus on.

Obviously the whole WBD process has been insanely leaky (i.e. at basically every turn of the cards the press is telling you what’s happening next). Perhaps that’s to be expected when you have a media company of this size with this many brands people know come up for sale.

But I’m just completely bamboozled by how Paramount has treated their public bid. It’s one thing for a bidder to take an offer that was rejected by a board directly to the company’s shareholders and let shareholders decide if the offer is superior or not.

It’s quite another for Paramount to take the rejected offer to shareholders while shouting from the rooftops “this is not our best and final bid” (as they continue to do in both filings and interviews).

Paramount is paying their advisors enormous amounts of money. I’m sure Paramount is about as well advised as a company can be…. but I just don’t understand the negotiating strategy of going to WBD shareholders and saying, “hey, take our bid instead of the NFLX bid, and o BTW this isn’t our best bid, so if you don’t take this bid you know we’ll raise it and try again”?

Just seems like poor tactics to me⁵…. but, as a WBD shareholder, I’m happy to have them keep telling us they have room to raise their bid!

1. Completely kidding. I’m not about to pick up stand up comedy at almost 40, though I am always tempted to take an improv class!

2. It’s an interesting strategy: they’re buying HBO, which owns Succession, so by recreating it in real life maybe they’re creating a little extra value for the IP?!?! (note: this is in jest)

3. The exact footnote: “On September 12, 2025, the Compensation Committee of the Issuer Board approved the grant of performance stock units, effective as of the completion of two trading days following the public announcement of by the Issuer of the first to occur of either a change of control (as defined in the Issuer’s 2024 Equity Incentive Award Plan) or a significant out-licensing transaction certified by the Compensation Committee. The closing of the Merger was a qualifying change of control, pursuant to which 100% of the total number of awards vested on the closing of such change of control.”

4. Disclosure: Long WOW, and still enormously frustrated by everything that happened here.

5. I was originally going to do this post as the third in the series and post it later this week; however, even though it would go against the normal rhythms of a hostile offer / pressure campaign, I feel like there’s a decent chance Paramount bumps their bid early this week, so I figured I’d get this post out now so it isn’t stale before it prints. (A normal rhythm would see Paramount wait for WBD to respond to their offer before doing anything else).