Going private transactions

I have been digging in the SEC database this week, looking at going private transactions announced this year. One thing that caught my eye was that China Mass Media is far from the only Chinese company that intends to go private. But what I was interested in was trying to find companies that intended to use a reverse stock split to reduce the shareholder count. This allows the company to delist and save money related to SEC reporting and compliance requirements, a burden that can be significant for small companies. In order to reduce the share count small shareholders are forced to cash out at a premium, creating a potential opportunity for small investors.

Unfortunately it seems relatively uncommon for companies to delist using a reverse split. I found just two companies that are currently in the process of doing this. Fortune Industries (FFI) is offering shareholders who own 500 or less shares a per share amount of $0.61 while the shares are currently trading at $0.145. This could be an opportunity to make $233, but I’m far from certain that shareholders who bought after the announcement of the offer are eligible. See this discussion at Oddball Stocks for more information. I bought some shares anyway to see what happens.

The second going private transaction is Helix Biomedix (HXBM). They are offering shareholders who own 299 or less shares the possibility to cash out at $0.60 while the stock is currently trading at $0.24 for a potential $108 profit. I do believe new shareholders are eligible for this offer, but to be clear: this is the first time I’m participating in a transaction like this. At least I’m not the only one thinking this given the frequent transactions with a 299 size.

Disclosure

Long FFI and HXBM

13 thoughts on “Going private transactions

  1. cje

    Here’s some add’l color on HXBM:

    Thesis: Helix Biomedix, in an attempt to conserve the cash will be going dark and will be attempting to decrease the # of shareholders to less than 500. To do this, they will perform a reverse 1:300 stock split and offering small investors (less than 300 shares) $.60/share. See their 9/11/2012 press release for general info.

    In short, HXBM is a microcap that develops and licenses “bioactive peptides”. Frankly, I consider this purely a short term trade and don’t care for the fundamentals of the company; it’s been burning cash as far back as I analyze. However, it easily has the cash to pay the estimated $300K total costs for the going dark transaction. The company has told the public in its recent 13E filing that the board would be voting it’s whopping 6% of the company for the reverse merger/go dark transaction, however, there is a majority shareholder, Frank Nickell, that owns 42% of the voting shares and has options on more. Nickell has some activity in a few private equity entities (RBFS & Kelso)- so it will key on him. I can’t imagine the company would spend the time/money without the nod of the only shareholder’s vote that will matter much.

    If you trade in Street name (I do), they have been insistent that they intend to look at the beneficial owners, however, I spoke with my contact at Scottrade and DTC hasn’t yet been in contact with them to confirm how HXBM will be conducting the cashout. Direct quote from proxy;
    “What if I hold fewer than 300 shares of Common Stock and hold all of my shares in street name?

    If you hold shares of our Common Stock in street name, your broker, bank or other nominee is considered the stockholder of record with respect to those shares and not you. It is possible that the bank, broker or other nominee also holds shares for other beneficial owners of our Common Stock and that it may hold 300 or more total shares. Therefore, depending upon their procedures, they may not be obligated to treat the Reverse Stock Split as affecting beneficial holders’ shares. It is our desire to treat stockholders holding fewer than 300 shares of our Common Stock in street name through a nominee (such as a bank or broker) in the same manner as stockholders whose shares are registered in their name. However, we or our Transfer Agent may not have the necessary information to compare your record holdings with any shares that you may hold in street name in a brokerage account and these banks, brokers and other nominees may have different procedures for processing the Reverse Stock Split. Accordingly, if you hold your shares of our Common Stock in street name, we encourage you to contact your bank, broker or other nominee.”

    Re: Brandon’s question on timing; they haven’t gotten all the required blocking and tackling finished, but they’re aiming for 2012.

    Take a look at the 13E, the latest 10Q filing for cash holdings (and other) and other due diligence documents.

    Disclosure: Long HXMB. Can exit position at any time. This is not a solicitation for investment nor intended to be investment advice. Information is believed to be accurate but not intended to be a recommendation, simply a starting place for your own due diligence.

    Reply
  2. cje

    Anyone have any color on the price action of HXBM? Has anyone seen/heard any news on the timing of the proposed 2012 transaction?

    Reply
      1. Sic vis pacem

        ok thanks.
        well ticker symbol for helix biomedix changed at yahoo finance so the the 2 splits probably occurred.
        I would be thankful if anyone could post here after they received cash.
        since i don’t know if my german broker will cash me out.

        Reply
          1. sic vis pacem

            Thanks for the info
            i didn’t receive cash (yet) 🙁
            probably because it takes some time for the german broker…
            (at least that’s what i hope for)

            I will post if I receive cash

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