International Lottery & Totalizator Systems merger arb

International Lottery & Totalizator Systems (ITSI) announced today that it has entered a merger agreement withย Berjaya, the majority shareholder of the company. The company will cash out shareholders at $1.33/share using a 9,245,317-for-1 reverse split after which Berjaya will be the only remaining shareholder. The merger seems to be more or less a done deal since it’s already approved by the majority shareholder, and apparently the vote of minority shareholders isn’t required under Delaware law.

I managed to pick up some shares at $1.15 at the start of trading, but I do think the merger arbitrage is also attractive at the current price of $1.25: it’s still possible to make a 6.4 percent absolute return. Not bad for what is probably a very low-risk deal.

Disclosure

Long ITSI

10 thoughts on “International Lottery & Totalizator Systems merger arb

  1. CantEatValue

    I’m not an expert on Delaware law but I thought that shareholders (including minority ones) were able to exercise appraisal rights if they felt they weren’t getting fair value – so whilst they can’t vote they can attempt to impede/demand a higher price? Not that this impedes this merger arb at all – it looks like quite a good value bet – just curious.

    http://blogs.law.harvard.edu/corpgov/2013/12/05/the-growth-of-appraisal-litigation-in-delaware/

    Reply
    1. Alpha Vulture Post author

      Yes, I do think shareholders have appraisal rights. They haven’t filed a proxy statement yet, but that should provide more information. In practice the fact that you have appraisal rights probably doesn’t matter for these nano-caps. Not a lot of shareholders will have a stake big enough that it makes sense to spend money on legal costs (have no clue how good a deal shareholders are getting in this case, they do at least get a reasonable premium over the historical trading prices).

      Reply
  2. Matt Jones

    Thanks for this idea. How did you happen to find it? I search for these kinds of things and it didn’t come up in any of my alerts or rss feeds. TIA

    Reply
  3. Eran

    looking at merger agreed price – 1.33$/share and checking fundamentals I just can’t understand how it was finalized in such a cheap price, and why the stock hasn’t reacted in the last 6 month to fundamentals impressive improvement ?

    Reply
  4. Alpha Vulture Post author

    The soon to be filed proxy statement might shine some light on this question, but for the probability of the merger going through I think it’s only good that it is done at a cheap price. Big incentive to get the deal done for the acquiring party.

    Reply
  5. Eepi

    Hi,
    I was wondering whether you had any knowledge of the timeline for this merger taking place? The information statement is dated in EDGAR 25 March, and I was wondering whether it should take place precisely on the twentieth day after that? If you only count weekdays and exclude two Easter days, it should be Friday 25 April? Would be great if you could shed some light into how this is supposed to work out and when one could expect the shares to exchanged for cash. Thanks for your help and time!

    Reply
    1. Alpha Vulture Post author

      I think it will probably take a few more months. See for example my posts on China Energy Corp to get an idea of how a reverse split can play out in practice.

      Reply
    1. Alpha Vulture Post author

      I don’t know. Unfortunately not uncommon to see something like this take ages and then see a successful completion of the deal (CHGY), but it could also be a sign of trouble (WH).

      In this case I think having some patience isn’t a bad idea. ITSI posted 100%+ rev growth compared to previous year and is now trading at a 5.2x PE-ratio. That should provide a good incentive to close the deal, and if the deal doesn’t close that could actually also be good news at a valuation like that.

      Reply

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