Fortune Industries merger arbitrage

Fortune Industries (PINK: FDVF) is a small HR outsourcing company that went through a controversial LBO a couple of years ago where management obtained a 91% stake in the company with a small tradable float remaining. Last week the company announced that the 91% stake was sold to Oasis Outsourcing. Following this transaction the acquirer plans to buyout the minority shares using a “short-form” merger where minority shareholders are being paid $0.586/share. This appears to be a reasonable deal since the majority shareholder is getting the same price, minus certain transaction fees and potential indemnity liabilities.

Fortune Industries logoI think a transaction like this has a very low risk of failing (less than 1%). For the acquirer it makes sense to buyout minority shareholders and it doesn’t require a large amount of money compared to the first transaction. No regulatory or shareholder approval is required either to consummate the transaction. The only thing that is necessary is mailing shareholders an information statement 30 days in advance. I managed to pickup a bunch of shares at an average price of $0.5572 which means a spread of 5.2%. Give them a couple of weeks to mail the information statement, add the 30 day waiting period and add some time for the money to arrive and this deal should close around the end of November or the beginning of December. Annualized that corresponds to a 30% return if we model a close on the first of December.

Disclosure

Author is long FDVF

3 thoughts on “Fortune Industries merger arbitrage

  1. Pingback: Weekly Linkfest #6 - Financial Uproar

  2. pietje

    “Effective 11/9/2016 @ 12:15:43 Cash merger; for every 1 share of FDVF, shareholders have the right to receive $0.586 in cash”

    That was quick! Congrats. Let’s hope we get our cash quickly.

    Reply

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