Yearly Archives: 2018

AviaAM Leasing being taken under at PLN 5.62

Last year I initiated a small position in AviaAM Leasing AB that is now being taken under at PLN 5.62/share. While I never wrote about the company on my blog, I got a fair number of emails from people asking what the implications are and if there are any alternatives like I’m some expert on Polish securities laws (hint: no). Unfortunately, I don’t think there are any good options here. The group of insiders control 78.27% of the outstanding shares right now. Hitting the 80% threshold in Poland is enough to delist the shares from the stock exchange, and after hitting 90% ownership they can initialize a squeeze-out. I don’t know if there are even appraisal rights available for shareholders in a squeeze-out, but it’s a fair guess that it’s not worth the trouble for small foreign holders to go through that process.

So, as a (small) shareholder you can elect not to tender your shares in the tender offer. But the most likely result is that the only effect of that action is that you delay the payment for your shares. Additionally, sometimes getting paid through a squeeze-out procedure has negative tax consequences since in some countries it can be treated like a dividend (no idea how this works in Poland, but it is certainly a risk). So to summarize: I think we just got screwed and there is little we can do about it…

The only positive is probably that this confirms that it was indeed a cheap stock…

Disclosure

Author is long AviaAM Leasing

Safeway sells interest in Casa Ley

Just before hitting the three year deadline after which Albertsons would be required to pay CVR holders fair value for their stake in Casa Ley they announced that it was sold for approximately US$345 million. The transaction is scheduled to close by February 28, and CVR holders are expected to receive a payout between 87 to 90 cents per CVR six weeks later. It’s a slightly disappointing result since the CVR was valued at $1.0149 at the time of the merger. Albertson is quick to point out that since then the Mexican peso depreciated 20% against the dollar, but on the other hand we have been in a raging bull market for three years as well. Not the best outcome possible, but still pretty decent I think. Now that we know how big the final payout will be we can calculate what kind of return my first ever CVR-trade generated:

DateDescriptionCash flow
 1/27/2015Buy one SWY share(35.12)
 1/27/2015Buy one put as hedge(0.12)
 2/3/2015Receive cash consideration merger34.91
 5/11/2017First payment PDC CVR0.017
 4/11/2018Midpoint estimated payout Casa Ley CVR0.885
IRR:23.12%

As you can see the trade generated a return of 23% over a more than three year time period which is obviously pretty good, although I believe this understates its profitability. I basically paid 33 cents in 2015 to get paid 90 cents three years later. Looking at it from that perspective the internal rate of return sounds low, but that has to do with the large amount of capital that needed to be tied up in this trade for a week. But thanks to a cheap margin loan it was almost free capital, and accounting for this leverage the internal rate of return would be way higher.

Disclosure

Author is still long two SWY CVR’s