When I wrote about Asta Funding last month I thought it was a nice little arbitrage with little risk, but also limited upside given that the spread was just 3.8%. While surprises when doing merger arbitrage are usually bad news, I got lucky with Asta Funding. Their largest outside investor, RBF Capital, announced that they thought that the going private offer of $11.47/share was significantly too low and that they would oppose the deal. A month later they upped their game with a going private proposal of their own at $13/share.
The stock is now trading at $12.50/share, but given that 61.8% of the outstanding shares are owned by Asta Funding insiders this proposal has a very low chance of becoming reality. However, with a 8.8% stake RBF Capital owns a decent bit of the float and getting a majority of the minority to approve the proposed transaction might become difficult. 8.8% of the shares is just 23% of the float, but there are always a bunch of people that just don’t vote (and effectively vote against the deal) and there might be more than a few holders sympathetic to RBF Capital’s argument that the going private price is a lowball offer.
But it is far from certain that RBF Capital’s efforts will lead to a significantly improved offer from Asta Funding insiders. There are many alternative scenarios possible. Insiders could simply abandoning the going private proposal and go back to business as usual. Alternatively RBF Capital could just be posturing for an eventual appraisal case that would offer no free ride for other minority investors. And of course it’s totally possible that a lot is said and done and in the end the original proposal goes through. When the stock was trading close to the buy-out price of $11.47 I was happy to hold on to see how things would play out, but at the current prices I think the market is pretty optimistic so I decided to exit.
Disclosure
Author has no position in Asta Funding anymore
Hi AV,
Why did you decided to hold on near the 11.47 price before the new offer was made? I decided to exit most at 11.35-11.40 range due to residual risk thats always present.
Totally agree on exiting now and congrats on taking home the extra 8-10%.
Basically because you were counting on some odds that they would further bump the offer?
Given that they bumped it already from the original offer, i thought RBF might actually present additional risk, and a higher offer being unlikely. Must say I did not see it coming that they would offer themselves….still see it as just a way to put pressure on, as management has made it quite clear that aint selling to nobody but themselves.
I thought there was a reasonable chance that RBF would be able to make something happen, but it was certainly not a high conviction idea or anything like that at that point. But thought that by far the most likely alternative scenario would simply be that the deal would be completed at the original price, so was happy to just wait a bit to see what would happen.
And didn’t really have any high conviction ideas that were competing for capital. If I did this would probably be have been one of the first positions I would have exited. so really, just mainly lucky to get this bump.