The tender offer for the Pharmstandard GDR’s has been completed successfully today. The deal was completed without a hitch and the cash has already hit my account. Making 3% in two weeks time in – what I perceived to be – a low-risk transaction is pretty sweet.

I’m wondering if Pharmstandard GDR’s are, after the completion of the tender offer, once again an attractive deal. The price has dropped to $4.58 while Augment Investments intends to take the whole company private. If the remainder of the shares is also bought at $5.50 you could make a solid 20% return. Usually in a transaction like this that would be a reasonable assumption, but I’m not so sure if that will be the case here. I believe that the plan is to cancel the listing of GDR’s in London and then make a mandatory tender offer for all ordinary shares under Russian law. At that point of time, they will presumably offer a price in rubles that may or may not be related to the 5.50 dollar bid for the GDR’s. In addition to that I doubt that minority shareholders are well protected in Russia and if Augment Investments can squeeze out the remaining shareholders for less than that they will probably do it. But if I have a reader who knows more about how this transaction will unfold I’m of course all ears!

On a somewhat related note: last week I finished reading Bill Browder’s “Red Notice”^[1] about an American fund manager who thought that activist investing in Russia was worth trying. It’s not the kind of book that’s going to make you a better investor, but it is well written, fascinating and reads like a thriller. Highly recommended!

_{[1] I’m probably the only blogger stupid enough to link to Amazon.com without an affiliate link.}

Disclosure

No position in PHST.L anymore

Pharmstandard is a Russian pharmaceutical company that is controlled by Victor Kharitonin. He is trying to take the company private (after IPO’ing it in 2007), and to make this happen Augment Investments has launched a tender offer for the GDRs that trade in London. The company is offering US$5.50/GDR while these last traded at US$5.31 for a spread of 3.6%. That doesn’t sound like a whole lot, but with the tender offer expiring at the end of next week the potential IRR is pretty high. If we assume that it takes another week before payment is made the IRR is would be ~150%. With Augment Investments waiving the 50% minimum acceptance condition this appears to be a low-risk transaction, although there is some amount of unquantifiable random Russian risk: you never know if all parties continue to play by the rules.

In addition to this the full tender offer memorandum is nowhere to be found online, and the company has so far not responded to my request to provide it. So perhaps I’m missing something that everybody else knowns… Despite that, I think buying a couple of shares and tendering them is a decent bet. Otherwise, I’m hoping I have a smart reader that knows more!

Disclosure

Author is long Pharmstandard