ASFI - Asta Funding

[Foreign Tuffett]

The end game: https://www.sec.gov/Archives/edgar/data/1001258/000143774919021292/ex_162356.htm

Dear Members of the Board:
 
I am pleased to submit this non-binding proposal (the “Proposal”) to acquire all of the outstanding shares of the common stock of Asta Funding, Inc. (the “Company”) at a cash purchase price of $10.75 per share, representing a premium of approximately 60% over the closing price of the Company’s common stock on October 29, 2019, and approximately 60% over the average closing price of the Company’s common stock for the past 30 trading days. Given the premium to the market price, I believe that this Proposal presents a highly attractive opportunity for the public shareholders of the Company.

Fantastic news, particularly for something released after hours on a Friday. I nibbled on this one a bit when it dropped back in to the mid $6.00 range. Wish I had bought more!

Epic call on this name last September. Congrats.

[roark33]

Any ideas on whether this gets done?  Still trading at pretty decent spread? 

[Foreign Tuffett]

Any ideas on whether this gets done?  Still trading at pretty decent spread?

For what it's worth, I didn't sell any shares today.

I don't see any obvious obstacles to this getting done. I think the offer is fair and the Chairman/CEO obviously knows what he's buying. Finally, I don't foresee any issues with the board's special committee or the shareholder vote.

[Saj]

I feel like the spread is pretty high too, so I too have held on. Maybe there is also the possibility the offer will have to be raised? Market doesn't think so, I guess.

[writser]

I think there's a very large chance the deal gets done and a very small chance the price will be improved.

Financing this deal should be trivial given the recent dividends and ASFI's balance sheet. Minority holders are sick of Gary Stern and Gary Stern is sick of minority holders. The price offered undervalues the company (good for Gary) but it is a large premium, actually not that bad of an offer and the only way this cash-box will ever be monetized (good for minority holders). I think basically everybody wants this deal to go through.

Insiders own ~63%, activists got bought out, there is zero liquidity and the board is filled with Gary's cronies so good luck with your attempt to get a higher price.

I bought a few more shares < $10 yesterday. The thing is, it will probably take a while to get the deal done. A special committee will be formed to 'thoroughly study the deal and fight for minority holders' (yeah right), then if I am correct there should be a vote (the company is based in Delaware, I think they need a majority-of-minority approval. Not 100% sure about this, maybe somebody could clarify). So after the committee approval they would need to file a preliminary proxy, pick a date, etc. etc. Basically the whole process could easily take 6 months or more. And there is still a very minor risk that you get screwed over in some way or another. Still, the spread is now ~7% and the IRR seems pretty decent but not super attractive.

[KJP]

A special committee will be formed to 'thoroughly study the deal and fight for minority holders' (yeah right), then if I am correct there should be a vote (the company is based in Delaware, I think they need a majority-of-minority approval. Not 100% sure about this, maybe somebody could clarify).

Majority of the minority is not required, but the controlling shareholder who's buying out the minority will often want it (as the controlling shareholder has demanded here) because if you have (i) approval of a properly functioning independent board committee, and (ii) approval of the majority of the minority, then the transaction is subject only to business judgment review, i.e., any court challenge is highly likely to lose.  Without those procedural protections, a buyout by the controlling shareholder likely would be subject to "entire fairness" review, which involves a much more searching judicial inquiry into the procedural and substantive fairness of the transaction than "business judgment" review and is much more likely to result in a judgment requiring the controlling shareholder having to pay more money.  For more information, google Kahn v. M&F Worldwide, which is the 2014 Delaware Supreme Court case that established the standard described above for shifting from entire fairness to business judgment review.

That is why Stern's letter says his proposal is conditioned in independent committee approval and a majority-of-the-minority vote.  It's also why his letter says he has no interest in, and will never vote for, any merger or transaction with a third party.  Is giving the committee cover for choosing not to bother investigating those possibilities because his votes are necessary and he'll never agree to them.  Thus, the committee will be limited to bargaining solely with Stern and either approving or disapproving whatever final offer he makes.

[writser]

Informative post, really appreciated. Thanks.