Here is one for the folks looking at Merger Arb situations:
IAM, a Canadian asset manager, is going to be acquired by Fiera Capital (FSZ). Here is the release:
http://www.globenewswire.com/news-release/2019/03/22/1759240/0/en/Integrated-Asset-Management-Announces-Agreement-to-Be-Acquired-by-Fiera-Capital.htmlIn essence, shareholders can choose to receive either cash or FSZ stock worth 2.576 CAD/share. If everybody opted for cash, a shareholder would receive:
1) 1.932 CAD in cash
2) 0.644 CAD worth of FSZ stock. Note that the number of FSZ shares to be received will be fixed based on the 5-day average price of the FSZ stock priot to the merger effective date, thus mitigating (though not eliminating) the market price risk on the FSZ stock.
3) potentially a special dividend for the difference between IAM net cash balance and 10 MM CAD
4) a CVR paying the performance fees (net of incentive compensation and tax) of two real estate funds.
With IAM trading at 2.55 CAD and not taking into account the minor price risk on FSZ shares, you can buy the potential special dividend and the CVR for free. What are they worth?
3) I have not seen a definition of Net Cash Balance but I guess it will not be more conservative than "Cash & Cash Equivalents" less "total Liabilities. As of 31 Dec, this number came down to 13.2mm CAD, leaving 3.2mm CAD for distribution (0.115 CAD). They have stopped dividends and may realize some receivables, so there my be a bit of upside to this number
4) The release states that "for certain purposes of the transaction" the CVR was valued at 0.174 CAD. According to the latest annual report, unrealized performance fees stood at 10.8mm CAD. Assuming 25% of the amount to be paid to employees and a 35% tax rate, the net performace fees stand at about 5.3mm CAD or 0.19 CAD per share. Depending on performance, the fees may grow, shrink or disappear from here.
Deal risk is minimal in my view:
- small takeover by national bidder
- they need a 2/3 majority at their EGM, but management and other major holders representing 62% of the capital have committed to support the transaction
- funding not a problem
So overall, at a price of 2.55 CAD, you get the special dividend and the CVR pretty much for free - risk/reward looks good enough for a small position. Bought shares today.