SRAQU - Silver Run Acquisition Corp

[HH2010]

What do you guys think about SRAQU?  It is the SPAC backed by Riverstone (top energy PE fund) led by Mark Papa (probably #1 CEO of the shale boom, extremely disciplined at the helm of EOG Resources).

 

The warrants and common stock split a couple weeks ago.  Riverstone bought 7.3mm warrants in a private placement at $1.50, and for whatever it's worth the Bloomberg Black-Scholes model values the warrants at $1.40.  The last trade on the warrants was $1.16 but it's super illiquid.

 

What I think is more interesting though is that 1 share of SRAQU right now represents 1 share of SRAQ (common equity) and 1/3 unit of SRAQW (warrant).  With SRAQ trading at a basically fixed price of $10.10, the current SRAQU share price of $10.40 implies $0.90 per warrant (($10.40 - $10.10) * 3) which is a steal based on above.

 

So basically by buying SRAQU you get a $0.26/unit discount on SRAQW warrants at current price, and $0.60/unit at what I think is fair value of $1.50.  Not to mention it is backing a great investor / management.  It should be noted there is something like 20% downside risk to the equity due to dilution and G&A if a deal never consummates.

[HH2010]

Bump, would appreciate any thoughts on this as I'm not sure if I am missing something here besides the liquidity issues.

[MrB]

If fair value is based on the fact that the sponsor paid $1.50 for those warrants then the sponsor economics are worth considering. Also received 12.5m shares for which they paid 25k and with the 12m they paid for their 8m warrants indicates they paid $0.59 per unit (warrants & shares).

Another way to look at it is that on an exercised basis they're all in for $5 and change (8m warrants @ $11.50/share + $12m cost of warrants + $25k cost of shares) versus double that for their "partners".

 

20% downside for you, but 50% upside for them from the outset.

 

MSD Capital & Baupost are in.

Papa is apparently a genius, but he sunk $55Bn into EOG over the last decade and mcap of company is $43Bn.

 

P.S. On the fly so double check the above numbers.

[HH2010]

Does anyone know why the stock waited until the official announcement on Friday to rally? The Centennial news was leaked on Wednesday I believe and SRAQU/SRAQW popped to 10.70 and 1.40 respectively. But on Friday it absolutely soared when the official 8K came out.

 

Is this enormous discount between leak and official announcement typical for SPACs/stocks in general? I am disappointed because I sold out on Wednesday but am hoping to learn a lesson from this.