DEST - Destination Maternity

[clutch]

The spread getting significantly narrower past couple of days (with no apparent reason...).

 

It seems like the best way to make money with this one is to trade in/out when the spread gets big/small.

 

I believe this is the reason: https://seekingalpha.com/article/4075581-destination-maternity-merger-spread-believe

 

Article was published yesterday to SA Pro users, which likely explains the run up. Then today to all users. I'd been planning to put together one myself over the weekend and got busy. DEST Q1 earnings come out Friday I believe. That should be interesting.

 

I didn't know that SA had that much influence ;D

[Guest roark33]

if all else fails, post an article to SA before the results come out, so you can get out of your position. 

[awindenberger]

The spread getting significantly narrower past couple of days (with no apparent reason...).

 

It seems like the best way to make money with this one is to trade in/out when the spread gets big/small.

 

I believe this is the reason: https://seekingalpha.com/article/4075581-destination-maternity-merger-spread-believe

 

Article was published yesterday to SA Pro users, which likely explains the run up. Then today to all users. I'd been planning to put together one myself over the weekend and got busy. DEST Q1 earnings come out Friday I believe. That should be interesting.

 

I didn't know that SA had that much influence ;D

 

Its going to have outsized impact in a situation like DEST, because all it takes is one decent sized fund hearing about it to create more buying pressure than usual. Less than 200k shares traded yesterday to push it up 10%. Thats only $800k.

[Hielko]

if all else fails, post an article to SA before the results come out, so you can get out of your position.

If you think DEST investors were correctly pricing in the value of the combined company while KAZI is overvalued, how can the share price go up on an article that didn't contain any new information? Where did those sophisticated investors go? Or perhaps the more reasonable conclusion is that DEST was/is the mispriced leg of the trade all along?

[Paarslaars]

Still 20% spread though, bit too large to reduce my position, I'll be holding.

[clutch]

Still 20% spread though, bit too large to reduce my position, I'll be holding.

 

I sold about 60% of my shares over past two days...Although I had a fairly large position (~25% of my portfolio) before.

[Hielko]

Still 20% spread though, bit too large to reduce my position, I'll be holding.

It's still at 30%+ fwiw

[Foreign Tuffett]

Even though Orchestra owns ~13% of DEST I think there's a good chance the transaction can't get the shareholder votes it will need to pass. Look at DEST's price action in the days after the acquisition was announced: from ~7 to ~5.30 in a few days. As has been mentioned the call was chock full of shareholders and analysts mentioning that the price was too low.

[Hielko]

Even though Orchestra owns ~13% of DEST I think there's a good chance the transaction can't get the shareholder votes it will need to pass. Look at DEST's price action in the days after the acquisition was announced: from ~7 to ~5.30 in a few days. As has been mentioned the call was chock full of shareholders and analysts mentioning that the price was too low.

Maybe. But the current low stock price is a powerful antidote against that, and also an indication that not too many of the current holders have real conviction that the price is too low. If they would really believe that they should have been buying the past months!

[Foreign Tuffett]

Even though Orchestra owns ~13% of DEST I think there's a good chance the transaction can't get the shareholder votes it will need to pass. Look at DEST's price action in the days after the acquisition was announced: from ~7 to ~5.30 in a few days. As has been mentioned the call was chock full of shareholders and analysts mentioning that the price was too low.

Maybe. But the current low stock price is a powerful antidote against that, and also an indication that not too many of the current holders have real conviction that the price is too low. If they would really believe that they should have been buying the past months!

 

I don't think it's that simple. If they thought both (1) the price for DEST was too low given its value as a standalone entity and (2) the acquisition is likely to go through, then it very well could make sense to sell. This is especially true for investors with no interest in holding ADRs shares of a small French retailer. 

 

 

 

 

 

 

 

 

[awindenberger]

DEST up to $4.63 and with that the spread <2%.

I'm out, 16% in 6 weeks, thanks for the idea writser!

 

How is the spread under 2%?

 

By my calculations there is still a 27% spread, in part thanks to the EUR/USD rate going up a few percent recently.

[Paarslaars]

Yeah I'm a moron... I had the USD/EUR rate reversed in my spread sheet.

Just noticed it right before you replied :)

[Foreign Tuffett]

Two quotes from the DEST CEO that are think are his attempts to subtly communicate that shareholders should vote for the merger because standalone DEST is weak (which it is).

 

1/11/2017 presentation: "DEST is in the midst of an ongoing turnaround that is proving more challenging than initially anticipated. We believe the merger....will provide DEST with additional tools and resources to complete our turnaround."

 

Q4 call: "Although we have made some progress, we have experienced challenges in implementing our turnaround given the overall weakness in the women's specialty apparel retail space, declining mall-based traffic, and other factors. These challenges have led to a slower pace of progress than originally planned, resulting in a decline in net sales from fiscal 2015 and underperformance to 2016 expectations."

[clutch]

Destination Maternity and Orchestra Prémaman Comments on Merger

 

Merger remains on track to close during the 2017 third quarter

 

http://www.prnewswire.com/news-releases/destination-maternity-and-orchestra-premaman-comments-on-merger-300468163.html

[Scuttlebutt Plunger]

This is still playing out, but big kudos to writser on the idea. 

[clutch]

Q1 results are out:

http://investor.destinationmaternity.com/phoenix.zhtml?c=72323&p=irol-newsEarningsArticle&ID=2279760

 

Bad results and nothing new about the merger.

 

Good news is that KAZI has been doing well so if you believe in the merger going through, the spread has increased a bit.

 

EDIT: Given the market's relatively lack of reaction to today's earnings (so far), I suspect that most are in this for the merger arbitrage, with the uncertainties reflected in the spread.

[Foreign Tuffett]

I've done more work on this and, with both management teams "all in" on the transaction, am optimistic about its prospects for closing. I think DEST shareholders would be delusional to vote against it given the deteriorating prospects for DEST as a standalone entity. Now we just needs KAZI to release its audited financials, something that should happen in the next few weeks. 

 

The merger spread is currently ~34%, which I think is attractive given the valuation of the combined entity post-transaction. By buying DEST here you creating (assuming the transaction closes) a position in the combined entity at less than 6X  last year's adjusted EBITDA. If you think that DEST is complete garbage and has zero value, then you are effectively buying KAZI at 8X 2016 EBITDA, which isn't terrible. 

[Guest roark33]

https://www.wsj.com/articles/toys-r-us-has-a-baby-problem-1497563397

 

This merger-arb deal may work, but I wouldn't hold this for the long-term.

[Scuttlebutt Plunger]

Both companies down ~25% in the pre market.  Tough turn of events for Orchestra

 

http://www.reuters.com/article/brief-orchestra-premaman-fy-net-result-t-idUSFWN1JR03V

[Foreign Tuffett]

Both companies down ~25% in the pre market.  Tough turn of events for Orchestra

 

http://www.reuters.com/article/brief-orchestra-premaman-fy-net-result-t-idUSFWN1JR03V

 

Seconded

[awindenberger]

Both companies down ~25% in the pre market.  Tough turn of events for Orchestra

 

http://www.reuters.com/article/brief-orchestra-premaman-fy-net-result-t-idUSFWN1JR03V

 

Seconded

 

Hmmmmm, I guess this is why its always a good idea to take some profits when a merger play has moved in your favor.

[clutch]

Agreed, although we are getting 40% spread now, which presents another buying opportunity.

[writser]

Hmmmmm, I guess this is why its always a good idea to take some profits when a merger play has moved in your favor.

 

Is it?

[_JJ_]

If the market thinks the merger is not going through why is DEST down 30% today? Can't believe DEST is worth less than the current market cap as a standalone entity. Still a juicy spread. I bought more today.

[Guest roark33]

Isn't the better lesson that buying merger-arb deals where the business isn't that great is a risky proposition?