NSAT - Norsat

[writser]

I'll keep it short. A hedge fund and a Chinese party are competing to buy a Canadian satellite communications company, Norsat. Here is a good overview of what happened the past few months: link.

 

Summary: Norsat entered into a definitive merger agreement with Hytera, the Chinese party, to be taken over for $10.25. The hedge fund counters with a higher bid, $11, not subject to any due diligence or financing conditions (I read this as: they really want it). Hedge fund bid is considered a 'superior proposal' by Norsat. Within three days the Chinese counter with a $11.25 bid. A few days ago the hedge fund offered $11.50. Today Norsat announced (again) that the new bid is a superior proposal. The Chinese have 5 business days to match or increase their bid.

 

Currently you can buy NSAT around $11.35 / $11.4 (stupid new ticksizes ..). I don't expect the Chinese to give up a (strategic?) satellite communications company because somebody else bids 2% more. I think it is very well possible they will come up with a slightly higher bid in the next few days. And if not you still make a tiny profit. Heads - you win a little bit, tails - you win a little bit more. I like it and own some shares.

 

Usual disclaimer: just a small position for me and as always I am lazy and probably missing some things. Anybody else has some thoughts?

[Foreign Tuffett]

Thanks for posting this. I think the Privet Fund bid should put a floor under the stock price, with potential upside coming if Hytera ups its bid. Hytera is worth several billion USD, so presumably it has the financial resources to consummate the transaction should it be the winning bidder.

[writser]

Somebody pointed out that the Privet fund seems smallish (~$100m?) so this would be a huge transaction for them. A small risk. I assume they have the means to get the deal done but maybe they secretly wouldn't mind Hytera making the final offer. That could explain the relatively small bid increase and the increased termination fee. I think there are ballpark three likely outcomes as of today:

 

- 80% Hytera comes up with a slightly higher bid to see if Privet has the balls to continue. Estimated final deal price $11.75.

- 18% Hytera drops out. Deal price $11.50.

- 2% Hytera makes the 'fuck you' bid: they increase the bid significantly to shrug off Privet. Final deal $13.

 

Play around with the percentages and/or the final deal price all you want - I really don't understand why you would want to sell this at $11.25 unless I am missing something.

[Jurgis]

Assuming no further bid, when does the transaction close?

 

Selling today at $11.25 might be reasonable if no further bid and it takes 2+ quarters to close. Then the return is ~2% for half-year with some risk that deal does not close.

 

Actually, I think that if there's no bid, the price will temporarily drop to $11 or even lower. So that's another reason to sell today at $11.25 - there might be opportunity to rebuy cheaper.

 

Not saying these are high probability scenarios. Just giving some possible thought patterns.

[Foreign Tuffett]

Assuming no further bid, when does the transaction close?

 

Selling today at $11.25 might be reasonable if no further bid and it takes 2+ quarters to close. Then the return is ~2% for half-year with some risk that deal does not close.

 

Actually, I think that if there's no bid, the price will temporarily drop to $11 or even lower. So that's another reason to sell today at $11.25 - there might be opportunity to rebuy cheaper.

 

Not saying these are high probability scenarios. Just giving some possible thought patterns.

 

Yes, if there's no higher bid then buying NSAT at $11.30 isn't a positive NPV proposition. But this is begging the question, you are assuming away the main rationale for taking the position.

[clutch]

That didn't take long...

http://www.reuters.com/article/brief-norsat-international-says-hyteras-idUSL8N1JD2SZ

 

But looks like the same price as the Privet's offer?

[writser]

Well, Hytera only had 5 business days to respond so an update was imminent. Todays news was a bit disappointing imho. The original merger agreement gave Hytera a 'right to match' a superior offer but I was hoping for a slightly increased bid (as they did last time). Ball is back in Privet's court now.

 

Assuming no further bid, when does the transaction close?

 

They initially expected the deal to complete in Q2 but due to the bidding war things are taking a bit more time. That said I would be surprised if this deal doesn't close within 3-5 months if Privet doesn't come up with a new offer. And in the current low-interest environment most deals trade at ridiculously low spreads - I don't see why this should trade at $10.25. Microcap deal, potential for new bids and I don't foresee any regulatory problems (famous last words - there is at least some backlash over this deal).

 

That said, as of today this is not my best idea ever, I liked it much more yesterday. Now that Hytera didn't improve their bid $11.40 seems more or less a reasonable price for the current situation. I got lucky premarket and managed to sell some at $10.45.

[Jurgis]

Yeah, now it's just wait for either Privet increasing price or just tiny gain in eventual $11.50 distribution.

[clutch]

Looks like this thing could get messy?

http://www.newswire.ca/news-releases/privet-fund-management-llc-announces-intention-to-vote-against-arrangement-resolution-between-norsat-international-and-hytera-communications-co-629383053.html

[Foreign Tuffett]

Looks like this thing could get messy?

http://www.newswire.ca/news-releases/privet-fund-management-llc-announces-intention-to-vote-against-arrangement-resolution-between-norsat-international-and-hytera-communications-co-629383053.html

 

I can't figure out the game Privet is playing here. One possibility is that they are trying to create as much noise as possible with the hope that another party will make a bid for the company.

 

Another (not mutually exclusive) possibility is that they think that Norsat's technology is significantly more valuable than the current acquisition price. Privet may lack the financial resources to up their own offer.

[Jurgis]

Privet may lack the financial resources to up their own offer.

 

Likely this. They were pretty much trying to push Hytera as high as possible, but Hytera managed not to get psyched out and raise the minimum possible. Now they are still trying to push up, but with way weaker hand.

[writser]

Likely this. They were pretty much trying to push Hytera as high as possible, but Hytera managed not to get psyched out and raise the minimum possible. Now they are still trying to push up, but with way weaker hand.

Yeah, seems like it. Not the best outcome. I still managed to make a small profit. Bought at ~$11.26 (mostly a few days before opening this topic), sold two weeks later for ~$11.41.

 

Actually, I think that if there's no bid, the price will temporarily drop to $11 or even lower. So that's another reason to sell today at $11.25 - there might be opportunity to rebuy cheaper.

Nope, it didn't. No higher bid from Hytera and it looks unlikely Privet will make an even higher bid yet the price is up. Me no comprendo. Still holding a token amount of shares to see how things work out.