RSYS - Radisys

[Gregmal]

Deal announced today 1.72 per share, closing is Q4. Current price 1.49 which represents over 30% IRR. Anyone else looking at this? Don't see many threats to this closing.

[writser]

I bought a few shares today.  Spread seems ridiculously high but I have never looked at this name before and am worried other market participants are better informed. Maybe CFI approval might be problematic given that they make software for 4G / 5G networks? I'd say unlikely for such a small company but what do I know. The buyer might be a bit controversial. Also, I only see a termination fee payable by Radisys (no fee if Reliance cancels the deal?). Some potential problems.. Still, 17% is a lot - and it traded even lower.

 

Maybe some more knowledgeable people can share their insights.

[cameronfen]

https://reminiscencesofastockblogger.com/?s=radisys&submit=Search

[Foreign Tuffett]

The wide spread does seem a little puzzling.

 

Anything cross-border runs the risk of drawing the ire of the Committee on Foreign Investment, but it's not obvious to me how the national interest would be served by blocking the sale of a tiny (slowly failing?) telecommunications services company. Prior to the deal announcement, they were in danger of being delisted from the NASDAQ, so the market certainly didn't have a high opinion of any patents or proprietary technology they happen to own.

[Gregmal]

My thoughts are that this has been a perpetual over promise under deliver type of company and management, that briefly showed a tremendous amount of promise only to again implode. This was about a year ago and you've got plenty of shareholders underwater and likely throwing in the towel which IMO is probably the main reason for the excessive spread. Well, that and I would guess some concern that this is just some stunt and won't close, but that would be fraud...

[writser]

you've got plenty of shareholders underwater and likely throwing in the towel which IMO is probably the main reason for the excessive spread.

 

I hope this is true and it probably explains at least some of the action today. On the other hand, I think such an explanation is potentially a bit simplistic / lazy. ~25% of shares outstanding traded hands today and another 25% is in the hands of a few large holders whom I assume didn't all sell (Renaissance, Blackrock, D3). Shares traded today at an average discount of ~15% for a deal that is supposed to close in a few months. Surely these shares weren't all owned by frustrated dentists who decided to sell them during lunch break. Also, the dollar volume was relatively low - if this was really such a no-brainer trade I'd expect that 'smart money' would snap up today's volume at far higher prices.

[Gregmal]

you've got plenty of shareholders underwater and likely throwing in the towel which IMO is probably the main reason for the excessive spread.

 

I hope this is true and it probably explains at least some of the action today. On the other hand, I think such an explanation is potentially a bit simplistic / lazy. ~25% of shares outstanding traded hands today and another 25% is in the hands of a few large holders whom I assume didn't all sell (Renaissance, Blackrock, D3). Shares traded today at an average discount of ~15% for a deal that is supposed to close in a few months. Surely these shares weren't all owned by frustrated dentists who decided to sell them during lunch break. Also, the dollar volume was relatively low - if this was really such a no-brainer trade I'd expect that 'smart money' would snap up today's volume at far higher prices.

 

Just playing devil's advocate but a third rate nanocap stock like this also likely isnt on the radar of much "smart money", period. Add in the reputational issues and utter disaster the past year has been, and I think I can at least get comfortable with rationalizing the discount. I'd also add that many deals since Trump took over have traded with out-sized spreads. This isn't uncommon and all these things put together, kind of warrant it. I'd have expected something closer to a 10-15% annualized discount though. Then again I'd never have expected the types of spreads we saw with Cabela's, BRCD, etc, either.

[writser]

True, I think I owned both of them at some point. However I'm always a bit suspicious with such deals, hard to be sure you have an edge on the field. Same here. Keeping my position small and wouldn't mind selling opportunistically.

[Foreign Tuffett]

Plenty of smart thoughts in this thread already.

 

There are lots of "known unknowns" and "unknown unknowns" in merger arbitrage situations like this. It's difficult to distinguish between "the market knows something that I don't" and "the market has this one wrong."

 

I just try to think probabilistically, be opportunistic, and size positions appropriately. Probably no one posting in this thread has an information advantage in this name, so any "edge" will have to be behavioral.

[Foreign Tuffett]

Stock has bounced around, but @ $1.52 the spread hasn't closed much -- which is surprising, or at least it is to me.

[writser]

I don't really understand it either. I sold the majority of my holdings in the high $1.50's. Tempted to buy back a few shares but a bit hesitant that I'm missing something. Cross-border deal with an Indian mogul buying possibly sensitive technology ..

[Gregmal]

Yea it's odd. The company has an earnings call soon and will be hosting a conference call apparently to discuss results which to my knowledge, normally isn't the case with a merger pending. But who knows. The key is as writser alluded to, is finding these types of situations and then just trading them for short term price adjustments.

[writser]

And if the spread moves against you to throw them in the 'long-term compounders' basket until the price moves up again ;) .

[Foreign Tuffett]

And if the spread moves against you to throw them in the 'long-term compounders' basket until the price moves up again ;) .

 

This stock is like GEICO in 1951! Bro up, compound down! Too legit to quit! So on and so forth....

[writser]

Hehe. Anyway, today some decent volume around 14:15, couldn't resist to buy some shares at $1.48. We'll see how things turn out (again). Thanks for the timely bump.

[Gregmal]

And if the spread moves against you to throw them in the 'long-term compounders' basket until the price moves up again ;) .

 

This stock is like GEICO in 1951! Bro up, compound down! Too legit to quit! So on and so forth....

 

I don't think this is a business you'd want to own after a deal break. Definitely isn't NXPI. Strictly a numbers trade. That's part of the reason I don't see anyone blocking this. Radysis isn't anything special.

[Foreign Tuffett]

Preliminary proxy is out. I don't see any surprises (which is a good thing).

 

 

https://www.sec.gov/Archives/edgar/data/873044/000119312518231578/d502287dprem14a.htm#tx502287_29

[Gregmal]

Preliminary proxy is out. I don't see any surprises (which is a good thing).

 

 

https://www.sec.gov/Archives/edgar/data/873044/000119312518231578/d502287dprem14a.htm#tx502287_29

 

Yup, earnings look solid too. Merger is spoken of as a given. Will probably look to add soon.

[porcupine]

Thinking out loud here...but:

 

Doesn't loss aversion suggest that current shareholders will want to hold and therefore will want to vote against the acquisition?

 

Or does the 45.28% institutional ownership negate that fact?

 

Or, assuming $.70 was fair value before the merger, would current shareholders losing 2.95 mil due to the termination fee (thus causing the share price to drop below $.70 per share) hate losing that much more? Are they willing to cut their losses (since the share price hasn't been this low in years!)?

 

 

[porcupine]

Yet, the spread widens!

[Gregmal]

Thinking out loud here...but:

 

Doesn't loss aversion suggest that current shareholders will want to hold and therefore will want to vote against the acquisition?

 

Or does the 45.28% institutional ownership negate that fact?

 

Or, assuming $.70 was fair value before the merger, would current shareholders losing 2.95 mil due to the termination fee (thus causing the share price to drop below $.70 per share) hate losing that much more? Are they willing to cut their losses (since the share price hasn't been this low in years!)?

 

I would think the frustrations of owning this the past year would be the primary reason one would just throw in the towel.

 

That said it's surprising the spread keeps widening. End of the day, who knows? I can't really see any reason, barring this entire buyout being one giant fraud, for this not closing. If it doesn't, I'll live.

[Gregmal]

Sold out today. Gut instinct move. Still feel there is no reason it shouldn't close. But my price action feeling is causing skepticism, which matches my skepticism of the characters involved on both sides, and heeding those things in the past has saved me a lot of money. I've also seen this type of price action associated with rumored leaks involving this company before, so better safe than sorry.

[porcupine]

Sold out today. Gut instinct move. Still feel there is no reason it shouldn't close. But my price action feeling is causing skepticism, which matches my skepticism of the characters involved on both sides, and heeding those things in the past has saved me a lot of money. I've also seen this type of price action associated with rumored leaks involving this company before, so better safe than sorry.

 

Kind of a self fulfilling prophecy, no?

 

You may very well be correct... people are legitimately selling based on the rumor of a deal not going through.

 

Or... as the spread widens, more and more people continue to sell based on the fear that the deal won't go though... whether that fear is justified or not... time will tell.

 

I really don't have much money invested in this... was prepared to lose a substantial amount from the start.  Just going to hold on and see what happens in the near future!

[Gregmal]

Sold out today. Gut instinct move. Still feel there is no reason it shouldn't close. But my price action feeling is causing skepticism, which matches my skepticism of the characters involved on both sides, and heeding those things in the past has saved me a lot of money. I've also seen this type of price action associated with rumored leaks involving this company before, so better safe than sorry.

 

Kind of a self fulfilling prophecy, no?

 

You may very well be correct... people are legitimately selling based on the rumor of a deal not going through.

 

Or... as the spread widens, more and more people continue to sell based on the fear that the deal won't go though... whether that fear is justified or not... time will tell.

 

I really don't have much money invested in this... was prepared to lose a substantial amount from the start.  Just going to hold on and see what happens in the near future!

 

I mean, it's complicated and best summed up just as gut feeling which I've always found to be fairly accurate for no distinguishable reason other than maybe luck or things I can't put into words.

 

For instance, I'm not totally cool with the players involved in this on either side. But that by itself, I can live with because we have a binding agreement. The spread, as detailed before, I can justify. If this just sits there at a discount and acts like other pending deals, just with a wider spread, no biggie.

 

But I have spoke to several with backgrounds on this and particularly this time last year management is said to have royally screwed sharehholders by completely mishandling and misrepresenting the loss of a major, major contract. Leading up to this there was rumor or such being leaked, and rampant selling or shorting without any real news. It took about 6 months before everything was fully cleared up and the stock lost over 75% of it's value. I'm not waiting for the same to happen here. The is a business I want no part of as a stand alone company.

 

Additionally, as a sub 1% position, if I find myself devoting more time to it than it is proportionally worth, I usually find that an indication I should just get rid of it. So it's not all those things individually that bother me, but as they all come together and the price action indicates deliberate selling by somebody, that's enough for me. If it's just noise surely the price action would be a little more stable or there would be someone ready on the other side to step in at such a spread.

[porcupine]

Sold out today. Gut instinct move. Still feel there is no reason it shouldn't close. But my price action feeling is causing skepticism, which matches my skepticism of the characters involved on both sides, and heeding those things in the past has saved me a lot of money. I've also seen this type of price action associated with rumored leaks involving this company before, so better safe than sorry.

 

Kind of a self fulfilling prophecy, no?

 

You may very well be correct... people are legitimately selling based on the rumor of a deal not going through.

 

Or... as the spread widens, more and more people continue to sell based on the fear that the deal won't go though... whether that fear is justified or not... time will tell.

 

I really don't have much money invested in this... was prepared to lose a substantial amount from the start.  Just going to hold on and see what happens in the near future!

 

I mean, it's complicated and best summed up just as gut feeling which I've always found to be fairly accurate for no distinguishable reason other than maybe luck or things I can't put into words.

 

For instance, I'm not totally cool with the players involved in this on either side. But that by itself, I can live with because we have a binding agreement. The spread, as detailed before, I can justify. If this just sits there at a discount and acts like other pending deals, just with a wider spread, no biggie.

 

But I have spoke to several with backgrounds on this and particularly this time last year management is said to have royally screwed sharehholders by completely mishandling and misrepresenting the loss of a major, major contract. Leading up to this there was rumor or such being leaked, and rampant selling or shorting without any real news. It took about 6 months before everything was fully cleared up and the stock lost over 75% of it's value. I'm not waiting for the same to happen here. The is a business I want no part of as a stand alone company.

 

Additionally, as a sub 1% position, if I find myself devoting more time to it than it is proportionally worth, I usually find that an indication I should just get rid of it. So it's not all those things individually that bother me, but as they all come together and the price action indicates deliberate selling by somebody, that's enough for me. If it's just noise surely the price action would be a little more stable or there would be someone ready on the other side to step in at such a spread.

 

Well said.