Just a short post about a special situation that might be attractive. The Canadian company Kobex Capital has announced a substantial issuer bid for 85% of its outstanding shares.
Kobex is a cash box with no remaining operations. Management was not making progress in buying another business or making solid investments. The result was that Kobex was trading well below their net-cash value last year. This attracted activist attention from Kingsway Financial Services, which took a position and started a proxy fight.
Kobex management was ultimately able to fight off Kingsway, but not without making a promise to shareholders that it would either identify a strategic transaction or distribute the cash back to shareholders before March 31, 2016. Well, that deadline is today and shareholders will now get the option to tender their shares to the company.
The expected price for the substantial issuer bid is $0.655 per share:
The Substantial Issuer Bid will proceed at a price per Kobex Share to be determined by the Board that is expected to be approximately $0.655, being the anticipated cash value of Kobex per Kobex Share (after taking into account all expenses anticipated to be incurred by Kobex in carrying out the Substantial Issuer Bid, the Shareholders’ Meeting, and other expenses in the normal course business until the end of June 2016).
Kingsway will remain a shareholder and not tender their shares. Since Kingsway owns 14.95% of the shares, shareholders will not get prorated when they tender their shares. Kingsway will be the controlling shareholder after this transaction. New board members and a name change of the company will be proposed at the annual meeting that will take place on or before June 9.
The substantial issuer bid should be completed before June 9:
The intent is to have any Kobex Shares tendered under the Substantial Issuer Bid taken-up and paid for prior to the Shareholders’ Meeting.
The Substantial Issuer Bid will not be conditional on the completion of the other transactions contemplated by the LOI. Further information will be made available in due course as to the timing and terms of the Substantial Issuer Bid, including through the mailing of an issuer bid circular.
I bought shares when Kingsway became involved and paid around $0.55. I almost dumped the shares when they lost the proxy fight, but ultimately decided to hold on for a little while longer. It then became clear that Kobex management had to make serious concessions to their other major shareholder to get their support in the fight and that shareholders did have a good chance of seeing a transaction or liquidation soon.
The current ask price as I write this is $0.63. This means there is a potential ~4% return for a holding period of about two months. This still looks pretty attractive to me. Risks include that the substantial issuer bid is delayed, that the price offered to shareholders will be lower, or that Kingsway backs out of this deal for some reason. I don’t see the latter as likely, because Kingsway does not have to increase their cash investment in Kobex and they obviously have plans of their own for the newly named company after they gain control.
Disclosure: long Kobex Capital Corp. (CVE:KXM)