Trade Idea #1

A new idea format is born: the trade idea. I intend to keep these super short, more of a “you should check it out” rather than a full analysis.

These are the ideas that are inspired by the old Jim Rogers saying:

"The way of the successful investor is normally to do nothing -- not until you see money lying there, somewhere over in the corner, and all that is left for you to do is go over and pick it up."

It looks like there might be a few bucks sitting in the corner.

Let’s go pick it up.

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Today, I stumbled into a funky little setup that looks interesting at first blush. Unfortunately, I cannot trade it myself since Interactive Brokers does not have it available. I even chatted with the Help Desk, but they are not able to add it to the platform. My loss is your gain because I thought perhaps a few of my faithful readers could benefit.

The idea is to buy shares of The Quarto Group (UK: QRT) and sell them into the tender offer. Shares traded today between 110-120p; volume has been historically very light, but today came in at a more reasonable ~300k GBP.

So what’s the idea? Given the sad state of UK markets, QRT.LN has decided to de-list its publicly traded shares and will be launching a tender at 150p (25% upside from the highest trade at 120p) for holders who cannot participate.

In the UK, the requirement is to put this to a vote, which requires at least 75% approval. However, it looks like they have this in the bag, with 72.4% of shares already pledged to vote in favor. Additionally, these holders will roll over their equity into the company once it goes private. Finding the remaining ~3% needed to vote this through probably won't be too difficult.

Here are the holders who will vote YES and roll over their equity.

The company’s intention is to tender 10m shares (24.5% of shares outstanding), although the company believes this is greater than the number of shares in public hands. So, it’s very likely that you would get a 100% allocation here.

The tender offer will be financed with cash on hand. The cost would come in at ~GBP 15m. As of the June 30, QRT.LN had GBP 13m of cash and another GBP ~9m available through a lending facility. So this looks very doable.

The timeline also looks quick. The company expects to delist by January 17th, which should make the IRR very compelling, particularly for a tender offer.

Check out the Circular here.

Anyway, that was the idea. Hope this is helpful + profitable. Let me know if you find these useful, and I will keep sharing them. Thanks all!