Inspired by Glenn Petersen and Sarah Talay, I have spent a little time looking at the Sports Properties Acquisition Corp. (HMR) and Florida Panther situation.
I found this interesting statement in one of Sarah Talay's articles about SPACs
<They are mainly an investment vehicle for hedge funds, said Meghan Leerskov, assistant managing editor at DealFlow Media, which follows the investment vehicle.>
sun-sentinel.com
Well yes, but these hedge funds make their money by killing deals not by approving deals. That's why the term SPAC arb players is perhaps more apt than hedge funds.
HMR was primarily the brain child of Mr. Murstein who is the CEO and 9% owner of Medallion Financial which trades under the symbol TAXI.
TAXI is apparently a profitable outfit
finance.yahoo.com
TAXI dabbles in various things including financing taxicab medallions
finance.yahoo.com
HMR itself is a typical later day SPAC.
20,000,000 units were sold to the public at a cost of $10. A unit is one share of common and one $7 purchase warrant which expires January 17, 2012.
As is usual in these deals, the principals in the deal get 20% of the company at essentially no cost assuming a deal gets consummated. If no deal is made and approved, these free shares become worthless. So there are 25 million shares at present, 5 million free to Medallion mostly and 20 million bought by the "public".
In addition there were 5.9 million warrants purchased by Medallion and 100,000 warrants purchased by HMR nominal CEO Tony Tavares at 1 dollar each. These monies are lost if the deal is not completed.
Hank Aaron, Jack Kemp, Mario Cuomo and others were all put on as figurehead directors hoping to add prestige to the HMR name. To me this is a whole lot of hooey because they own in general no shares in HMR. Kemp was awarded 100,000 free shares but for all practical purposes his roll is dead now anyway. Some of these guys own a few thousand shares in Medallion. Big deal. They are there for the show.
I had to laugh when I saw this:
<Hank Aaron among buyers of Florida Panthers>
bizjournals.com
Clearly Hank Aaron's actual equity stake in this is very close to zero. Calling him a "buyer" is stretching things to the max.
And clearly HMR wanted the Chicago Cubs, but an attempt to piggyback on to more solid contenders like Marc Cuban fell flat.
reuters.com
In 2007 when they were organizing HMR, the stock market was still rising, the economy was stronger, the real estate market was not yet in complete free fall. And the Cubs franchise looked like a gold mine. Somewhat different world than today in other words.
But HMR only had around 200 million and this could have been one reason for being tossed out of the Cubs contest. And Marc Cuban is no dummy. Why should he get mixed up with a bunch of problematic investors by going partners with HMR?
So here they are diddling around with the Florida Panthers.
southflorida.bizjournals.com
blogs.trb.com
The SPAC arb guys are definitely out in force here. They probably have well over 30% of the shares.
These SPAC arb guys are not interested in any of the SPACs as investments. Perhaps for good reason because most SPACs, at least recently, go down in price after being approved. So instead of a possible loss they want their money. And they don't care if they liquidate the company to do it.
Some of the HMR SPAC Arbs must have hopped on the gravy train at the beginning while the hype was hot. They would have immediately sold their warrants as fast as possible. And there was Hank Aaron and the Chicago Cubs and a still hot stock market in early 2008 as I recall. So there was plenty of puff to get some starry eyed speculators to buy some warrants. And these were well in the money warrants as the stock was trading in the nines. As can be seen, it is these unfortunate warrant purchasers who will lose money, not the actual shareholders.
So with a little bit of luck the SPAC arbitragers might have sold the warrants at $.75 now they have a cost basis of $9.25. Or some hopped on latter and could have bought some stock for $9 (at least at one point).
By the immutable laws of SPAC investing, there is still a hunk of cash sitting there waiting either to be used in an approved purchase or to be returned to the stock holders. Just about $10 a share in fact.
In order for a SPAC deal to be approved first a majority of the shareholders must approve of the deal. Then (and here's the rub) less than 30% (in the case of HMR) of the share holders must ask for their money back. In order to get his money back, a shareholder must first vote no and then formally request his money back. In the case of HMR, if more than 30% so do, the company is automatically liquidated and every share holder gets his pro rata share.
OK so using the rough figures above, these SPAC arb fellows are looking at between .75 to a dollar of profit per share. Using a cost basis of first $9.25 and then $9, this comes to about 9 to 11 percent profit.
Well to guys that are used to gunning for larger gains speculating in the market, this may seem like small potatoes.
But what a minute. This return is essentially guaranteed. And short term interest rates are now near zero. I imagine these SPAC arbitragers have no trouble borrowing money at these near zero short term rates. So if they leverage their positions to just 50% they can nearly double their returns to 18 to 22%. And this is guaranteed with an extremely low or close to nonexistent risk.
Here is the Yahoo listing of major holders who are mostly our friends, the SPAC arb guys.
finance.yahoo.com
There is over 30% of the HMR stock listed there including BAC and I think it should probably be included. And I bet there is a bunch more of 1-2 per centers. From what I understand, they are only obligated to report their holdings to the SEC if they exceed 5% of the company, although some of them do report anyway.
Many of the names on the list are familiar to me from my days when I was sweating through the brutal time ESA had getting their deal approved. QVT, Polar, Millenium, etc etc etc.
Here are some SEC filings:
Behold the inestimable Basso of the Cayman Islands going from 640 thousand to 905 thousand 0r 3.4% of the company
sec.gov
QVT has gone from about 1.05 million to around 1.36 million
sec.gov
Millenco or Millenium owns 2,394,738 or 8.9% and they are not a friendly group of guys
sec.gov
Here is my old buddy Andrew Weiss with 1,311,190 (4.9% of HMR) shares (and not included in the Yahoo list)
sec.gov
This is Mr. Andrew Weiss of the Weiss Asset Management (WAM) which "combines a highly disciplined value investing, quantitative investment approach with economic analysis of data to maximize risk adjusted returns. The primary strategy is market neutral with arbitrage across various classes of securities, and other forms of arbitrage across various classes of equities. WAM sticks closely to its areas of expertise."
weissasset.com
By sticking "closely to its areas of expertise", these guys mean that they play the SPAC arb game for all it's worth. But wait. Largely because of this SPC arb game (as well as the economy, the market etc), SPAC offerings have shrunk to zero in 2009. I wonder what these SPAC arb guys would do if they ever had to work for a living. Because, believe me, the SPAC arb game is (or was) very easy money.
Again I have to wonder about BAC's intentions here
sec.gov
What more can I say on a largely intuitive basis about HMR and it's possible purchase of the Florida Panthers?
For one thing they have come down a long way from their lofty ambition of buying the Chicago Cubs. With the economy, the value of the Chicago Cubs must have fallen, but even a piece of it still must dwarf the value of the Florida Panthers. Let's face it, the Florida Panthers is a fringe team in fringe sport located in a fringe area. In other words there ain't nothing prime time about the Panthers even if they do make the playoffs next year.
Well OK they don't want to buy just the Panthers, there is some real estate and possibly some real estate development involved. The purported deal could include also the BankAtlantic Center home of the Florida Panthers but also the "City of Oz, a massive mixed-use retail and entertainment complex surrounding the Sunrise arena."
blogs.trb.com
Apparently Oz is still largely a far fetched fantasy
blogs.browardpalmbeach.com
Exactly how and which real estate is to be included is unclear, but folks this is 2009 not 2004. The bursting of the real estate bubble is very old news by now.
I did have some one of some intelligence say to me and I quote "Real estate must be close to bottoming because Obama has had plenty of time to set everything straight by now."
Now everyone has such an optimistic view.
Message 25699027
Apparently in the midst of a real estate depression, they want to build more in a massive way in an already massively overbuilt area. Makes sense to me.
Part of the Oz pipe dream is that it is right next door to that mythical Mother of All Malls, the famous Sawgrass. As I am just not a mall guy, I have never seen this humongous monstrosity in person. Baseball bum you could call me but never mall rat. But even from Miami Dade county, I have heard tales of mall addicts in mythical times past taking regular drives way up there to see the ultimate in what the late, great Great Mall Society had to offer.
Actually now that I know that the Sawgrass is right next to the Panther's home, maybe I will drive up one afternoon to see the mall (satisfying a little bit of morbid curiosity) and then hop over to catch a Panther's game. Although I think it might take a couple of years to walk through this entire mall city.
One of the pleasures of going to a Panther's game way up there in the North Pole (or so it seems to me from South Dade) is the free and ample parking. And one of the unfortunate aspects of this fantastic plan apparently is that they want to build over that wonderful parking lot.
I have given a rather pessimistic outlook but the market in fact agrees with me.
Just look at the price of the warrant. There is barely interest at $.10. Now the stock is around $9.60 and the warrant gives one the right to buy the stock at $7 until January 17, 2012 if and only if the deal is consummated.
So the price of the warrant basically is saying that nobody in the know including insiders really thinks this deal is going to make it. The warrant has an intrinsic value of $2.60 and certainly should be trading way higher than $.10. If those in the know really thought this deal was viable, then it would be trading much higher.
Another somewhat less likely possibility is that while they think the deal might pass. the stock could well fall quickly below $7 shortly after approval.
This is one paradox of the now dying SPAC phenomenon. The high stock price of HMR is actually a bad sign. People are treating the stock as if it were going to be liquidated and that every shareholder will get close to $10. And that the warrants will probably become worthless.
Paradoxically if the deal starts to look viable the stock should start to fall and the price of the warrant should start to rise. A big if and when this deal is ever completed, the stock goes instantly from being an almost no risk situation to a very high risk situation.
Make no mistake about it. These SPAC arb guys are all over this like bees on honey. And you can count on the fact that they want no part of Oz or the Panthers. They just want their money back.
Actually one or two SPAC arb outfits got into trouble in times past by going soft and staying with some large amounts of SPAC stock. When the stock they had held onto went to near zero, those guys found themselves with a huge problem. So to be a successful SPAC arbitrager you need to have a heart of stone. Notice I didn't say nerves of steel, because they really have nothing to worry about. It is a game they can't lose.
I guess they could lose, if someone absconds with the money or if some lawsuit, ties it up, but to me it's like being ahead by 20 runs in the ninth inning. Sure you could lose, but your chances of winning are looking pretty darn good.
I estimate that these Arb guys have 50% of the stock of HMR. It could be less and it could be more but no way is it less than 30%. So something needs to be done to get their stake down to just below 30%. Some of their shares will need to be bought. And note that even with just 30% of the stock in arb hands, they will still need to refund these guys' money so instead of 200 million cash, HMR will have only about 140 million to leverage into some sort of acquisition deal after they subtract out the payoff money.
That is if the deal gets approved. Remember that to get their money back these arb guys have to first vote no and then request their money back. If 31% or more of the shareholders vote no and request their money back, Sports Properties Acquisition Corp will be automatically liquidated and all share holders will get approximately $10 per share, and Mr Cohen of the Panthers will have to invent some other sort of nonsense to deal with his problems and his grandiose plans.
So what could happen? First of all we await the final deal which will contain all sorts of murky, myriad details. Or it could be that Cohen will say forget it, that this just ain't gonna fly so this is a colossal waste of everybody's time and legal fees.
But OK say the deal survives to the formal stage, the SPAC arb holders will still be around, and they will still want their money and they will not give an owl's hoot about the details of the plan.
So they will need to be bought out to just less than 30% of the company. So buyers will need to be found.
First the good old public will be pitched hard. A big ole hype machine will be started. I mean Hank Aaron, Oz, the NHL, Sunrise, Sawgrass, real estate deal- big boink and whoops. That was real estate deal here and now in 2009. The effective hype is really going to be Hank Aaron, Hank Aaron, and more Hank Aaron. I think that will fall deservedly on its face.
So maybe Mr. Murstein along with some friends will put up some money. But Murstein himself did not put up any money. He kindly put up 4.9 million of his TAXI company's money to do the legally obligatory warrant buying. As he owns 9% of TAXI, in effect he only put in $440,000. A pittance if you think of it. So I really doubt that Mr. Murstein will come up with any money. Will he pony up a bunch of his company's money to keep the HMR deal alive? Possibly but he might have to face some severe shareholder scrutiny when the HMR stock price later falls as it will.
So what do we do with those stock arb guys if we want to save the deal. Recruit some gullible (or maybe corrupt) politicians to help of course.
<Sunrise, which already has Sawgrass Mills and the arena, is already developed to the gills. The Tao ghost towers are still, uh, ghostly.>
blogs.browardpalmbeach.com
But, of course, the cure of overbuilding is still more overbuilding. So maybe the politicos will drink into the magic elixir and nectar of construction jobs and help the deal pass. I am sure pressure will be brought to play. Guilt trips to the max. Broward needs the jobs etc. Maybe some monies could even pass unnoticed under the table. There are a lot of ways to garner influence.
This whole deal stinks IMO. Mr. Murstein has a huge upside potential with all his free stock while he has risked almost nothing himself. It is a heads I win, tails I don't lose hardly anything situation.
Maybe some astute shareholders or even politicians will take notice of this, and force a different deal on Mr. TAXI Murstein. Like make him give back most of his free stock. Or some such. But even then the SPAC arb guys need to be bought out. They have zero interest in overbuilding an already overbuilt Oz. And Hank Aaron was a baseball star not a hockey player.
Well I certainly put a pounding on my keyboard for this long winded thing. Perhaps I should have just left it with Sarah Talay' typically succinct headline words.
"Lots of details to resolve in potential sale of Panthers"
blogs.trb.com
And there is not a lot of time left.
January 17, 2010 is the date everything has to completed. That's lock stock and barrel. Not just announced, not just approved, but every last detail has to finished and the new company has to be formally operating. And SPAC deals in addition to being extraordinarily complex, always move forward slower than molasses. On January 18, 2010 HMR will go puff and exist no more, baring a miracle that is.
No wonder the warrant is trading at $.10. It's probably worth zero. |
