Description
This is a micro-cap merger arb that is only suited for small PAs, but the spread is too large not to share.
KMC Properties ASA and Logistea AB announced on the 14th of June the intention to merge. The transaction is a bit complicated and the communication around the transaction has been a bit confusing, which is why we believe this opportunity exist.
At the current pricing it is possible to make 23% return (not annualized) in ~3 months, by going long KMC-P ASA and shorting Logistea AB. The shares of KMC Properties ASA trades today at 2.3 NOK and gives you the right to receive shares in Logistea at the end of Q3, or beginning of Q4, worth 2.8 NOK.
In the initial announcement on the 14th of June, it was announced that Logistea will acquire all of the assets within KMC Properties ASA and issue new shares in Logistea AB to KMC Properties ASA, with the consideration shares subsequently distributed to the shareholders of KMC Properties. Due to the requirement of a prospectus, the new shares in Logistea will be distributed to the shareholders in two tranches, one in July and one at the end of Q3/Q4.
The first tranche has already gone ex-date, on 8th of July, and the second tranche will be ex-date at the end of Q3/Q4. In the initial press release, it stated that the first tranche was supposed to be roughly 80% of the consideration shares and the KMC Properties went ex-date first tranche on the 8th of July with an ex-value of 6.39449 NOK per KMC-P share. Because the Logistea shares have appreciated so much since the transaction, the value of 6.39449 only equates to 68% of the consideration shares, leaving 32% of the consideration shares to be distributed on the second ex-date.
This is what we believe the market has been slow do understand, that the KMC Properties shares now trade ex a certain value and not a certain percentage (80%) of the consideration shares. We must admit that when we typed this up over the weekend the returns were closer to 45%, but we still believe the 23% is adequate given the low probability of the transaction not closing. There is also some value to add to the remain-co KMC-P that might increase the returns beyond the 23% but we would not include that in our fair value.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
Closing of transaction in Q3 and distribution of Logistea shares.