Thesis
I am recommending a long position in the common shares of Liberty Acquisition Holdings ("Liberty"). This investment is a classic special situation asset conversion where the shares are currently priced at a 16% gross spread. This spread can be locked in by shorting 4.5 shares of Promotora de Informaciones, S.A. ("Grupo Prisa") per 1 LIA share.
The asset conversion is expected to occur by the end of October and implies an IRR of 108% over 74 days.
The common shares have an embedded put as a result of the SPAC structure enabling an ultimate floor of $9.87/share or a 3% loss.
See the link for my model. Please don't forward this link around. https://docs.google.com/leaf?id=0B-TilrnRSVamOGE5MzA0YjAtZDA3ZS00NmVmLWEyMTMtZDFiZjc3NDllODg3&hl=en&authkey=CIyEgcwO
Background
Liberty is a special purpose acquisition company ("SPAC") formed on June 27, 2007.
With a $1 billion IPO, Liberty was the largest SPAC raised through the issuance of 103.5 million units. Each unit consisted of one share of common stock and one-half of one warrant.
The sponsors behind Liberty are Nicholas Berggruen of Berggruen Holdings and Martin Franklin of Jarden Corporation.
On March 5, 2010, Liberty announced a recapitalization of Grupo Prisa, a Spanish and Portuguese-language media company controlled by the Polanco family and with assets including news, entertainment, education and digital enterprises in Spain, Portugal, Brazil and Hispanic Latin America.
Grupo Prisa is highly leveraged with an equity market capitalization of $524 million (€408 million) and $6.907 billion (€5.377 billion). With LTM EBITDA of $732.5 million (€$570.2 million), the company is levered 9.4x times and trading at a 10.1x TEV/EBTIDA multiple.
Situation Summary
Grupo Prisa's obvious motivation to transact is to delever its balance sheet. That deleveraging comes with significant dilution to existing Grupo Prisa shareholders. To ensure the deal votes go through so that Grupo Prisa can successfully delever and Liberty will not liquidate its trust account, the deal has been revised twice since March; once in May and most recently on August 4, 2010. The most recently revised deal terms include a spacmail offer for Liberty shareholders to 'cash out,' if they vote for the deal, at $10, an offer above the redemption value of $9.87 that shareholders who vote against the deal would receive. To fund the 'cashing out' by such shareholders, Liberty and Grupo Prisa announced on August 4th that they had raised $400 million and another $100 million on August 9th.
The following is a summary of the revised terms to Liberty shareholders:
|
|
Initial Deal
|
Revised Deal
|
New Structure
|
|
|
5-Mar-10
|
7-May-10
|
4-Aug-10
|
|
COMMON
|
|
|
|
|
Value
|
$11.00
|
$11.26
|
$11.81
|
|
Option A: Redemption
(Vote NO against deal)
|
$9.87
|
$9.87
|
$9.87
|
|
Option B: Cash Out
(Vote YES for deal)
|
NM
|
NM
|
$10.00
|
|
Option C: Mixed Consideration
(Vote YES for deal)
|
- 1.547 Prisa Ordinary Shares
- 0.358 Prisa Non-Voting Convertible Shares ("NVCS")
|
- 1.173 Prisa Ordinary Shares
|
- 1.5 Prisa Ordinary Shares
|
|
DEAL ASSUMPTIONS
|
|
|
(current)
|
|
Prisa share price
|
€3.518
|
€3.518
|
€1.965
|
|
NVCS Face Value
|
€7.33138
|
€7.33138
|
NM
|
|
NVCS Optional Conversion value
|
NM
|
NM
|
€1.965
|
|
USD/EUR
|
1.364
|
1.364
|
1.2795
|
|
OTHER
|
|
|
|
|
Terms of NVCS:
|
- Convertible at €4.50 two years from closing
|
- Convertible at €3.75 two years from closing
|
- Minimum €0.175 dividend per annum
- Optional conversion into 1 Prisa ordinary share at any time during monthly exchange periods
|