Just a very, very quick update on my previous post on Fortune Industries (FFI) arbitrage opportunity.
The company announced this strange amendment to their going private transaction.
Basically, what will happen is the company will sell their PEO business to their former major shareholder’s estate in exchange for all of his shares, and use those shares to acquire a set of 20 nursing homes.
Is this strange? I think so. No real financial terms or anything have been disclosed, though the company has said this will allow them to stay public.
Despite the lack of anything tangible, the market apparently loves the move, sending the stock up >100% this week.
My recommendation?
The stock is up 100-200% since my article (depending on where you bought). If you were participating in the stock for the arbitrage, this is probably a super small position for you anyway, so given the lack of clarity, why not say thanks for your good fortune, take the profits, and buy yourself a nice bottle of wine tonight?
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My reading of the PR is different than yours.
The company is not selling “their PEO business to their former major shareholder’s estate in exchange for all of his shares, and using those shares to acquire a set of 20 nursing homes.”
It looks to me the major shareholder estate ownership is staying put in the PEO. He, along with other non-affiliated shareholders, was massively diluted by management.
With management’s propensity to screw FFI’s non-affiliated large shareholders, I have no faith this is a great deal for us. A shell is worth $300K, so that’s what I think is happening. Fortune’s PEO business goes completely private (not just dark) with current management, while the guy owning the nursing homes gets to eventually expand by backing into public ownership cheaply.
It will be interesting to see how much FFI shareholders own of the new business. We have absolutely no idea. I’m fairly confident FFI shareholders will be tiny minority shareholders, but who knows what value is being ascribed to our shares. Is it 40% of FFI ownership (pre-screwing) or 10% (post-screwing). Either way, I doubt we as a group own much in the new company.
We also have no idea if it’s a good business or a highly indebted business, so kinda silly to even hazard a guess because we know neither the value of our currency (is it 60 cents an FFI shares or 15 cents a shares) or the value of what we are buying. So the market reaction is unusual with so many unknowns.
You gotta give Fortune management credit, they think outside the box in how many ways they can enrich themselves. They managed to get rid of all outside non-affiliated shareholders while they stole the company. The proxy will be an interesting read.