Pitches for HMTV, USWS, WOW, UEX.TO, TGR.AX, EVO.AX

EVO.AX – Activist Campaign/Company Sale – 100% Upside

USWS – Merger Arbitrage – 10% Upside

WOW – Rumored Sale – TBD Upside

UEX.TO – Merger Arbitrage – 6% Upside

QUICK IDEA PITCHES

Hemisphere Media (HMTV) – Merger Arbitrage. Update.
A quick update on the opportunistic management buyout of Hispanic-focused media company Hemisphere Media (was previously highlighted in our 2nd Weekly Newsletter). The offer is still at $7/share. However, this week HMTV share price shot up 12% above it as the new proxy was released showing that in June HMTV received 2 competing bids – one at $8/share and another at $9/share. The bidders haven’t been disclosed. Interestingly, the go-shop period ended on June 8 (just a few days after the bids were received) and the company did not go into any detailed discussions. The pressure on management is increasing as another activist, Boyar Asset Management, came out saying the price is ridiculously low. The activists can’t really stop the current offer directly, however, it seems that the market expects that the recent events will at least prompt management to raise the buyout price in order to save face.

U.S. Well Services (USWS) – Merger Arbitrage
Consolidation in the US fracking space. ProFrac Holding is buying its fracking peer U.S. Well Services at 0.0561 shares of PFHC for each share of USWS, implying 10% upside before hedging costs. Total consideration is $300m. The deal is expected to close in Q4’22. ProFrac IPO’ed just 2 months ago and has immediately started an acquisition spree (recently completed one similar deal and just announced another one, besides USWS). A shareholder vote is most likely a formality as the target’s general partner (owns 40%) supports the merger while regulatory hurdles are unlikely due to the small transaction size. The main risk seems to be hedging costs – the current fee is 8%/year, however, the borrow fee rate is volatile and just last month stood at 50%/year (potentially due to the recentness of ProFrac IPO).

WideOpenWest (WOW) – Rumored Sale
In April, WideOpenWest, a $1.6bn market cap provider of broadband and other cable services, was rumored to be exploring strategic alternatives including a sale of the company. Just recently, more rumors appeared that PE firm Global Infrastructure Partners is potentially interested in acquiring the company. Last year WOW sold 5 of its 14 service areas, for around 10-11x forward EBITDA vs 7.5x fwd EBITDA valuation today. However, these sales were done in different market conditions hence those multiples might no longer be relevant. Also, the aforementioned assets were sold to strategic acquirers whereas rumors so far involve only a financial buyer. A similar-sized peer ATUS (still 3x larger than WOW) trades at 7x fwd EBITDA, whereas significantly larger peers (CABO, DISH) are at 9-12x fwd. EBITDA.

UEX Corporation (UEX.TO) – Merger Arbitrage
Last month, Uranium Energy entered into a definitive agreement to acquire its peer UEX Corporation. UEX shareholders will receive 0.0831 shares of UEC implying a 6% potential upside. Plenty of cheap borrow is available. Conditions include approvals from 2/3rds of votes cast and + majority of minority approval. Closing is expected in Q3. This is a cross-border merger in a sensitive industry, however, the market apparently feels the regulatory risk is quite low. The target is still an early-stage exploration miner. The buyer already has some presence in Canada – a major equity stake in Canada’s Uranium Royalty Corp and another small project in Canada. After the merger announcement, the buyer completed a PIPE in UEX and acquired a 3.2% stake.

Evolve Education (EVO.AX) – Activist Campaign/Company Sale
Evolve Education is a childcare center operator, which operates in New Zealand and Australia. Recently, EVO was approached by an activist Raper Capital (0.5% stake) urging the company to sell the business outright or at least divest one of the two operations. The main argument is that the core business strategy of EVO (rolling up cheap operators) is no longer viable. Several large players with deep pockets have been rampaging in the market buying everything at much higher multiples than a small operator like EVO could pay. The same bidders might be interested in EVO. At 9x-10x EBITDA takeout multiple (vs. 10-15x EBITDA that those peers are paying), there’s 100% upside potential from the current prices. EVO management owns 20% of the company, so they also should be incentivized to realize full value here.

Tassal Group Limited (TGR.AX) – Potential Higher Offer. Update.
This situation was highlighted in the last weekly newsletter. Australian salmon and king prawn farming company Tassal Group received and rejected multiple bids from its larger Canadian peer Cooke Aquaculture. During the week, the bidder increased its stake from 5.4% to 7.6%. TGR.AX continues to trade a few cents above the latest offer of $A4.85/share with clear anticipation of an upcoming higher bid. The buyer might also be aiming for a 15% stake, which is needed to get a board seat.