Dark Side of the Street (Edition #61)
$MDU $KNF Spinoff Quick Analysis, $ATVI Update, Top Movers and More!
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Quick Analysis of the Week
MDU Resources Group, Inc. (NYSE: MDU 0.00%↑) - Upcoming Spinoff
MDU is a utility and construction materials company that is in the process of spinning off its construction materials business, Knife River (KNF). Here are the basic stats for each company.
The spinoff details are as follows. MDU is spinning off 90% of KNF in the 2nd quarter of 2023. The distribution ratio will be for every four shares of MDU owned, the stockholder will receive one share of KNF.
This situation is most intriguing from a valuation standpoint as there is a possibility of a re-rate for each company. The market tends to give utility stocks a higher multiple due to the consistency of the industry and solid dividend yields.
As we can see from the stock comp tables above, with the companies separated the market is likely to place an enterprise value (EV) of ~12B for MDU and ~2.8B for KNF. Currently, the combined company is trading at an EV of ~9B and therefore a spin-off could yield a re-rate of about 64% for the combined companies. Although I’d expect each company to yield a slightly lower multiple than the averages as both companies currently have lower margins than their peers.
Further analysis would be necessary to determine if the companies could become more profitable separated and the future outlook for each company. If you would like to dive into this situation further, here is the link to the latest SEC Form 10.
If you would like me to do more quick analysis’ of other special situations/interesting micro-cap stocks, please let me know either by liking this post or commenting below!
Recent Insider Buying
Large Micro Cap Purchases
Top News of the Week
“The Bear Market’s Survivors Share Their Biggest Lessons” - By Gunjan Banerji of WSJ
“Why J&J’s Kenvue Spinoff Is Just What the IPO Doctor Ordered” - By Andrew Bary of Barron’s
Top Micro Cap Movers this Week
Top 10 Gainers
Top 10 Losers
Special Situation Watchlist
Activision Blizzard ( ATVI 0.00%↑) - Risk Arbitrage
The spread between the buyout price ($95/share) and ATVI’s current trading price is now ~22%.
BIG NEWS UPDATE: The UK antitrust regulator has rejected the merger between MSFT and ATVI. The stock dropped 11% after the announcement. Below is an article with all the details.
“Microsoft’s $75 Billion Deal for Activision Blizzard Is in Peril” - By Kim Mackrael and Sarah E. Needleman of WSJ
111, Inc. ( YI 0.00%↑) - Going Private Transaction
The non-binding offer has been upgraded from $3.61 to $3.66/share (see link for SEC filing)
The spread between the offer price and the current stock price is 35%
Albertsons Companies, Inc ( ACI 0.00%↑) - Merger Arbitrage
The spread between the buyout price ($27.25/share) and the current trading price is now ~30%.
News Articles:
No new updates
TravelCenters of America ( TA 0.00%↑) - Risk Arbitrage
The spread between the buyout price ($86/share) and the current trading price is now 0%.
*See links for the situation summary from prior editions
Here’s some solid techno for your focus playlist.
See you next week!
- Dark Side of the Street