Dark Side of the Street (Edition #69)
Major $ATVI Update!, Stock Turnaround History: JAS, Top Movers and More!
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Turnaround Stock History
Jo-Ann Stores Inc. (JAS)
Jo-Ann is a company with a long history, and the company has gone through numerous turnarounds (and is actually in the process of one right now under the ticker JOAN). The turnaround we are zooming in on today began in 2006. And it is what I would describe as a false positive.
The company is coming off one of the best years in its history in 2005, as the arts and crafts retailer had top-line revenue of $1.8B and netted $46M. But something dramatic changed in 2006. JAS went from netting $2/share to losing $1/share, a $3 swing that sends the stock down 50%. So what actually happened? Mainly, there were some bad inventory purchases. Inventory levels remained high, and the cost of sales went up, indicating the company was struggling to sell through all of its inventory purchases. But the damage wasn’t as bad as it appeared. The company wrote off a subsidiary that it eliminated, creating a $27M loss of goodwill. That loss appears on the income statement, but it’s not a cash event. Without that loss, JAS would break even on the year.
Jo-Ann’s management sees the problem and attacks it as 2007 is a year of eliminating bad inventory, adjusting their growth plan by opening slightly smaller superstores, and lowering debt. By mid-2007, investors realized their mistake and sent JAS back to its 2005 highs, over a 100% gain for those who timing their purchases perfectly.
Jo-Ann continued to perform through the financial crisis, hitting positive net margins that soared to 11% by 2011. In 2011, the company was taken private by an investment firm at $60/share. I call this story a false positive because the problems were minor. Retail companies have small margins, so small mistakes appear large. Investors overreacted to the situation, and opportunity was created. The hard part is identifying a false positive in real-time.
Recent Insider Buying
Large Micro Cap Purchases
Top News of the Week
“Unlock Hidden Potential: The Top 3 Spin-Off Stocks to Watch in 2023” - By Yiannis Zourmpanos of InvestorPlace
“40 Picks for the Rest of the Year, According to Barron’s Roundtable Pros” - By Lauren R. Rublin
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 ~5%.
We have a major update here as the FTC failed to stop the merger, which sent the stock soaring over 10% this week. Here are a couple of articles to catch you up on the news.
News Articles:
“Microsoft Can Close Its $75 Billion Buy of Activision Blizzard, Judge Rules” - By Sarah E. Needleman and Dave Michaels of WSJ
“FTC Loses Appeal Bid to Block Microsoft-Activision Deal” - By Leah Nylen and Cecilia D'Anastasio of Bloomberg
111, Inc. (YI) - 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 27%
Albertsons Companies, Inc (ACI -0.77%↓) - Merger Arbitrage
The spread between the buyout price ($27.25/share) and the current trading price is now ~24%.
News Articles:
No new updates
*See links for the situation summary from prior editions
See you next week!
- Dark Side of the Street