Less than two minutes before the close of the trading session on Monday afternoon Bloomberg broke the news of CVSL's offer to acquire Blyth (NYSE: BTH) for $16.75 per share. What had previously been a slow trading day where less than 100k shares had traded in a very slow session with a small trading range between $12.54 and $12.98, erupted in the last 90 seconds as Blyth shares traded as high as $17.17 on volume that pushed to over 800k shares. The rumor of John Rochon and CVSL's offer to acquire Blyth in its entirety caused a rush on the small and thinly traded stock. This presents what I see as a fairly remarkable situation and what appears to be a bit of a conundrum for traders who got caught short in this trade.
Blyth's Disappearing Float May Be Below 500,000 Shares Now
As I have discusssed in previous articles, Blyth's free trading shares have been sold short over the last few months to the degree that the company now has one of the highest short to float ratios in NYSE history, several times larger than that of the more famous MLM short squeeze underway with Herbalife (NYSE: HLF). The latest update released Thursday night indicated that BTH now has 92% of its public float sold short - 5,958,600 of 6,500,000 shares already sold short. This means that barely 500,000 of the publicly trading shares of Blyth had not already been sold short. In the trading that has occurred since that report, ShortSqueeze.com indicators suggest that as much as one third of the volume traded each day had been short sales, suggesting that its likely we now have fewer than 500,000 free trading Blyth shares that have not already been sold short. This has been discussed in previous articles in terms of what could happen if there were some catalyst to give the stock even a small push. The last 90 seconds of trading yesterday showed an example of exactly what has been discussed - when just a spark can cause the stock to explode higher. The trading in Blyth on Tuesday should be fascinating, as we could see aggressive traders "piling on" in recognition of the tiny float situation and the shorts need to cover to protect against moves higher that will likely occur due to management's need to see the shares push well past the offered price in addition to what will likely be a substantial number of margin calls and "sorry we had to pull the borrow" buy ins that will be occurring over the next few days.
How Aggressively Will Blyth Management Respond?
Other than getting an official confirmation from CVSL (the article mentioned it could come as early as Tuesday), the big question on Tuesday may be how aggressively Blyth management will respond. On its face, it seems simple enough what Blyth management must do - they need to take steps that will cause the stock trade higher than the offered price. I fully expect their playbook will include the requisite rejection of the offer as being too low and/or insufficient in some other way that really means just too low. Given the trading range for BTH shares in the 18 months prior, the company's aggressive buybacks at prices higher than the $16.75 price offered and the company's valuation of the Visalus division alone at a higher price than what has been offered, there is little question that Blyth management obviously sees significant value in the company beyond the $16.75 price tag offered by CVSL. Its tough to handicap at this point, but here are a few options we might see -
- use the company's substantial cash hoard to execute a dutch tender auction at a price materially higher than $16.75
- use the existing buyback authorization to aggressively acquire shares and push the stock so far beyond the $16.75 offered to make it look unappealing.
- spin off Visalus and/or Silver Star brands in an IPO to allow greater realization of the value of those brands as stand alone companies.
I believe Mr. Rochon sincerely wishes to purchase BTH at $16.75, but seriously doubt that he expects to see a deal occur without moving to a higher price point. As a whale watcher, I have to say that I believe the approach used and timing here exhibited Mr. Rochon's typical genius. If Blyth reports in the time frame that they did last year, the Q3 report would be released the middle of next week. Mr. Rochon / CVSL would have been lucky to be able to acquire even a couple hundred thousand shares leading up to the report as the volume trading each day had all but dried up. With the short to float ratio issue and the anemic volume as of late, it was likely clear to Mr. Rochon that Blyth shares were going to get more expensive when the earnings were released. With the float so tight, BTH could have reported declining revenues, declining Visalus reps, declining earnings and lowered its earnings/revenue projections for the year and STILL had a rally in BTH shares. There are just not enough willing sellers and no more shares available to be sold short, so a bum quarter could have resulted in a small rally in the shares that would have caught fire if he tried to start building a his position. If Visalus rep numbers had leveled off and revenues had started to level off and/or the company gave any kind of positive operational guidance, the stock could have rallied past the area that the shares may now be trading. Instead of working to acquire 20 - 30K shares per day at $13, he now will likely have the ability to build a substantial stake at prices that could prove (in the aggregate)to be lower than if he waited. I believe we will soon learn that Mr. Rochon has crossed the 5% threshold and would have had to declare his intent in a 13d filing anyway. By setting the bar at $16.75 he may succeed in setting a trading range that is lower than it might have been if he just filed his 13d indicating he had already acquired a substantial position. It is possible that he could have helped to establish a trading range that will see hundreds of thousands and possibly even millions of shares change hands at prices lower than he will ultimately have to pay to acquire all the shares. Any shares he can buy in the teens may prove to be a bargain if he ultimately ponies up $20 or more per share.
In summary, John Rochon and CVSL have put Blyth in play. The remarkably small public float should make the next few days trading (and Whale Watching) all the more interesting as the move higher combined with what could be frenetic short covering will make a fascinating study.
Additional disclosure: My intent in publishing this article is to inform investors about developments related to Herbalife and Blyth. I did not and do not intend to suggest any specific action by any investor or shareholder and strongly suggest that any decision made to buy or sell shares of this stock be made after consultation with an investment advisor as to the suitability of such an investment. I currently own shares of BTH and consider my investment in Bth to be a trade that could turn into a long term holding depending on marketplace developments and the company's execution of its growth plan. I may buy or sell shares at any time based on market conditions and the trading price of BTH.