Two SPACs and a Biotech Trading Below Net Assets

Don't know what a SPAC is? From the Wikipedia entry for SPACs:

Special Purpose Acquisition Companies (SPACs) are investment vehicles that allow public investors to invest in areas sought by private equity firms. SPACs are shell or blank-check companies that have no operations but that go public with the intention of merging with or acquiring a company with the proceeds of an initial public offering (IPO).

By market convention, 85% to 100% of the proceeds raised in the IPO for the SPAC are held in trust to be used at a later date for the merger or acquisition. The SPAC must sign a letter of intent for a merger or an acquisition within 12-18 months of the IPO. Otherwise it will be forced to dissolve and return the assets held in the trust to the public stockholders.

According to SPAC Analytics, 2007 has seen 41 SPACs with almost $6 billion raised. Here is a daily SPAC market update from Morgan Joseph. More on SPACs below.

The Cheap Stocks blog updates a list of stocks trading below their net current assets every so often. I usually sift through it and see if there is anything of interest. One of my favorite ways to screen for stocks is to look for companies trading at or below cash. Usually they are trading that low for a reason (crappy business, hemmoraging money, etc), but every so often there are some decent situations. The cash level can often provide a good floor for the stock. A couple I am looking into from the list include (leave comments if you have any value added info):

Two SPACS:

Columbus Acquisition Corp (BUS)
Mkt Cap: 88
Price: $7.49

Owners include value hedge funds Fir Tree (6.44% of the company), Baupost (Seth Klarman) (6.3% ), and Highbridge (5.89%).

Transforma Acquisition Corp (TAQ)
Mkt Cap: 80
Price: $7.5

SPAC formed for the "purpose of acquiring one or more assets or control of one or more operating businesses in the technology, media or telecommunications industries through a merger, capital stock exchange, stock purchase, asset acquisition or other similar business combination." Owners include value hedge funds Fir Tree (9.88% of the company), Jana (6.4%), JMG (4.04%), Steel (4%), and Harvard (3.05%).

And a biotech:

MediciNova (MNOV)
Mkt Cap: 94
NCAV: 96
Price: $8.1

Has a number of drugs in clinical trials for various conditions. However, is burning about $20 million a quarter on these trials. Will likely have to tap the markets by the end of the year. Typically, a good rule of thumb is that a company with decent PII results can trade at a market cap of $300-$600 million.


Disclosure: Don't own any.

Comments

[incomefreak:]

I am unable to pull up any information on BUS and TAQ. How were you able to get the book value or cash position?

For TAQ, the quote is: Bid 7.56, Ask 7.60, B/A Size 45500 x 500, on Oct 4, 2007.

2007 Oct 04 12:31 PM

[David Sable_:]

MNOV burned 20M in the first six months of 2007, and they have guided to a decreased burn for 2008.

2007 Oct 05 08:55 AM

[REG CROWDER:]

Cash-per-share versus market-price-per-share is a good starting point. But it isn't the finish line. Before taking a position in a stock based upon cash, spend a little time looking for things that might cause that cash to disappear in a heartbeat. Troll through the SEC filings for evidence of off-balance-sheet debt and other forms of debt that can be kept off the main pages of the financial statements but are too hot to leave out of SEC filings. This would include preferred shares convertible to debt, preferred shares with performance benchmarks that trigger mandatory dividends, options and warrants for so-called equity that has these kinds of provisions, buyback contracts, deferred compensation contracts that create binding obligations for the company -- those sorts of things.

In the case of high-tech stock, there is another, additional, hard-to-find vulnerability. Is the company being set up (from the inside) to be stolen by a buyout fund, private equity technology fund or distressed asset fund? Look for a key person in the high tech company's management (maybe on the board, maybe carefully kept off the board to avoid attracting attention) who is on the board of a buyout fund, private equity technology fund or distressed asset fund.

Is the management's profit sharing plan being moved to an offshore jurisdiction such as the Cayman Islands, British West Indies, the Bahamas or a former British colony in the Pacific region? This is another danger signal.

There is serious money to be made searching for nuggets of gold in obscure and out-of-favor stocks. But as the sergeant used to say at roll-call on Hill Street Blues, "Be careful out there."

REG CROWDER
Freelance Business Journalist
London, UK & Brittany, France

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2007 Oct 06 01:09 PM