Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Four Q2 Unloved Going Private Plays Averaging 15% Annualized Return

This covers four companies soon to be sold - either through public acquisition or going private. The criteria for these is - at least 2% spread remaining, 2) likely to close in Q2, 3) have filed notices with SEC indicating terms of the merger - no rumors. I am not covering big highly publicized cases (no Dell, no Heinz) here, more than enough has been said about those.

  • Focus Media (NASDAQ:FMCN) - Closing around end of May at 27.50; >3% profit remains or 23% annualized. Focus Media operates a LCD advertising and display network in China, Taiwan, Singapore and Indonesia. They also have posters, billboards, movie theater advertising in malls, hotels and the lobbies of apartment buildings. A private equity consortium is taking this private in China's largest ever going private deal. I wrote an article one month ago on the critical considerations on whether this going private. All of those items still apply - there are a number of concerns about past deals and accounting (start with Bronte Capital here). Since then, Focus Media has announced the shareholder vote will be on 29th April, and released Q4 financials. Those two items brought a 2% jump in price, indicative of the lowering risk. During the call, management indicated that shareholders should be paid three to four weeks after the vote - sometime in late May. This is now highly likely to close, in less than two months, with a little over 3% left to profit.
  • 7 Days Group (NYSE:SVN) - Going private at 13.80, I expect to close around end of June; 2.5% remains or 15% annualized. 7 Days operates over a thousand economy hotels in China. Again, a private equity firm is taking 7 Days private for the usual reasons - low price and costs for being public strain smaller firms (7 days has a US$660m market cap). The buyer's group has secured and filed financing to go along with rollover of management shares. Preliminary wording for the 13E3 has been filed once - on 29th March. The buying consortium already owns 50.01% of the outstanding shares. As a Cayman Islands company they need to get another 16% to vote in favor for the going private deal to go through. There is no other offer at this time, and I think it's unlikely any will arrive. With no indications of misbehavior and the high management ownership, I think this is very likely to close at the stated price within a couple of months, it's just unloved.
  • NTS Realty Holdings (NYSEMKT:NLP) - Management taking private at 7.50, I expect to close by end of the quarter; 3% profit remains or 12% annualized. NTS Realty is a REIT invested in twenty-four properties including multifamily, office buildings, business centers and retail properties. The properties are located in Kentucky, Tennessee, Virginia, Florida, Indiana and Georgia. They are really too small to be public, with a market cap of just US$81 million - and low volumes. This go-private deal is being executed entirely by the management, who control nearly 55% of the stock. The deal includes a majority-of-minority clause to complete, however given the large premium since last summer I suspect this will not be a problem. The initial proposal was made at end of August 2012, with the most current price filed in December 2012. In February the first SC 13E3 was filed. The financing commitment has not yet been executed - this was extended from the original March 15 deadline to April 30. Assuming that any remaining documents and concern are settled by April 30, I expect that management's expected closing within Q2 is possible.
  • WSP Holdings (NYSE:WH) - Going private at $3.20 by end Q2; >3% remains, annualized >12%. WSP holdings is a micro cap ($63m) Chinese manufacturer of seamless Oil Country Tubular Goods (OCTG). It offers seamless OCTG, including casing, tubing and drill pipes used for oil and natural gas exploration, drilling and extraction. It sells its products in both domestic and international markets. WSP Holdings expanded rapidly - across China, a joint venture in Malaysia, and a subsidiary in Houston. After the financial crisis and with increased competition, WSP Holdings has struggled. The merger discussions themselves have been long running - the initial talks started in September 2011. The first proposal was made in December 2011, but the agreement was not executed, after several changes, until February 2013. It appears that there was considerable discussion on who would actually pay for the going private and how much. In the end the major stockholders agreed to the going private and financing for the remainder obtained. This makes for some of the interesting parts - the CEO controls over 50% of the stock and refused to sell, give up control, or allow any competing bids. The buyer's group as a whole controls about 73% of the shares, so even with the Cayman Island two-thirds requirement, the transaction will certainly be approved. The financing - through a private equity firm - has been committed. All that remains is to get the proxy wording right.

Disclosure: I am long FMCN, NLP, SVN, WH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Stocks: NLP, SVN, WH, FMCN