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Chris DeMuth Jr. is the founder of Rangeley Capital LLC. Rangeley is an investment firm that focuses on event driven, value-oriented investment opportunities. Rangeley Capital and his value investing forum, Sifting the World (StW), search the world for misplaced bets. Rangeley exploits them for... More
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  • Preferred To Get Paid What We're Owed? 14 comments
    Aug 31, 2013 6:09 PM | about stocks: MPG-OLD

    MPG-A is the preferred stock of MPG Office Trust Inc. (NYSE:MPG). MPG is currently the target of a definitive deal to be acquired by Brookfield Office Properties Inc (NYSE:BPO). For background reading on their deal, the merger agreement was filed on April 25, 2013. The deal is not conditioned upon receipt of financing. The proxy was filed on May 21, 2013 and become definitive on Friday June 7, 2013. On July 11, a class action complaint representing MPG-A holders was filed to enjoin the deal. We viewed the complaint as valid. Common shareholder approval was secured on July 17, 2013.

    MPG owns various towers in LA:

    The Gas Company Tower

    Wells Fargo Tower

    KPMG Tower

    777 Tower

    These preferred shares have not paid their cumulative dividend since 2008. Par plus accrued is over $34 today. At $180 million, this is a small acquisition for BPO. They have offered $25 per preferred share without offering anything for the accrued dividends. BPO is attempting to get out of paying the dividends by utilizing a shell company instead of buying MPG directly. Shares of any preferred holder who does not tender will be converted into a preferred of a new company.

    This transaction is in direct contravention of the plain reading of the preferred prospectus which does not allow for such a conversion. Despite the fact that the preliminary injunction request was denied on Wednesday, July 24, 2013, the buyer may have some incentive to settle. Splitting the difference would result in a price for the prefs of $29-30 per share. What are the odds? We continue to believe that there is a 50% chance of our losing in which we receive only $25, a 25% chance of our winning and getting the full $34, and another 25% chance of our being adequately irritating so as to extract a settlement of around $29 for an expected value of about $28 or a couple of dollars about the current market price. The accrual only costs BPO about $88 million compared to a deal for $2 billion of real estate assets, so this is pretty inexpensive to settle for some fraction of an issue that is under 5% of the deal price.

    The current tender offer for MPG-A has been extended to Monday, September 9, 2013. We could know more then.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Chris DeMuth Jr is a portfolio manager at Rangeley Capital, a partnership that invests with a margin of safety by buying securities at deep discounts to their intrinsic value and unlocking that value through corporate events. In order to maximize total returns for our partners, we reserve the right to make investment decisions regarding any security without further notification except where such notification is required by law.

    Stocks: MPG-OLD
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Comments (14)
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  • HFI
    , contributor
    Comments (1666) | Send Message
    I think the risk-reward on the preferred seems to be extremely promising. I would assign a 60-75% probability on the likelihood of a higher payout. I think if you look at it in any way shape or form, the risk/reward ratio seems to be skewed to the upside and I would personally assign an EV of 28.50.


    I am skeptical that the full amount would be paid out, with a likely upside scenario of 30.
    1 Sep 2013, 07:33 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11053) | Send Message
    Author’s reply » Thanks, Wilson. I appreciate your sharing your perspective.
    1 Sep 2013, 08:12 AM Reply Like
  • Special Situations and Arbs
    , contributor
    Comments (1424) | Send Message


    Is there any indication you can find or something that points to a potential settlement?
    1 Sep 2013, 09:46 AM Reply Like
  • HFI
    , contributor
    Comments (1666) | Send Message
    First and foremost, I think the preferred holders would want a settlement. If they are only going to be receiving par, then it's far better to at least realize something than nothing.


    Two, I think the buyers would be willing to negotiate a settlement above the par price. As Chris said, it's not like this would break the bank for BPO, so a higher resolution should be given a higher probability. And this settlement would also relieve of any future litigations.


    Lastly, the price is compelling enough for an investor to make a calculated bet. Even if they were to just offer 26 for the rest, it's not like the investor lost money, it's making money. So I think anyway you look at it, it just makes sense to take this bet and see where it ends.


    Other than some simple reasoning skills, and the fact that it makes sense for both sides to give in a little. I think a settlement is possible.


    P.S. I could be dead wrong.
    1 Sep 2013, 11:58 AM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
    I am glad to see someone fighting the good fight. Along with Commonwealth REIT's antics, this ranks very highly in the 2013 top ten list of corporate BS. I recall reviewing it in the past, and with a narrow reading thinking there was a reasonable likelihood that BPO could pull it off- but I am no attorney and didn't have a legal review. I assume the judge would think of the spirit of the agreement, but I would be concerned that BPO's switching of entities shell game could work.
    2 Sep 2013, 10:04 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11053) | Send Message
    Author’s reply » I am pretty surprised at BPO management's behavior. CWH is run by bad people. BPO is not. However, this behavior is uncharacteristically seedy.
    2 Sep 2013, 10:47 AM Reply Like
  • htyen1
    , contributor
    Comments (11) | Send Message
    i am not surprise by the behavior of BPO, see from my past experience BPO is only good to its shareholders that is their goal, their standard is just bit lower than buffetts.
    2 Sep 2013, 01:54 PM Reply Like
  • bgoud007
    , contributor
    Comments (80) | Send Message
    I'm confused as to why BPO would raise the price. The injuction was denied, so what leverage do preferred shareholders have?
    3 Sep 2013, 11:39 AM Reply Like
  • Ghosts of Kariela
    , contributor
    Comments (152) | Send Message
    So the preferred shares were just converted, let's see what BPY will do if they buy out BPO.
    17 Oct 2013, 08:30 PM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
    Awful, only 3.6% tendered. I only see litigation as a way forward. I didn't take a position; but does anyone know if any law firms or investors are getting a class together?
    17 Oct 2013, 08:52 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (11053) | Send Message
    Author’s reply » Good question; not that I know of.
    17 Oct 2013, 08:53 PM Reply Like
  • beboprocksteady
    , contributor
    Comments (108) | Send Message
    Preferred shareholders already sued for an injunction and they lost. Not sure there's much else they can do.
    18 Oct 2013, 11:02 AM Reply Like
  • Clint Edgington
    , contributor
    Comments (355) | Send Message
    beboprocksteady- could you point me to where I could find any information on that?
    18 Oct 2013, 11:06 AM Reply Like
  • beboprocksteady
    , contributor
    Comments (108) | Send Message
    “In the Preferred Stock Actions, at a hearing on July 24, 2013, the Maryland State Court denied plaintiffs’ motion for preliminary
    injunction seeking to enjoin the Tender Offer.”


    18 Oct 2013, 03:28 PM Reply Like
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