This is going to be a real simple post, no fancy graphs, no fancy charts, just one very important fact that many holder and buyers of Atlantic Coast Financial are overlooking.
On March 2, tiny Atlantic Coast Financial (ACFC) announced they were going to be purchased by Florida Community Bank Bond Street's Banking Unit (FCC) for $5 a share in cash. On the day of the announcement ACFC was trading at 3.54, so holders had a 41% appreciation. Sounds great.
But wait. Reading into the story: "Of the total transaction price of $5.00, $2.00 will be held in an escrow account and will be available to cover losses from stockholder claims for one year or until the final resolution of such claims, if later." The deal, and the payment of the $3 is scheduled to close towards the end of the second quarter.
ACFC is now trading at $4.88, so shareholders seem to be unaware of the fact that they are only going to get $3 upfront and the other $2 will be held for at least a year. And, they may not even get the full $2 as that money is being set aside for any claims against ACFC that may arise. However, whatever claims that are out there against ACFC are not disclosed nor are the amounts. Yesterday, I learned from talking with the company, I was told the $2.00 is being held due to possible markdowns over asset quality issues.
However, in my opinion, the key wording here is "$2.00 will be held in an escrow account and will be available to cover losses from stockholder claims for one year or until the final resolution of such claims, if later." The key here is if later. To me that time frame is open ended. Claims are usually not resolved in one year.
The question here is why are buyers and shareholders still long and still buying the stock at the current quote of $4.88 when they are only going to receive $3 up front and maybe $2 (probably less) in at least one year's time?
In my opinion, those long might want to consider selling the stock and taking the money upfront. The current price of the stock is $4.80 and holders should be much happy to only miss out on .20 as opposed to missing out on up to $2.00.
I also think the stock makes a great shorting opportunity down to $4 as I think fair value for the stock lies around $3.75 given the $3 payout you will receive when the deal closes and then the $2 you will also be paid less any claims, in a year or more. Again, the deal is scheduled to close late in the second quarter.
Disclosure: I am short ACFC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.