Unique Opportunity To Earn A Double-Digit Annualized Return From Reverse Split, Going Private Notice For Royal Hawaiian Orchards

Summary

• Royal Hawaiian Orchards has announced a reverse split; going private notice.
• Shareholders owning less than 2,000 units will receive a cash consideration of $2.41 per unit, which is a 3.40% premium to the current bid price of $2.33.
• The effective date of the split will likely occur in 30 days and provides investors with an opportunity to earn a double-digit annualized rate of return upon completion.

Opportunity

Royal Hawaiian Orchards, L.P. (OTCQX:NNUTU) filed a Schedule 14 today which outlines its planned reverse split; going private transaction. Unitholders will receive one post-split Unit for each 2,000 pre-split units. Limited partners who own less than 2,000 pre-split units will receive cash payments of $2.41 per unit.

Since the stock is currently offered below the tender price of $2.41, the terms of the deal provide an opportunity for an immediate arbitrage. Investors who purchase 1,999 units of NNUTU below $2.41 can expect to receive cash back for their shares in 30 days upon the effective date of the reverse split.

For simplicity's sake, I am including a table below which demonstrates the expected return based on the purchase price of the units, as well as the annualized rate of return, assuming the transaction is consummated in 30 days:

Purchase Price	Return After Tendering at $2.41	Annualized ROR Assuming Tender Completed in 30 Days
$ 2.33	3.43%	41.20%
$ 2.34	2.99%	35.90%
$ 2.35	2.55%	30.64%
$ 2.36	2.12%	25.42%
$ 2.37	1.69%	20.25%
$ 2.38	1.26%	15.13%
$ 2.39	0.84%	10.04%
$ 2.40	0.42%	5.00%

Click to enlarge

As a long time reader and occasional contributor, I am already envisioning the criticism that will be heaped on me for suggesting this trade. "Why would I ever do a trade to earn $150?" How about a nice steak dinner for you and the family.

For me personally, I am continuously seeking out unique situations that provide solid risk-adjusted returns no matter what the size. Over time, lots of singles produce as many runs as waiting for the homer. If you have a family of four, this trade can be put on in your account, your spouse's account, and your children's accounts, which will add to your enjoyment.

What are the risks?

The primary concern right now is the volcanic eruption occurring on the island of Hawaii which could put a quick end to NNUTU's existence. Mother nature is tricky to predict.

Another risk would be that the offer is reneged or restructured, and the terms are changed to offer a lower cash consideration or different cutoff to determine fractional ownership. I view this event as unlikely since the current book value of NNUTU is $2.59 per unit, and management is anxious to get the deal closed.

Special considerations:

NNUTU is very thinly traded. Make sure to use limit orders only. PLEASE DO NOT USE MARKET ORDERS WHEN TRADING NNUTU!

Make sure not to exceed ownership of more than 1,999 units in any one individual named account.

Following the effectiveness of the reverse split, the Partnership intends to deregister the units, which will suspend its reporting obligations under the Securities Exchange Act of 1934. There may be no trading market in the units after the reverse split is completed. Units will no longer be quoted on the OTCQX. You must be vigilant in order to make sure you file any required paperwork necessary to participate.

Final thoughts for NNUTU investors

The going private transaction is an unfortunate event for investors in NNUTU with the exception of the largest shareholder Fred Ebrahimi, who stands to benefit greatly. For those of you who read my 2015 Seeking Alpha article, (Royal Hawaiian Orchards - A Valuation So Low That It's Nuts To Ignore), you may recall that one of the risks that I pointed out was that:

Mr. Ebrahimi's holdings give him significant influence over the partnership's affairs. His intentions are unknown. He could attempt a takeunder, prevent asset sales, or block a merger."

That is exactly what is happening. Mr. Ebrahimi performed a takeunder. After countless years of losses, the partnership finally turned around. Last quarter, the partnership achieved profitability announcing earnings of 1 cent per share. A successful capital raise occurred, and debt was significantly reduced. The partnership also announced the sale of its branded products business. After the reverse split and deregistration, the partnership will have substantially reduced operating costs and should be solidly profitable going forward.

As a long time investor in NNUTU, I am saddened that I will no longer be participating in the future of Royal Hawaiian Orchards. While it is my belief that the future for NNUTU is very bright, the potential lack of liquidity and transparency that will remain upon completion of the reverse split make it too difficult to remain a partner.

Analyst’s Disclosure: I am/we are long NNUTU. 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.

I am long NNUTU and may purchase more or sell shares at any time.