Roulette Of High Annual Return Micro-Cap Deals

by: Special Situation Investor

First Midwest Bancorp deal risk/reward looks attractive.

Interesting nano-cap deal in the casino industry.

Two potential deals to be announced soon.

MPM consideration could be adjusted if a minimum cash requirement is not met.

Today, we will have some more deals and two potential merger situations.

I am always fond of micro and nano caps, especially with high annual return rate like First Midwest (NASDAQ:FMBI)/Northern States (OTC:NSFC), Eclipse (NYSE:ECR-OLD)/Blue Ridge Mountain (OTC:BRMR), Maverick/Nevada (NYSEMKT:UWN) deals. First Midwest deal should safely close, and it is only a question of spread. Eclipse deal is very attractive, but there is an issue with BRMR liquidity. The casinos deal looks straightforward as well.

The last two situations are still speculative only; however, I like ANTA (ANPDY)-Amer merger spread, and given the respectful pricing even the toughest conditions could be satisfied. The same with LG Uplus and CJ Hello - the spread is huge, the rumours have been there for almost a year and currently there seems no one better fit to buy CJ.

First Midwest Bancorp-Northern States Financial All-Stock Merger

Spread: about 2 to 4%. Expected closing: Q4 2018

A deal in regional banking industry - FMBI aims to expand in Lake County through NSFC acquisition (8 branches). Transaction is subject to NSFC shareholder and regulatory approvals. Fed's approval has already been received. Northern States shares are likely majorly owned by 2014 private placement participants who acquired shares at c. 3x below acquisition offer, therefore shareholder approval is likely (meeting scheduled for 4th Oct). Merger consideration: $0.9775 in FMBI shares (if FMBI > $26.49) or 0.0369 FMBI shares (if FMBI < $26.49). The spread should be re-checked in the beginning of October as it will be based on FMBI 30-day weighted average price.

Eclipse-Blue Ridge Mountain Resources All-Stock Merger

Spread: 7.99% (very illiquid stock). Expected closing date: Q4 2018

A recent small-cap deal between two oil and gas exploration companies. The acquisition has already been approved by a private equity firm Encap Investments, which owns around 57% of Eclipse, and is still subject to BRMR and regulatory approvals. Stockholders of Blue Ridge owning approximately 60% of the outstanding common shares of Blue Ridge have entered into a voting agreement with both companies to vote or provide written consent in favor of the transaction. The fact that Eclipse insiders seem to eagerly increase the amount of shares they are holding, also adds to attractiveness of the deal. Merger consideration: 4.4259 Eclipse shares for each BRMR share. Unfortunately, BRMR is very illiquid, so most likely even in case of a successful arbitrage a real spread could be much lower.

Momentive Performance Materials (OTCQX:MPMQ) All-Cash Acquisition

Spread: 6.11%. Expected closing date: H1 2019

A global leader in silicones and advanced materials - MPM to be acquired by the investor group from Korea. The agreement has already been approved by MPM shareholders and is still subject to customary and regulatory conditions. Current transaction value is about $3.1bn and the merger consideration is $32.5 in cash, although the deal is subject to net working capital adjustments. According to minimum closing cash requirement before the merger completion, MPM should have a net cash of at least $250m and in case of a shortage of $100,000 or more, the whole transaction price would be reduced by the amount of dollar-for-dollar equal to the shortage amount. For the spread to completely disappear at a current price MPM should have a net cash of about $130m or about $120m of shortage to the minimum cash requirement condition.

Maverick Casinos-Nevada Gold & Casinos Cash Deal

Spread: 4.1%. Expected closing date: End of 2018

In a nano-cap deal Nevada Gold & Casinos is to be acquired by Maverick Casinos. Transaction is subject to Nevada Gold shareholders and regulatory approvals plus selling of Club Fortune (Nevada's local casino). Merger consideration: $2.5/share + $0.01 for each month beyond February 2019 including closing month and subject to minor adjustments related with the sale of Club Fortune.

ANTA-Amer Sports Indication Of Interest

Current Spread: 14.29%

Recently Finnish Amer Sports (maker of Wilson rackets, Solomon etc.) confirmed that it had received a non-binding indication of interest to purchase all of the shares from Chinese ANTA Sports and private equity firm FountainVest Partners. The offer of 40 EUR/share made AMEAS jump more than 25%. So far no negotiations or decisions have been made, but Amer second largest shareholder (owns over 4%) stated that it is "open to proposition, but needs more time to evaluate the deal" and also added that everything can be sold for a right price. With 38% premium to all time high and 26x P/E multiple the price looks anything, but cheap. However, the deal would be subject to numerous regulatory approvals as well as 90% of Amer shareholder approval and with no major shareholder + insiders owning only about 10% this would be a tough condition to meet.

LG Uplus (032640.KS)-CJ Hello (037560.KS) Potential M&A

Spread: 104%

An upcoming merger between South Korea's third and fourth largest TV operators. The rumours about this deal started almost a year ago and it seems that we could hear the announcement shortly. According to Korean law, a pay TV company cannot have more than a third of total pay TV customers. Currently KT with KT Skylife has 30%, SK Broadband 13.65%, CJ Hello 13.1% and LG Uplus 10.9%. In 2016 a subsidiary of SK Broadband tried to acquire CJ Hello, but failed due to opposition from KT, LG Uplus and regulatory concerns over competition, although this current merger is of a smaller scale, so it could evade these issues and produce a new second biggest competitor in the market. Rumoured merger consideration: 20,000 WON.

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

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.