Yesterday, I was watching my son play flag football and got an interesting phone call from an Impac Mortgage (IMH) shareholder. The main shareholder of Impac Mortgage, Dick Pickup, purchased 494,004 shares at $12.25. This shareholder wanted to know if I knew anything. Being away from the computer, I hadn't even seen the email alert from investor relations.
I scrambled to open the SEC form 4s on my iPhone. Initially, I thought that almost 1 million shares had been purchased. The baffling thing was that the transaction price was at $12.25, almost a full $1 below the day's closing price. Upon further review, I realized that it was actually 494,004 shares purchased.
My friends and I took a look through the filings. Joe noticed the following text in Note 5, page 8 in the amended 13f that was filed...
(C) Except for the following transactions, no other transactions in the Common Stock were effected by the Reporting Persons or Dito Devcar Limited Partnership during the sixty days before the date that this Amendment No. 5 to Schedule 13D is filed with the Commission (i.e., from and after August 18,2017): (I) the Trust purchased 300,000 shares of the Common Stock at a price of $12.25 per share pursuant to the terms of a securities purchase agreement entered into with an existing shareholder of the Issuer on October 16, 2017; and (ii) Dito Caree Limited Partnership purchased 194,004 shares of the Common
Stock at a price of $12.25 per share pursuant to the terms of a securities purchase agreement entered into with an existing shareholder of the Issuer on October 16, 2017
This note indicated that the shares were not issued by the company. If the company had issued the shares, that would explain why they were sold below market price. Instead it appears that a large shareholder decided to sell a block of shares.
Then, I realized that the 494,004 shares was awfully close to the number issued to J. Paul Reddam. Here's the stockholder's equity summary from the 10-K.
What does this mean?
The simplest explanation is most likely correct. Reddam is about to receive his final two cash earn-outs from selling CashCall to Impac. He was ready to move on to something else. If he had dumped his block of shares on the market, it would have likely moved the price lower. So, he approached the main shareholder and agreed to a fair price for his shares.
This is all speculation on my part. I haven't talked to either person involved.
Also included in the CashCall acquisition agreement was a contractual component related to the sale of the company.
If, during the four years following January 2, 2015, the Company sells all or substantially all of its assets or the assets of CCM, the division of IMC, or a person acquires 50% or more of the securities of the Company or IMC, then the Company will pay additional contingent consideration, subject to adjustment, to CashCall of 15% of the enterprise value (as defined in the Asset Purchase Agreement) in excess of $200 million plus an additional 5% of the enterprise value in excess of $500 million (Business Appreciation Rights).
If the company is sold before January 2, 2019, Reddam gets to receive value of at least 15% of the enterprise value, plus 5% over $500 million. Therefore, I believe the Pickups will hold off on selling the company until after that date, if they choose to do that.
Disclosure: I am/we are long IMH.
Additional disclosure: calls and preferred