AlphaSituations-Event/Catalyst Driven Research, AlphaSituations

Robert Sassoon

AlphaSituations-Event/Catalyst Driven Research

AlphaSituations

Since its establishment, AlphaSituations has delivered a track record of outperformance with a hit rate of winners of more than 70% of its portfolio of ideas generating annualized average returns of 20%. In January 2022, AlphaSituations was contracted by Water Tower Research, an investor engagement and stakeholder communication platform to provide coverage of Special Situations

Event-Driven

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. <h3>The Search For Compelling Spreads</h3><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/237/378/original/image_82700697241635169253114.png?1635169255" class="editor-image img-responsive" data-smartkarma-image-id="237378"></figure>Source: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ <a href="https://www.smartkarma.com/entities/magnachip-semiconductor-corp" target="_blank" data-smartkarma-citation="entities:28052:1" rel="noopener">MagnaChip Semiconductor Corp (MX US)</a> situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  <a href="https://www.smartkarma.com/entities/51-job-inc-adr" target="_blank" data-smartkarma-citation="entities:532:1" rel="noopener">51 Job Inc Adr (JOBS US)</a>  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

Among the universe of live M&amp;A deals we monitor (US M&amp;A deals of  &gt;$400MN), which we list below,  there are several deals where the prevailing spread  is above 10% offering  the potential for very  annualized returns  of &gt;50% based on their targeted closing dates.  Usually when the market is offering IRRs of that magnitude, it is indicating there is a high risk that those deals do not complete at all or, if they do,  under revised terms that are less favorable to the target company shareholders or that there is significant timing risk not originally anticipated. When it comes to spreads, Mr. Market may be right more often than not, but most definitely not always. These situations may not be that common, but it is those misunderstood situations which  provides some that we at AlphaSituations attempt to identify. The Search For Compelling SpreadsSource: AlphaSituations In the list above , the stand out spread remains the Wise Road Capital/ MagnaChip Semiconductor Corp (MX US) situation. This is one we have covered in previous insights, most recently in our June 29, 2021 publication: MergerTalk: Intriguing US Merger Spreads - Why Magnachip Semiconductor is at the top of our list. Since that Insight, CFIUS did initially block the deal on national security grounds (or at least left it to President Biden to decide), but subsequently agreed to the transactional parties request to withdraw and re-file their submission  in order to permit further discussion with CFIUS concerning potential options for permanently mitigating risks to the US national security that have been identified by CFIUS. This triggered a new CFIUS review period for the merger  commencing on September 14, 2021 which is expected to conclude no later than October 28, 2021. With that date only a few days away (although CFIUS has the option to extend this review process by undertaking a 45-day investigation), given the ~61% spread, the market is clearly dismissing the prospect that CFIUS will change its stance the second time around. Nevertheless, we  maintain that MX has a fundamental safety net at its current valuation (further supported by the strong 3Q 2021 earnings reported on October 25, 2021  and could remain a buyout target should the Wise Road transaction be ultimately  blocked. We will continue to monitor this situation.In this insight, we focus  on another more intriguing spreads - the Garnet Faith/  51 Job Inc Adr (JOBS US)  merger transaction, which also has a China theme to it. Below, we explore the reasons for the wide spread and assess the risks. We conclude that the odds remain heavily in favor of deal consummation with the current ~24% spread offering a lucrative entry point for arbs.

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Genworth Financial Inc Cl A / Event-Driven

After 4 years plus of disappointment, short of another period of severe market dislocation, we believe actions that will bring about a long overdue share price re-rating for <a href="https://www.smartkarma.com/entities/genworth-financial-inc-cl-a" target="_blank" data-smartkarma-citation="entities:3876:1" rel="noopener">Genworth Financial Inc Cl A (GNW US)</a> are most likely just weeks away. This insight considers valuation scenarios for the Enact Holdings (ACT US) IPO  and their ramifications for GNW and its share price.

After 4 years plus of disappointment, short of another period of severe market dislocation, we believe actions that will bring about a long overdue share price re-rating for Genworth Financial Inc Cl A (GNW US) are most likely just weeks away. This insight considers valuation scenarios for the Enact Holdings (ACT US) IPO  and their ramifications for GNW and its share price.

SpinTalk: Genworth Raises The Curtain On Its Follow-Up ACT-Why We May Be Looking At A September IPO

<a href="https://www.smartkarma.com/entities/genworth-financial-inc-cl-a" target="_blank" data-smartkarma-citation="entities:3876:1" rel="noopener">Genworth Financial Inc Cl A (GNW US)</a> has filed an amended S-1 for the pending IPO of its US Mortgage Insurance business, disclosing the quantity of shares to be sold and the pricing range, which looks attractively pitched relative to its publicly traded peers.  The  IPO will help to crystallize the value of the business with GNW which will continue to own more than 80% of the business. Moreover, given the limited float that comes with this IPO, GNW will continue to be a more  liquid investment alternative to leverage the recovering strength of this mortgage insurer. Our updated GNW SOTP assessment points to 45% upside  to $6.39 in the GNW share price (with potential for further upside) based on  our expectation that the IPO will be priced at the top end of the proposed $20-$24/share IPO pricing range.

Genworth Financial Inc Cl A (GNW US) has filed an amended S-1 for the pending IPO of its US Mortgage Insurance business, disclosing the quantity of shares to be sold and the pricing range, which looks attractively pitched relative to its publicly traded peers.  The  IPO will help to crystallize the value of the business with GNW which will continue to own more than 80% of the business. Moreover, given the limited float that comes with this IPO, GNW will continue to be a more  liquid investment alternative to leverage the recovering strength of this mortgage insurer. Our updated GNW SOTP assessment points to 45% upside  to $6.39 in the GNW share price (with potential for further upside) based on  our expectation that the IPO will be priced at the top end of the proposed $20-$24/share IPO pricing range.

SpinTalk: Catalyst For Undervalued Genworth Financial With Mortgage Insurance Business IPO Imminent

The abandonment of its merger transaction with China Oceanwide has freed a financially healthier <a href="https://www.smartkarma.com/entities/genworth-financial-inc-cl-a" target="_blank" data-smartkarma-citation="entities:3876:1" rel="noopener">Genworth Financial Inc Cl A (GNW US)</a> to pursue its revised strategic plan without restrictions and without uncertainty regarding its ultimate ownership. With what had seemingly been a never ending saga now finally over, we assert that Plan B will likely yield a more beneficial outcome to GNW shareholders than had the Oceanwide transaction moved to completion in the current circumstances.

The abandonment of its merger transaction with China Oceanwide has freed a financially healthier Genworth Financial Inc Cl A (GNW US) to pursue its revised strategic plan without restrictions and without uncertainty regarding its ultimate ownership. With what had seemingly been a never ending saga now finally over, we assert that Plan B will likely yield a more beneficial outcome to GNW shareholders than had the Oceanwide transaction moved to completion in the current circumstances.

SpinTalk: How Genworth Financial Holdings (GNW US)Creates More Value Without The Oceanwide Merger

Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Genworth Financial Inc Cl A / Equity Bottom-Up

*Aussie Business Weakens Again: Genworth Mortgage Insurance Australia (GMA.AU) [GMA] reported a FY 2H20 bottom-line loss of AUD 17.6 mn. Despite the loss, the level was an improvement of AUD 72.4 mn over the AUD 90.0 mn loss posted in FY 1H20. You simply cannot earn money if your combined ratio is 137.7% - albeit an improvement over the 215.0% posted during the previous half. Despite the expense ratio improvement of 127.4% to 20.5%, the claims ratio increase of 50.1% to 117.1% acted as quite the offset and drove the loss as the 4Q20 refinement of reserving due to COVID-19 related factors was the primary culprit; and*Genworth Still Waiting To Clear That Chinese Wall: China Oceanwide (715.HK) still does not have the money to consummate the Genworth Financial (GNW.US) [Genworth] transaction – missing its merger agreement deadline for the 17th time on December 31, 2020.  While the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”, as Genworth (with no other option) continued to play this same old tired game with China Oceanwide by extending its merger agreement deadline.

*Aussie Business Weakens Again: Genworth Mortgage Insurance Australia (GMA.AU) [GMA] reported a FY 2H20 bottom-line loss of AUD 17.6 mn. Despite the loss, the level was an improvement of AUD 72.4 mn over the AUD 90.0 mn loss posted in FY 1H20. You simply cannot earn money if your combined ratio is 137.7% - albeit an improvement over the 215.0% posted during the previous half. Despite the expense ratio improvement of 127.4% to 20.5%, the claims ratio increase of 50.1% to 117.1% acted as quite the offset and drove the loss as the 4Q20 refinement of reserving due to COVID-19 related factors was the primary culprit; and*Genworth Still Waiting To Clear That Chinese Wall: China Oceanwide (715.HK) still does not have the money to consummate the Genworth Financial (GNW.US) [Genworth] transaction – missing its merger agreement deadline for the 17th time on December 31, 2020.  While the merger agreement still remains in effect, management does “not believe a closing can occur in the near-term”, as Genworth (with no other option) continued to play this same old tired game with China Oceanwide by extending its merger agreement deadline.

Genworth Financial – Wrong Time For An Aussie Fail

United States

Genworth Financial Inc. offers insurance, wealth management, investment and financial solutions   The Company offers products that include life insurance products, long-term care insurance, and mortgage guarantee insurance coverage on residential mortgage loans.  Genworth is active in the United States, Canada, Australia, New Zealand, Mexico and multiple European countries.

Genworth Financial Inc Cl A (GNW US)

MergerTalk: Intriguing US Merger Spreads-A 23% Spread, But Odds on 51job.com Privatization Completes

Precedent suggests that the odds heavily favor that this Go-Private deal will be consummated. With JOBS only 4% above its undisturbed price, the ...

Robert Sassoon

SpinTalk: Genworth Raises The Curtain On Its Follow-Up ACT-Why We May Be Looking At A September IPO

After 4 years plus of false dawns, this time may be truly be different for a long overdue share price value re-rating with an IPO of GNW's prized...

Robert Sassoon

SpinTalk: Catalyst For Undervalued Genworth Financial With Mortgage Insurance Business IPO Imminent

Genworth's now seemingly imminent partial IPO of its US Mortgage Insurance business looks attractively pitched and should drive more value for GNW...

Robert Sassoon

SpinTalk: How Genworth Financial Holdings (GNW US)Creates More Value Without The Oceanwide Merger

GNW shareholders are likely to better off now that the Oceanwide deal has been called off deal as the focus turns to the pending separation of...

Robert Sassoon

Genworth Financial – Wrong Time For An Aussie Fail

GENWORTH FINANCIAL: Genworth Mortgage Insurance Australia reported a FY 2H20 bottom-line loss as its combined ratio was 137.7%. China Oceanwide...

Thomas J. Monaco