This is going to be a quick special situation post.
First, what is a special situation?
Glad you asked.
Special situations are asymmetrical bets rooted in a specific corporate action. Usually the payoff is rather small, but the risks are also rather low. I always like to move in and out of these types of bets because they offer a great annualized return without exposing myself to any downward risk from typical market gyrations.
So, where does that leave us with SNNY?
SNNY is a small regional bank based out of Westchester, NY. They've been around for a while and operate in the residential, commercial, student, and - most recently - PPP loan spaces. Their assets less liabilities (i.e. book value) is about $12MM or appx. $15/share.
So we are talking about a really small bank here.
Well, that's cool, but where is the special situation?
Well, DLP Bancshares and SNNY have agreed to buy out all outstanding shares for $15.55 - a slight premium to book value.
However, Mark Silber, manager of Rhodium BA Holdings owns 9.8% of the company and is frustrated with the SNNY board. In an open letter to the board he claims to have offered to buy SNNY numerous times, only to be rejected without explanation.
See open letter here: https://www.sec.gov/Archives/edgar/data/1571398/000137647421000122/opc_sc13d.htm
Well now he's pissed and wants to buy the bank for $18.50. He has given the board until April 28th to agree to his bid or he will go straight to shareholders and make a tender offer to purchase all outstanding shares.
Currently, shares trade for $17.04 and here is how the special situation plays out.
Option 1: SNNY agrees to be bought by Mark for $18.50 giving shareholders an 8.5% return.
Option 2: SNNY ignores Mark's offer and Mark puts out a tender offer to buy as many shares as he can for $18.50. Shareholders will also get an 8.5% return
Option 3: SNNY ignores Mark, he isn't able to tender, and DLP buys the company for $15.55. Shareholders would then lose $1.49 per share ($17.04 - $15.55) or 8.7%.
Option 4: Mark loses out on the bid, DLP backs out and the shares fall back down to book value/their trading price before the merger i.e. $12. In that case we'd lose about 30%.
I like this investment because DLP and SNNY are looking to merge at $15.55, so I view Option 4 as unlikely.
Option 3 is a possibility (losing 8.7%), but Mark seems to be super motivated and willing to pay a pretty penny for SNNY. Management also only owns appx. 6% of the shares. There needs to be a majority approval for the deal to get done and Mark sitting at 9.8% ownership has more power than management at 6%.
The deal needs a majority vote and Mark's offer is compelling. See below:
"As of March 16, 2021, the date of the shareholder support agreements, the directors and executive officers owned 48,588 shares of Sunnyside Bancorp’s common stock, representing approximately 6.1% of the 793,500 outstanding shares of Sunnyside Bancorp common stock as of such date. The approval of the Merger Agreement will require the affirmative vote of the holders of at least a majority of the outstanding shares of Sunnyside Bancorp’s common stock."
So that leaves us to Option 1 and 2 - both giving us investors a respectable 8.7% return.
I'd like to thank OddBall Stocks for bringing this investment to my attention.
Disclaimer: I own shares of SNNY and would like to buy more, but the stock is so damn illiquid.
Obviously, due your own due diligence.