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Hooker Furniture Corp. Message Board

bubble_go_bye_bye 9 posts  |  Last Activity: Feb 26, 2014 9:28 AM Member since: Mar 20, 2002
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  • From yesterday's 8-K it sounds like the going private deal is moving forward. They repeat that the $1.75 litigation piece of the payout will be decreased by expenses and fees but they don't say by how much.

  • One thing from Seeking Alpha that I didn't realize is that apparently the $1.75 litigation settlement piece of the $9.25 total bid is subject to attorney's fees. Seeking Alpha speculates that the fees might be as high as 30% leading to a final amount to be received by unit holders of (1.75 x .7) + 7.50 = 8.725. From Friday's close of 8.38, this would represent an arbitrage premium of 4.1% which is quite a bit less than the 8.5% cited in the headline of the article. If attorney's fees come to 15% then unitholders would get 8.99 which is a 7.2% arbitrage premium.

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 10:01 AM Flag

    Conclusion

    Assuming that lawyers are awarded 30% of the settlement payment (a very conservative assumption), the per-share payment to unitholders is $8.73. Using the downside price of $4.00, the market is pricing the chance to close to be only 85.4%. With the financing in place and expedited shareholder approval, we think the Parent now has a very good chance to close the deal by late May. If the deal happens at $8.73, the annualized return is 32.6%. If the attorneys are awarded less than 30% of settlement payment, the annualized return is even higher. Therefore, we recommend a long position in NLP.

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 10:00 AM Flag

    Termination

    The only ways that the Parent can terminate the agreement are:
    1.By written mutual consent of both parties and Boards
    2.If transaction is not completed by September 30, 2014
    3.There is a court injunction that is final and nonappealable
    4.The court does not grant Final Approval of the Settlement Agreement
    5.The Partnership breaches its representations and warranties.

    The Parent does not have the right to terminate if it fails to arrange the financing. In fact, according to Section 8.7, if Parent fails to fund the merger, it will be sued for intentional breach of the Agreement and Partnership will enforce the specific terms and provisions ($9.25 per share).

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 9:59 AM Flag

    Conditions of the Deal

    Prior to the effective time, each party will have to cause the following conditions to be fulfilled to effect the merger.
    1.Approval of simple majority shares held by unitholders. Given that Mr. Nichols holds 59.3% voting power, this condition will be fulfilled without any problem.
    2.Final Approval of Settlement Agreement. We reasonably believe that $9.25 per share is the best price one could bargain for. Thus, it is likely that no one will file for an appeal on the settlement agreement.
    3.No Partnership MAC.
    4.No order or injunction that prevents the merger from happening.

    The latter two conditions are standard terms in a merger agreement. It is unlikely that the deal will not fulfill these two conditions.

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 9:58 AM Flag

    3) Recent conversations with market participants confirmed that financing was an important topic during the negotiation and discovery period given the significant amount of debt and the very high interest rate, and there would not be a settlement agreement if the financing was in question. Remember that lawyers will be paid solely from the settlement payment, so they would be cautious in the negotiation and make sure that the deal closes in order for them to get paid. So, incentives seem to properly align for this transaction to close.

    Expected Closing Time

    According to the press release, the final settlement hearing is scheduled on April 24, 2014. After the hearing, there is a 30-day period where unitholders can file for an appeal or a motion of re-argument or rehearing. From what we learned, the $9.25 per-share consideration is close to the best price Mr. Nichols is willing to offer. We also believe the plaintiffs are pleased with $9.25, which is a substantial increase from prior levels. Therefore, with all unitholders satisfied, the court is expected to grant the Final Approval in late May. Meanwhile, in lieu of the special shareholder meeting, Mr. Nichols will give a written consent because he has 59.3% of total voting power of the units. With the information statement being sent out in one month, we believe the shareholder approval procedure to conclude prior to the Final Approval.

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 9:57 AM Flag

    1) In the previous merger agreement, section 5.10 states all the details of the financing arrangement. In the new merger agreement, by contrast, section 5.10 states that "For the avoidance of doubt, it shall not be a condition to the obligations of the Parent Parties to effect the Merger for the Parent Parties to obtain financing to enable them to make payment of the aggregate Merger Consideration and the Parent Parties' related fees and expenses or any other financing." The new agreement is essentially saying that the deal is not contingent on receiving the financing, hence shareholders do not need to know the details of the financing.

    2) In the December press release, the company stated that "The proposed litigation settlement is subject to certain conditions, including…receipt by Merger Sub of financing that is sufficient to pay the merger consideration and related expenses of the transaction." In the press release from February 7th, this financing condition was removed from the conditions to receive the final approval of the settlement. Therefore, I would interpret that the financing of the deal was arranged between December and February.

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 9:56 AM Flag

    Background of the Merger

    As we predicted in the earlier articles, NTS Realty Holdings terminated the go-private deal last October when the debt financing commitment expired. Back then, NTS Realty Holdings could not close the deal because the financing was conditional on company settling all of its outstanding litigation. As Celeste Hathaway pointed out, Mr. Nichols does have incentives to take the company private in spite of the hefty valuation he may have to pay. Eventually, it seems that the benefits for taking the company private outweigh the costs of settling the case in Mr. Nichols' mind. On December 11th, NTS Realty Holdings announced that it has reached an agreement in principle to settle the lawsuit. On February 5th, NTS Realty Holdings announced primary court approval of the settlement agreement. According to the settlement agreement, each unitholder will receive $9.25 per share minus incentive awards of up to 30% of the settlement proceeds upon the closing of the deal. While the final outcome is still uncertain, comparing the new merger agreement with the old agreement, we find evidence that the deal is likely to happen this time.

    Financing of the Merger

    Under the previous merger agreement, the financing was provided by a third-party Quince Associates and was conditional on settlement of all of the company's outstanding litigation. Under the new merger agreement, the Parent's representation and warranties regarding financing are "intentionally omitted" in section 4.3. Hence, until we receive the information statement, we will not know the exact arrangement of financing. Nevertheless, we can tell the financing is already in place for the following reasons:

    1) In the previous merger agreement, section 5.10 states all the details of the financing arrangement. In the new merger agreement, by contrast, section 5.10 states that "For the avoidance of doubt, it shall not be a condition to the obligations of the Parent Parties to effect the Merger for the Paren

  • bubble_go_bye_bye by bubble_go_bye_bye Feb 23, 2014 9:55 AM Flag

    Executive summary
    •NTS Realty Holdings' new merger agreement leads to 8.5%-15.0% upside if closed.
    •Lack of financing condition and favorable termination clause deserves higher odds to close than the current market price implies.
    •The transaction will be processed on an expedited process. We expect the deal to close in late May.
    •I recommend a long position in the stock.

    _________________________________

    Thesis

    NTS Realty Holdings (NLP) announced that it has reached a preliminary settlement with plaintiffs regarding its go-private deal. A conspicuous change in the merger agreement is that the deal is no longer contingent on the Parent obtaining the financing, especially when skeptics considered the company's balance sheet overleveraged. Moreover, the go-private deal will not require a special shareholder meeting, which would result in a faster closing time frame. Last but not least, the termination and the specific performance clauses of the merger agreement make it very difficult for the Parent to exit the deal. As a result, we think there is decent chance that the deal closes by late May. The market incorrectly underestimates the odds of completion because of the recently failed attempt. If the deal closes, shareholders will receive 8.5%-15% gross return and at least 36.2% annualized return.

HOFT
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