Sisecam Resources LP $25 offer

Recap of the Sisecam situation, my thoughts now, NATH earnings

Yesterday after the close, Sisecam Resources LP (SIRE) announced that it will be acquired by Sisecam Chemicals for $25/unit.

The deal is expected to close “on or prior to July 30th.” Unitholders are expected to receive distributions until the deal closes, with the next $.50 distribution already announced within the quarterly press release.

The most interesting part of the agreement relative to distributions states (here, page 14):

The Partnership GP has also agreed to declare, and to cause the Partnership to pay, regular quarterly cash distributions to the Partnership’s unitholders during the pendency of the Merger in the amount of available cash for each quarterly period, and to cause such available cash amount to be sufficient to distribute to unitholders an amount equal to or greater than $0.50 per Common Unit (subject to proration for any shorter period in which the closing occurs).

“In the amount of available cash for each quarterly period” and “an amount equal or greater than $.50 per common unit” suggests that they might pay out 100% of “available cash” in any next distributions, with a minimum of $.50/unit.

I am not sure if this is correct, but in my view it does read that way.

If so, this could bump the total consideration, as SIRE has $20M cash on hand plus a very healthy distribution coverage ratio that could fund a larger payout.

Am I content with the acquisition price? Not entirely - I was hoping for closer to $30/unit. However, any low-risk idea that ends with a decent IRR is ok by me.

One curiosity to me is if the reversal of the Boardwalk Pipeline damages impacted the final buyout price.

With the reversal of the above decision, in my view SIRE’s unitholders would have been in a far worse place had the deal broken, given how close the GP (Sisecam Chemicals) is to being able to use the limited call right.

The limited call right is a toxic stipulation in the partnership agreement that allows the GP to force a takeover at the average price of the last 20 days if they own 80% of the units (10-K, p. 44).

This is what occurred in the Boardwalk case. It is a horrible strategic situation for the LP unitholders relative to the GP - in the Boardwalk situation, it allowed the GP to “steal” the units for a truly absurd price.

A counterpoint is the Sprague (SRLP) buyout. It was very similar to SIRE in that the GP was close to being able to use the limited call right, yet unitholders received a moderate bump in price, plus multiple distributions before the deal closed.

If anyone has a view on the potential for a bump, I’d love to hear it.

Trading around a core idea

Perhaps the most interesting element of the SIRE idea (and many similar situations) is that there were multiple opportunities to buy the stock relatively close to the initial zero-premium offer - even after the idea was well publicized.

Particularly for smaller or individual traders, this created the opportunity to juice the IRR beyond the “buy and hold” return since the first article’s publication or the initial buyout proposal, which I first commented on here:

(I did that tweet prior to starting this service - new ideas are now published here first)

I purchased units at ~each of these points - it can pay to take ideas you like and implement them opportunistically, taking advantage of market volatility.

Another element (for those who don’t mind making a mess of their MLP taxes!) is that smaller yield securities often have semi-regular trading patterns around their distributions.

For smaller/individual traders, this can help to set up additional potential buy/sell areas that are not open to the big funds - so you can trade within the context of the buyout proposal and potentially boost the final return.

Nathan’s Famous

This morning, Nathan’s Famous just posted EPS +52% year-over-year and boosted their dividend by 11%. This matched my expectation, which I mentioned in the last post. My original feature article on the stock can be found here.

In my view, a floor fair value for NATH is +$100/share. I continue to believe the stock is likely to be added to the Russell 2000 this May during the annual reconstitution, which might boost awareness and trading volume in the stock.

Next article

My next feature article will feature an under-the-radar “GARP” stock that has an enormous reinvestment runway at favorable returns - the classic compounder situation. Importantly, the industry/sector that has a large investor constituency - this stock will not stay under the radar forever. I see several hundred percent upside potential over the next 2-3 years.

I/we are long SIRE, NATH

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