VivoPower International PLC (VVPR) has been on absolute fire lately, ever since the company first reported that it received a non-binding but friendly takeover offer. The stock rose another 85% today to close at $4.18 after a follow up news release disclosing that talks were advancing and that the company will update the market with clearer terms around the deal before April 2. If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1033 followers on here as well as 122 followers on our Canadian blog. You can also follow us on X @StockTradePicks which has over 5,000 followers.
Even after the recent run up to $4.18, the deal offers a lot of upside, likely because the market is skeptical given VVPR's history of announcing deals that never seem to get complete and that other than a website, there is not much information available on the proposed buyer, Energi Holdings Limited. Having a follow up date that is so soon is a bold move that is showing the market that VVPR is serious about this. Clear terms will lay out the upside, timing and necessary tasks in order to get the deal done.
What we know so far is that the deal has a proposed valuation for VVPR of $120 million enterprise value. This makes it tricky to come up with an exact stock price target for two reasons. First, we don't know what the buyer defines as "enterprise value". Is it simply market cap plus debt minus cash? Or some other definition that includes other working capital line items or adjustments? Second, the last balance sheet we have on VVPR is dated June 30, 2024. So the numbers we have access to for calculations are quite out of date.
That balance sheet shows about $30 million in debt with no significant cash. Total shareholder's equity is -$40 million. To be conservative, let's assume this -$40 million number and subtract another $10 million to account for any operating loss since June 30th. Subtract this $50 million number from $120 million and $70 million is the lowest possible number for the market cap. The share count is 7.64 million (not including any potential shares issued with the FAST merger), so that would lead to a payout of $9.16 on the low end. The high end would be calculated by using the full $120 million, which leads to a $15.70 per share payout. This is quite a large range, which is why VVPR's coming update on the details of the terms is so important.
Understanding what exactly this deal includes would be another major piece of information for shareholders. In addition to the FAST merger, VVPR has also been actively trying to spin out its Tembo subsidiary through the CCTS SPAC and spinout of Caret Digital. Between these three deals, it would imply that VVPR would be worth many, many multiples of its current stock price. This is another reason why we think that the Energi deal was initially looked at with skepticism. VVPR promises these deals with insane valuations, and they never get done. There are two huge differences this time around though. In these stock type of deals, you can claim whatever you want to be the value. The market will determine the real value. For instance, if the Tembo deal were to go through with CCTS, it would value Tembo at a $904 million enterprise value. However, CCTS has very little cash and would probably get redemptions for what little it had. The stock has no liquidity so it would immediately drop from $11 to well less than $1.00 and that alleged $904 million in enterprise value would really be only a few million. In contrast, the Energi deal is offering PURE CASH. Not shares that are going to tank as soon as shareholders have access to sell them. That's the first difference. The second difference is the timing. This is moving a lot more quickly and more seriously than anything VVPR has stated to date. The market is starting to believe it too. Usually the VVPR pump would have already dumped by now, basing it on historical price action when the company announces these deals. With today's news release, everyone is saying "this time it looks serious" and took the stock up another 85% after Tuesday's pullback.
Understand that anyone who claims this deal is fake doesn't know what they are talking about. This is legitimately filed with the SEC. Bears point to the aforementioned deals (that are also filed with the SEC) but keep in mind they never actually fell apart. They are just constantly in delay, a lot of which has to do with the complexities of mergers. The Energi transaction is for pure cash, in a buyout scenario, and that's it. Much simpler to complete from a regulatory point of view.
Other than price, the other important piece we need to know is what exactly is included as part of the takeover deal. Are existing VVPR shareholders going to get the cash payout and that's it? Or are they going to get a cash payout PLUS an interest in Tembo and/or Caret Digital as per their initial spinout plans? We can safely assume that the Energi deal would negate the FAST merger. There is no possibility that both of these things can occur.
The final consideration is the massive amount of trading that is occurring with VVPR shares right now. There is a bunch of shorting, flipping and volume spoofing going on. With just 7.6 million shares and a 4.1 million float, VVPR traded a ridiculous 141 million shares today and a total of 279 million over the past four days. Nearly 70 times the float. There are certainly some traders who are honestly buying and sell shares multiple times, but not 70 TIMES over four days.
Significant short marked volume has been seen. When people talk about synthetic shares, it's hard not to believe the theories when you see something like this. Usually this happens when there is threat of a financing, a recent financing, or outstanding warrants or other convertible securities. This is not the case for VVPR. Shares outstanding have been steady at 7.6 million for 6 months now. This isn't MULN.
This leads us to our final point. With the amount of shares being traded, the purchaser could buy shares on the open market relatively undetected. Imagine if they purchased the four million float for $16-$20 million to control the vote for the buyout offer. That would be a lot cheaper than offering $120 million for those shares. This would be a GME situation all over again, except sparked by a real buyout transaction rather than the willpower of a million retail traders (that could also come in to VVPR to fuel the fire). If this buyer chooses to buy up the float on the open market then files the appropriate insider transaction filings, the fraudulent nature of the trading on VVPR would be exposed for everyone to see. That would mean all the retail and minority shareholders would hold a 1 to 1 ratio with all the shorts out there. 166,000 in short interest was reported on VVPR as of March 14.
It's easy to justify a $9 to $15 target based on the proposed buyout price. But if VVPR goes haywire from a short squeeze, the target is technically infinite. This is definitely a stock worth throwing a few dollars at in order to see what happens over the next week.
Disclosure: We are long VVPR
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