Summary of what has transpired over the past couple of days:
May 9 Close: 3.51
May 9 After Close:
Releases Q1 2023 Results, Announces New Dividend and End of Strategic Review
May 10 Close: 2.71 (down 22.8% on 19M shares traded on the TSX alone)
May 11 Close: 3.35 (up 23.6% on 17M shares traded on the TSX)
30-Day Average Trading Volume on the TSX: 1M shares
Here’s what I suspect occurred over the past 6 months:
November 22:
CTS’s share price spiked upward by over 22% from 3.99 to 4.89 the day after CTS’s November 22 Strategic Review announcement as investors piled in assuming CTS was significantly undervalued and would be taken out at a handsome premium.
CTS’s share price remained in the mid-to-high 4’s for the rest of 2022 during which time the company announced the hiring of Houlihan Lokey Capital and Canaccord Genuity as Co-financial Advisors in the Strategic Review Process.
CTS rose significantly from around 4.60 to a peak of approximately 6.00 from January to early February 2023 as tech stocks in general got off to a very good start in the new year with longs remaining confident that the Strategic Review process would end in a takeout price significantly above 6.
After the 6.00 peak, the share price started a gradual but continuous drop as the longer the Strategic Review process went on, the more longs who were expecting to make a quick buck on a takeout started getting impatient and bailing while shorts entered the picture betting that there will be no takeout of CTS.
When the end of the Strategic Review and business as usual going forward was announced May 9 after market close, longs who stuck it out hoping for a takeout bailed like crazy on May 10 while shorts stood on the sidelines and watched to see how low CTS’s share price would go.
Since the share price dropped so dramatically on May 10, shorts moved in to cover on May 11, shooting the share price back up to close to where it was on May 9.
Moving forward, CTS will likely trade as a company that is expected to go it alone for the foreseeable future.
Finally, it’s interesting to note that even though the Special Committee did not recommend a buyout, this wasn’t the only option available to them.
The Nov 22 press release stated:
“In response to expressions of interest that have been received by the Company, the Special Committee will evaluate a full range of strategic alternatives, including a sale, merger, divestiture, recapitalization, other strategic transaction, or continuing to operate as a public company.”
Thus, the Committee could have recommended another course of action such as the sale of one or more of the acquisitions CTS made which perhaps has not yet been fully integrated into their organization as a means of paying down debt. It wasn’t simply a choice between a buyout or status quo.
We’ll see how things progress with this company now that it will be judged on its own merits going forward from today onward.