Opportunity for contrarian investorsThe strategic review process allowed board members to realize that maybe the company isn’t currently worth $1.50/share. That said, the timing of the strategic review process was clearly not the best for negotiating with debt maturities and compressed working capital. So, it really sounds like that the interested parties tried to be more opportunistic than fair.
My takeaway here is that, since the CEO and other board members probably realized that they were largely out of the money regarding the various bids that were on the table at that moment, they probably decided to average down their cost using the private placement as working capital reasons (remember that it is a non-brokered offering), because it clearly doesn’t take 5 months of strategic review to just come out with a PP and extended debt.
As M&As are still rolling in that industry, I believe it will still have many different parties interested in potential transactions for 2020, notably with a brighter future for the company looking forward:
- Restructuring is done;
- Rebates and discounts will normalize in near term;
- Positive EBITDA is on the horizon for 2020;
- Launch of new vegetarian plant-based brand Riot Eats;
- Love Child brand is moving to the breakfast market for children;
- Go Veggie won distribution in average 4,400 Walmart stores in US and they are just getting going.
Finally, my current valuation of the company (can vary depending of the final terms of the PP always in process) is between 0.30$ and 0.40$/share, which I believe is a worst-case scenario, with no growth nor improvement for 2020 (ie. shut down value).
Conclusion: Good risk-reward investment profile with an asymmetric window in both terms of valuation and stock price.