Insider Trading In Busted Buyout Of Trans World Entertainment?

One of the risks of investing in small caps is lack of liquidity, and shareholders of Trans World Media Entertainment (TWMC), operator of f.y.e. (For Your Entertainment) stores, were reminded of how illiquid their stock is when CEO Robert J. Higgins withdrew his proposal to acquire the firm. The stock fell not only after the announcement, but was down already some 10% during the day just prior to the press release. Some shareholders seem to have known the news before it was published.

Wilshire Enterprises: Sale Or Delay Tactics?

While Wilshire Enterprises (WOC) is undergoing wild price swings in anticipation of the upcoming proxy battle at the July annual meeting, the nitty-gritty details in a recent amendment to its 10-K filing have shareholders wondering whether the long ago announced sale is coming shortly, or whether management is digging in for a long battle with 14.9% owner Full Value Partners, an affiliate of Phillip Goldstein’s Bulldog Investors.

Merger Arbitrage Is Dead (Yet Again)

Once or twice every decade, M&A markets go through a bust and returns of merger arbitrage and event-driven funds slip. It does not take long until pundits and performance chasing hedge fund investors ask: Is merger arbitrage dead?

Chaparral Resources Litigation Update: Lukoil’s Settlement Payment Coming Soon

The settlement of the shareholder litigation after Lukoil (ticker: LUKOY) bought out the minority shareholders of Chaparral Resources, Inc. has been approved by the court this morning. We documented the litigation and Lukoil’s egregious behavior in September 2006, and wrote about the settlement this January.

The net settlement available for public shareholders should come to $1.80 per share. This represents a 31% increase over the price Lukoil paid minority shareholders and shows quite clearly the success, albeit temporary, of the oil giant’s attempts to depress Chaparral’s stock price. Eligible to receive it are only shareholders who held Chaparral stock at the closing of the merger in September 2006. Anyone who sold before the closing will not be eligible to receive a payment.

Claim forms must be received by the claims administrator by April 12. Payment should be made shortly thereafter, but the exact timing will depend on the number of claim forms that need processing.

Thomas Kirchner manages the Pennsylvania Avenue Event-Driven Fund (PAEDX), which owned shares in Chaparral Resources, Inc. through the closing of the merger.

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Beware Of Litigious State-Owned Banks

Large financial institutions tend to be reluctant to get involved in lawsuits, even when it would benefit their clients or shareholders. German state-owned banks are a notable exception to the rule.

Former shareholders of National Home Health Care Corp, which was acquired by Angelo Gordon last year,

SCPIE Merger Should Get A Higher Hostile Bid

Hedge fund activist Joseph Stilwell has been so busy trying to block the acquisition of SCPIE Holdings (ticker: SKP) by privately held The Doctors Company that he lost sight of the forest amid the trees. Investors don’t get an answer to the obvious question of why no higher bid has been made, even though Stilwell insists that a higher bid was available. The reason: the potential buyers all signed standstill agreements that prevent them from making acquisition proposals without the board’s approval.

Buyout Of American Community Properties Trust As Slow As That Of Wilshire Enterprises

Shareholders of American Community Properties Trust (ticker: APO) are eerily reminded of the stalled sale of Wilshire Enterprises (ticker: WOC). Chairman and CEO Michael Wilson proposed a going-private transaction in July, and it has dragged on for half a year without any visible progress.

Negative Alpha Is Built Into 130/30 Funds

Short-extension strategies, also known under 130/30, 120/20 or even 150/50 monikers, are the latest fad to hit money management. Amidst the excitement over this new product, it has been lost on most of its advocates that the implementation actually starts with a negative alpha.

Image Entertainment Is Yet Another Busted Buyout

The collapse of Image Entertainment’s (ticker: DISK) buyout by David Bergstein sent its stock down 43% to a 5-year low on Friday. It now trades at less than half the $4 that Lions Gate Entertainment (ticker: LGF) was willing to pay before being outbid by Bergstein. The exact cause for the collapse of the transaction is a mystery to us, because financing, the usual culprit in the current M&A market, was much more solid than in most private-equity backed deals that have failed recently. At the current level, Image Entertainment trades at a fraction of the price that Lions Gate was willing to pay, and we believe that it remains an attractive acquisition target for a consolidator, in particular in light of its rapidly growing Egami digital distribution platform.

Chaparral Resources Shareholders Have Last Laugh As Lukoil Settles Litigation

Russian oil giant Lukoil’s (ticker: LUKOY) buyout of the minority shareholders of Chaparral Resources, Inc. has been marred by allegations of serious wrongdoing and fraud that came to light during discovery in shareholder litigation, which we wrote about in September 2006. More than one year later, Lukoil has agreed to settle the litigation by paying over $36 million to the former shareholders of Chaparral Resources.

How Low Can Wilshire Enterprises Go?

While the process of selling Wilshire Enterprises (ticker: WOC) continues to drag on into its seventh month after the announcement that “initial bids are in,” WOC’s shares have fallen to a level where they trade almost at the level of cash on WOC’s book. We have pointed previously to the disastrous record of its management team, and the current trading levels are only increasing our enthusiasm for the deep value opportunity in WOC.

Hedge Fund December Performance Spike Can Be Explained

A study by Vikas Agarwal, Naveen D. Daniel and Narayan Y. Naik, Why is Santa so kind to hedge funds? The December return puzzle! has prompted many observers to conclude that hedge funds mis-report their December performance. The report finds that hedge fund returns spike in December with an average return of 2.51% in that month alone, versus an average monthly return of 0.96% for the January-November period (see adjacent chart from the study). This spike can not be explained by higher market returns in December and therefore the authors conclude that it must be caused by return management. To back up their claim of large scale wrongdoing, they also show that funds with higher performance fees, more illiquid strategies and higher volatility exhibit higher December outperformance than others. In addition, they claim that funds borrow January performance to boost December returns.

Not so fast.