CLOSED: Twin River Worldwide Holdings, Inc. Modified Dutch Auction Tender Offer

Twin River (TRWH) announced the final results of their tender offer this week. As expected, holders of 100 shares or more were significantly pro-rated (6.309%) due to the market price moving below that of the lower bound of the modified Dutch auction. Naturally, the purchase price ended up being the lower bound of $29.50.

We initially wrote about this modified Dutch auction on June 18th, when the price was trading around $30.48. We did not purchase TRWH at this time due to the fact that the price was above the lower bound. On July 11th, we purchased 99 shares of TRWH in order to participate in the tender offer. If you had purchased after the publication, you would have realized a 7.55% on your investment, or roughly $200.00 within a month. While this is insignificant for larger portfolios, it can have an impact on smaller portfolios.

We will continue to monitor and write about odd lot tenders of this size, but will only do so via private email rather than in this public forum going forward so we do not spoil the opportunity (see Blue Bird Corporation removing their odd lot priority provision due to a seeking alpha posting). There are risks inherent in these special situations, as we saw with BLBD last year. 

Be sure to follow the blog via email to receive updates on these special situations that may be beneficial for smaller portfolios. 

Quarterly Portfolio Update – Q2 2019

(4/1/2019 – 6/30/2019)

Strategic Asset Allocation

  • YTD my investment portfolio IRR is approximately 14.1%, lagging the S&P 500 which has exploded on the year, increasing by 18.5%. I am confident the portfolio is well positioned to outperform in the long-run and in down markets. I don’t pay much attention to benchmark returns, especially over the short-term, but I think it can useful to check in periodically.
  • With elevated equity markets I continue to try to keep over 10% of my portfolio in cash that I can put to work during the next market downturn.
  • Given historically low interest rates resulting in historically rich corporate debt markets and my current age (younger than 30) I continue to keep a very small position in fixed income. About 6% of my investment portfolio is allocated to domestic (U.S.) fixed income. I gain this exposure through index funds in my retirement accounts and slightly increased my monthly allocation as I would like to get this to about 8% by the end of 2019. I continue to monitor this asset class as economic stress tends to hit the corporate debt markets first and is often a leading indicator for equities.
  • I have a roughly 24% allocation to emerging market and international equities combined. This is on the high end of my Strategic Asset Allocation range. I’m typically comfortable at about 20% in foreign equity exposure. I won’t be making any changes here unless the allocation breaches 25% for an extended period (1-2 Quarters) given the level of US equities. Since I’m allocating new funds elsewhere, this allocation should tick down over the coming quarters.
    • I continue to like a slightly higher exposure to emerging markets equities as they have been hammered pretty good over the past couple of years. Since January 2018 the iShares MSCI Emerging Markets ETF (EEM) is down 18%. This is likely due to being on the receiving end of a trade war with the U.S. According to Lazard Asset Management, emerging markets continue to trade at discounts of about 23% compared to developed markets from a P/E standpoint (as represented by the MSCI World Index).
  • 67% of my investments are held in a tax-advantage retirement account, the remaining 33% are held in a taxable brokerage account.
  • 56% of my investments are considered “Passive”, 33% are “active”, and the remaining 11% are held in cash.

Satellite Portfolio

Q2 Dividend Increases

  • AAPL + 5.6%
  • BAC +20.0%
  • CAH + 1.1%
  • CLX +10.4%
  • KR +14.0%
  • WPC +0.2% (Quarterly increases)

* 2019 total dividend income has increased 17% over the 1st half of 2018. The portfolio dividend yield and yield-on-cost are 3.1% and 4.2%, respectively.

Q2 Buy/Sells

  • Sell – SOUHY
    • My position in South 32 LTD was established when BHP Billiton decided to divest some of its non-core assets in May 2015. The company focused on the production of Alumina, Aluminum, Manganese, Silver, Zinc, Lead and Nickel. I sold the position in April for a 26% gain. The position was an extremely small percent of my portfolio (<1%) and after the run up in price I thought I could better allocate the funds elsewhere.

Noteworthy Q2 Position Updates

  • BAC – The Federal Reserve gave Bank of America the go-ahead with their intended capital plan following the completion of the 2019 Comprehensive Capital Analysis and Review (CCAR). The dividend was increased by 20% to $0.18 per share and the Board of Directors has approved $30.9 billion in share buybacks over the next year ($0.9 billion in repurchases would offset shares awarded under the company’s stock program).
  • BNS – Scotiabank received approval to repurchase up to $24 million of its common shares (~2% of outstanding shares) over the next year.
  • BBL – BHP Billiton has been riding the iron ore rally in 2019 and is up roughly 20% YTD (Iron Ore prices have jumped about 65% YTD). It is now the 7th largest position in the Satellite Portfolio at 6.5% and represents about 10% of my annual dividend income. This is a bit higher than I like for a very cyclical company that is highly correlated to commodity prices. I may harvest some profits and look to trim this position over the next few months.
  • WPC – W.P. Carey is up 30% YTD and has now become my largest position at roughly 7% of the Satellite Portfolio and producing 7.4% of the portfolio’s annual income. W.P. Carey’s real estate portfolio is primarily comprised of single-tenant office, industrial, warehouse, and retail facilities located around the world. They are highly diversified and are run by a superior management team that has repeatedly demonstrated the ability to generate strong returns on capital. I have no intentions of trimming this position but will not be adding for the time being. WPC hit their all-time high in mid-June at a price of $65.54.

Credit Ratings

Moody’s %
Aaa 6.56%
Aa1 6.88%
Aa2 0.00%
Aa3 2.05%
A1 4.39%
A2 0.00%
A3 10.50%
Baa1 30.27%
Baa2 26.07%
Baa3 3.16%
N/A 10.12%

Odd Lot Tender

  • Interesting Odd-Lot Tender with Twin River Holdings, Inc. (TRWH). The tender is a Modified Dutch auction with a minimum tender price of $29.50. The current market price ($27.35 at time of writing) is not attractive enough for me to purchase shares, however, I will be monitoring this over the coming weeks to see if Mr. Market provides me an opportunity to enter the trade and make a nice return in a short period of time. I will entertain the idea of purchasing shares (99 shares or less) if the price drops below $27.00. The offer expires July 25th. More details can be found here: TRWH Odd-Lot Tender


CAH and CVS continue to be laggards in the portfolio (-39% and -29%, respectively) due to uncertainty around government intervention in the healthcare industry and the impact that may have on future earnings potential. However, these stocks are very cheap on a historical basis and the best prices are usually offered when investors are fearful about the future. I will be re-visiting my valuations to see if they potentially warrant some averaging-down over the next few quarters.

There is an updated portfolio overview in the Author’s section as of June 30th, 2019.



UPDATE: Twin River Worldwide Holdings, Inc. Modified Dutch Auction Tender Offer

Twin River (TRWH) announced that they were purchasing two casinos from El Dorado Resorts (ERI) today. The stock is currently trading at $27.25 and is down 5.05% on the day. According to their IR department, the tender is still on track to close on the 24th. We have yet to hear what Standard General plans on doing, but at an 8.25% spread between the market price and worst-case tender price, I believe that there is some value here. I have established a position in my portfolio.

– Porcupine

Tailored Brands, Inc. (TLRD)

A June addition to the Satellite portfolio resides in a part of the equity markets that investors are very fearful of these days. The retail sector. Typically, I navigate away from retail in my investment process because consumer trends can change very rapidly. In addition, I usually avoid turnarounds with high debt loads. However, value cannot be ignored, and I purchased shares in Tailored Brands (“TLRD”) in early June. The idea came courtesy of Michael Burry, who’s firm, Scion Capital Management, disclosed a stake back in March.

TLRD is a beaten down, small cap retailer in a niche corner of the retail clothing market. The company is the largest men’s formal wear provider in the U.S. and Canada. The business has struggled lately but I believe that the current valuation has priced in an unwarranted amount of negativity that has produced an asymmetrical risk/reward opportunity that, with a little patience, investors can exploit.

The full analysis can be found here:

I have sized the position relative to the higher risk of this investment. My position in TLRD is ~3% of my active portfolio. This will be reflected in in the Author’s section with the next portfolio update. Questions/Comments? What do you think about the investment?


Twin River Worldwide Holdings, Inc. Modified Dutch Auction Tender Offer

Ticker: TRWH

Price: $30.48

Shares Outstanding: 41.1 million

Market Cap: $1.25 billion

Tender Type: Modified Dutch Auction

Tender Range: $29.50 – $33.00

Tender Amount: $75 million

Company Background

Twin River Worldwide Holdings, Inc. (TRWH) merged with Dover Downs Gaming & Entertainment, Inc. on March 26th, 2019. Dover Downs shareholders received ~.08 shares in the combined company for every share held of Dover. Twin River operates casinos and racetracks in Rhode Island, Colorado, and Mississippi. Dover Downs, a wholly owned subsidiary of Twin River, owns a casino, hotel & conference center, and a raceway in Dover, DE.

Market Opportunity

On June 25th, Twin River announced a proposed modified Dutch auction tender offer for their shares with an odd lot priority provision. They plan on using $75 million to purchase shares at a price no less than $29.50, but no greater than $33.00 per share. The offer is set to expire at 5:00 P.M. on July 24th, unless the offer is extended or terminated.

In a modified Dutch auction, investors elect a price at which they will tender their shares within the range given by the company. From these prices, the company determines the tender purchase price and tenders those shares that were tendered at or below this price. The risk here is that if you offer too high a price, your shares will not be tendered. This is also true for the odd lot priority provision. Holders of 99 shares and less will automatically be tendered if they elect to tender their shares at or below the purchase price, or if they elect to tender shares without specifying a purchase price.

Executive officers and directors do not plan on tendering their shares. They hold ~2.8% of shares. Standard General, an event-driven limited partnership, owns ~31.8% of total shares outstanding. They have not stated whether or not they plan on tendering shares. However, they plan on informing shareholders about their decision no later than 6 business days prior to the expiration of the offer (July 18th).

It is worth noting that two other large holders of the company have been selling their shares. This can give us some insight as to what price they may elect to tender their shares at. Chatham Asset management holds 13.4% (5,496,003 shares) of the company. They have sold 438,085 since June 20th at an average price of $30.55. Their lowest sale price was $30.25. They also sold 50,000 shares in April at $33.00. Solus Ltd. Holds 7.50% (3,118,225) of the company. They sold 144,183 shares in early April at an average price of $31.01. Their lowest sale price was $31.00.

Of course, due to the nature of a modified Dutch auction, the purchase price isn’t determined by the largest shareholders, but rather those shareholders who offer the lowest price to the company. If the minimum price of $29.50 is determined to be the purchase price, they will purchase 6.2% of total shares outstanding. If the maximum price of $33.00 is determined to be the purchase price, they will purchase 5.5% shares outstanding. Had this been a larger tender, then the large holders of the stock would surely have more power. Regardless, it is still useful to see the price where certain large holders value the company at.

TRWH currently trades at $30.48. Given the small size of the tender relative to the total amount of shares outstanding (5.5 – 6.2%), it is likely that the share price won’t be pegged to the tender range. As a smaller shareholder, this is a good thing, as your shares will not be prorated if you own less than 100. Unfortunately, there are no options on TRWH to use as reference for implied volatility up to the expiration date. The implied forward volatility would be useful in determining the probability of getting in at a favorable price.

It’s hard to say what the purchase price will be, so I am therefore keeping this on my watch list. This tender offer is also risky in that it can be terminated at any time before expiration if certain circumstances occur (e.g., a 10% drop in market averages, suspension of trading… etc.), so it is probably most prudent to just sit and watch to see if Mr. Market gives you a fat pitch.

Disclosure: No position in any of the securities mentioned in the above article.

Position Update: SBUX Q2 2019

Recent Stock performance

Since analyzing and purchasing Starbucks (“SBUX”) in July of 2018 the stock price of the coffee giant has exploded 51% to ~$78 (at time of writing). Given the run-up in the price I thought it would make sense to revisit my analysis. SBUX would make a great case study in how quick investor sentiment can change. It was only 8 months ago that the stock was selling off due to the change in management and uncertainty about the future. Sales were decelerating in the U.S. and investors we’re unsure about international prospects. The position currently makes up ~5% of my satellite portfolio.

In the most recent earnings call, management declared that they are “making meaningful progress against (their) three key strategic priorities, 1.) accelerating growth in (their) two long-term markets, the U.S. and China; 2.) expanding the global reach of the brand through the Global Coffee Alliance with Nestle; and 3.) increasing shareholder returns.” I briefly reviewed each of these to see if the story is unfolding how long-term investors have hoped. I find less than a year a bit quick to fully judge management execution but decided to take a look nonetheless.

Overall, total sales grew 4.5% year over year. Excluding the impact of the Global Coffee Alliance and FX translation, total organic revenue increased 9%. As of March 31, 2019, SBUX had over 30,000 company-operated and licensed stores, an increase of 7% from the prior year and the firm’s global comparable store sales grew 3%.


The Americas segment delivered 8% revenue growth in Q2, driven by net new store growth of 4% over the past year and comparable sales growth of 4%. Management highlighted beverage innovation as a driver of growth, citing the roll-out of nitro cold brew and the cloud macchiato as examples. However, as mentioned in my initial write-up, it has become evident over the last couple years that growth in the America’s has decelerated. SBUX has pretty much saturated the American market and the focus here has been on building efficiency and customer loyalty (more on this in a moment). These numbers are better than I had anticipated. The health of the business model looks to be in-tact. In my opinion, this speaks strongly to the brand. In fact, there’s a Starbucks just outside my office and there is always a line.

China/Asia Pacific

Investors have been watching the growth in China/ Asia Pacific (“CAP”) closely. Given that the region drinks a lot more tea than they do coffee investors have been skeptical about the growth opportunities in this region. There are also some known competitors in the space (i.e. Luckin’ Coffee) that are trying to increase their market share. This was a strong quarter for SBUX as they were able to demonstrate that they can continue to penetrate the Asian market effectively. If this trend can continue, this should bode well for the company’s growth. I believe most long-term shareholders tend to think the runway to further growth heavily resides in this region.

China delivered 9% revenue growth in Q2 and, excluding the 4% FX translation, the growth was closer to 13%. This was driven by 12% net new store growth over the past year and 2% comparable sales growth for the quarter. Given the race for market share, SBUX has been aggressively opening stores, with doors opening on 553 net new stores over the past year, representing a 17% increase. Furthermore, as I discussed in my original analysis, most people in the region are tea drinkers. However, drinking coffee has been picking up steam adding a secular tailwind to the business.

Loyalty Programs

Starbucks’ loyalty program continues to be an economic boon for the company. In the most recent quarter, over 40% of sales in the United States were from program members, while membership increased 13% to 16.8 million. Not only is the loyalty program good for its customers, but it’s beneficial for the company by allowing them to access a significant amount of data about its customers. This should help management improve product mix and directed advertising to their consumers. Clearly SBUX is doing a good job retaining their customer base in the U.S. If the U.S. can be any indication of how effective the company’s rewards program can be in China, then this should help SBUX integrate the economic moat we see here in the U.S. over in the pacific market. Since the launch of the rewards program in China less than a year ago, 90-day active Rewards members has increased 1 million during Q2 to a total of 8.3 million.

Coffee Alliance

Management said on the conference call that this partnership with Nestlé has exceeded their expectations. However, I believe the jury is still out on this initiative. Late in fiscal Q2, Nestlé launched the first 24 Starbucks products across three platforms, Starbucks coffee by Nespresso, Starbucks coffee by Dolce Gusto, and Starbucks roasted brown and whole bean coffees. These products co-created by Starbucks and Nestlé are now being deployed to 16 global markets as part the initial rollout. This should in theory help produce global brand awareness and provide access to the SBUX brand for home brewers and I will be paying attention to how this develops over the coming quarters given that the project is still in its infancy. SBUX continues to produce the coffee products in North America, while Nestle is in charge of manufacturing throughout the rest of the world paying SBUX a percent of sales in royalties. Nestlé paid about $7 billion up-front in the agreement which SBUX has used (along with debt) to invest in CAP and provide returns to shareholders.

Capital Return

In March, SBUX initiated a $2 billion accelerated share repurchase program that is expected to be completed by the end of June. This puts the firm on pace to deliver about 80% of the expected $25 billion capital return commitment by the end of FY 2019. Additionally, the dividend yield sits at 1.8% with a 5-year growth rate of 24.5%, including an increase the dividend by 20% in August of 2018. In the latest quarter the payout ratio was a bit high at .68 but this should come back down as new initiatives hit the bottom line and debt is paid down. It’s important to note, however, that SBUX increased their debt load by ~$7 billion this year and now has a debt load over $9 billion. However, given that the firm produces healthy, growing, and predictable cash flows the elevated debt does not concern me. SBUX has a Debt/Asset ratio of .5 and an interest coverage ratio of 12x.

Guidance and Valuation

For fiscal year 2019 management anticipates revenue growth to be 5-7% with global comparable store sales growth of 3-4% and expects to add approximately 2,100 net new stores across the globe. EPS is expected to be $2.40 to $2.44. If we assume the low end of guidance, we are left with a forward P/E ratio of 33x. P/OCF sits at 8x and EV/EBITDA sits at 19x. These are on the higher end of the historical trading range.


A strong cash flow producer with high returns on capital that is still growing rapidly deserves to trade at a premium, but I do not see myself adding to my position at these multiples. I believe that SBUX has the business model and proper brand recognition that allows the company to retain significant cash flow that can provide shareholder returns for years to come. I intend to let the story play out as a long-term shareholder and would look to add more shares if the price becomes attractive again.