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:

https://www.gurufocus.com/news/901125

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?

-Pennybags

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.