The OMN Event trade was first recommended as a buy on 16 September 2019. Below are each of the updates related to this trade in chronological order.
Current advice: Hold
Update – 03 December 2019, 01:32pm
OMN held its extraordinary general meeting (EGM) and the wind-up proposal was overwhelmingly supported. The stock has now ceased trading and we can expect an interim distribution of somewhere between 88-94c to be paid out within the next three to four months. The remainder of the company’s assets will be liquidated over time but if the initial distribution is at the top end of the guidance range then we will be sitting at break even or at a small profit before the process even begins which would be a great outcome.
The stock has now ceased trading and we will provide further updates as they come.
Update – 12 November 2019, 11:30am
OMN last week sent out its ‘Notice of General Meeting’ which includes details of the proposed wind-up as well as an opportunity for shareholders to vote on the move. Given the broad shareholder pressure as well as director support, the wind-up will definitely be voted for and the only variable is what the ultimate proceeds will be.
OMN released a breakdown of its estimated liabilities on wind-up which includes an ‘estimated liability reserve’ of between US$5m-$10m that looks to simply be kept in the kitty in case of unknown future liabilities. It’s not surprising the board wants to ensure any future potential liabilities don’t become a headache, so this ‘estimated liability reserve’ could amount to nothing which would enhance the returns. Some of the other costs are a little higher than we anticipated but not enough to deter us from investing.
Assuming that the ‘estimated liability reserve’ amounts to nothing, the total proceeds should amount to a little over $1.00 – this could swing with the currency however – although the final payment after liquidation could take as long as two years. That isn’t a huge concern as over 90% of our investment will be distributed within three to four months.
We had hoped to be able to trade this after the initial distribution was made and thought there could be an arbitrage at that time, but the stock is going to cease trading on 2 December so any profit will be seen through cash payments rather than on-market manoeuvring.
While not essential, we recommend members get in their proxy forms supporting the proposed wind-up.
Original Recommendation – 16 September 2019, 10:26am
OMN is the old Westfield Labs business that was spun out of Westfield when it was bought by Unibail-Rodamco last year. At the time, the Westfield board felt there was enough excitement in some of Westfield Labs’ investments that keeping it separate to the property deal made sense. Since it has traded outside of the Westfield family and as its own listed entity, the reality is that it is a company that has failed in its aims and has been a constant source of ire to its shareholders. Since starting its life around $1.50 in June last year, the company has continually bled cash at an alarming rate to the point that the stock started to trade at levels of less than half the net tangible asset backing (NTA) – a reasonable development given the view that OMN would eventually burn through all of its cash.
These situations often attract shareholder activists however and it appears that the right level of shareholder revolt as well as board realism has seen the company announce that it will wind up operations. It will entertain takeover bids during this period, but with the majority of its assets in the form of cash or cash receivables a wind-up is probably going to be the likely outcome.
There will be an extraordinary general meeting (EGM) held in late November/early December, and once voted for (a foregone conclusion given the support to the proposal) there will be an initial payout of at least $0.85 and then the rest will be determined after disposing of remaining assets and paying out creditors. Given the slowing cash burn rate and the cash balance of $1.60 (before liabilities) at the end of June, the final NTA is estimated to be somewhere between $1.00 and $1.10 based on the view of several analysts covering the stock.
At the current level of $0.93, we would be looking at getting the majority of our investment back in a short period of time. And assuming a current discount to NTA-on-disposal of between 7% and 15.5%, once the $0.85 is returned and the same discount is maintained we should see the price settle around $0.14 and $0.21. This may not be perfect as the time for wind-up is an unknown, but the discount shouldn’t vary wildly and we may be looking at a solid profit after the $0.85 return is made and could decide to exit at that time depending on the risk/reward.
Liquidity is the biggest issue however but 1.5 million shares have traded today so there is a good chance we could get set. As the final NTA is an unknown we will consider OMN high-risk, but we think the risk/reward of the investment is attractive and we are happy for members to buy the stock at up to $0.935 for a short-term, medium to high risk investment.
We are glad you liked it
For your convenience, this will appear under your Saved articles in the homepage.