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: Await payment
Update – 16 June 2020, 11:30pm
Members finally received their interim payments overnight as OMN paid $1.08 per OMN share. This was at the low end of the recent guidance provided but still a 16% premium to our entry price of $0.93 which is a great result in the context of the global sell-off since we entered the stock.
With all of our capital plus 16% returned, we still have some remaining assets of OMN that will be sold and returned to shareholders over time. These assets are illiquid so there is no idea of knowing how long this will take but the guidance has been for somewhere between one and two years and our estimate was for up to a further $0.10 in value to be paid to shareholders over that time. We will keep members updated along the way.
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Update – 02 April 2020, 03:32pm
We have yet to be paid our interim distribution which was estimated at somewhere between $0.88 and $0.94 and expected to be paid in March or April, but the good news is that we have received a great update from the company. As OMN has effectively held its assets in $USD, that cash pile has increased in value and it is now expected that the initial distribution will be between $1.08 and $1.11 per share.
This is a fantastic outcome considering that capital has been locked away and not exposed to the recent sell-off all assets have endured and will mark a return of between 16.1% and 19.4% from our entry price of $0.93. Payment is expected either this month or next, and of course we still stand to make more down the track as its remaining assets are liquidated. This was estimated at a further $0.10 and while there may be upside because of the favourable currency movements the appetite for its remaining assets may not be as strong. However, much we receive, at least we will yield an excellent profit on the interim distribution.
We will update members once the interim distribution has been made.
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.
Rivkin does not ever provide financial advice. Please consider your own circumstances before purchasing any of our products or acting on our general advice, for any Rivkin product or recommendation.
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