Several pieces of news for the Univar and Nexeo… and the warrants.
- First, the acquisition closed on the 27th. Because Univar closed above ~$22/share, there is no reduction in the exercise price of the warrants
- Second, there is now more certainty of what the “Merger
Consideration” is. We now know that each share of Nexeo
will receive $3.02/share (a reduction of $0.27/share). The equity portion
is still 0.305 of Univar shares.
- For the warrants, since each warrant is good for ½ share, this amounts to $1.51 in cash and 0.1525 shares of Univar.
- Last, the stock and warrants are delisted from the NASDAQ, which was disclosed previously.
Because there are now less moving pieces, we can clearly arrive at a price target for the warrants. Based on my previous posts, you know that my price target for Univar is ~$32/share in the next 12 months. I think I am being reasonable in this analysis (though I admit, Univar is hosting its 2019 outlook call next week which could change things).
(March 4 Update: UNVR released 2019 guide of ~$750MM of EBITDA, which reflect 10 months of Nexeo and expectations of flat industrial demand. Seems relatively conservative. They also expect to generate $275MM of FCF, which is still a 7% FCF yield. Not too bad, but not amazing either).
It appears that Seth Klarman of Baupost agrees with me as he recently took a big stake in both Univar and Nexeo warrants. Looks like he owns 10MM warrants, or roughly 20% of the outstanding amount. He also owns 9.5MM shares of Univar.
But for now, I will provide this table below to help you decipher what you think the warrants are worth. We can’t forget, however, that we still have 830 days until expiry… As I stated in my article here, if we used Black Sholes to price these warrants, they would be trading much higher just from time value. (Alas, even Buffett has written about the mis-pricing of long-dated options)
What do we do now that the warrants are delisted?
Univar appointed Equiniti as the successor warrant agent pursuant to the Nexeo Warrant Agreement. This means they will now handle the warrants being exercised. Unfortunately, in the meantime, this means the warrants will be pretty illiquid.
I will update this post once Equiniti responds.
Update: Equiniti never responded, but the warrants trade regularly now.