The deal is sealed… what’s next for the securities? $UNVR $NXEO $NXEOW

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 expiryAs 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.

8 thoughts on “The deal is sealed… what’s next for the securities? $UNVR $NXEO $NXEOW”

    1. Still no update from the Agent… A bit frustrating, but I’m thinking by April 1 I should get better service because the transition will be complete by then. The problem right now is that I need an account number to reference that I’m guessing UNVR hasn’t sent out yet. I’ll circle back for sure when I figure it out.

    1. Nothing, other than the ability popped up in my brokerage account (Fidelity) to convert shares when they cross the exercise price. Unfortunately, that is all I have for now. The warrant agent just doesn’t respond.

  1. Well, one update now is that it looks like the warrants have been marked-to-market in my brokerage account. Unfortunately its around $0.17-$0.20 on the bid side ($0.45 on the ask). But kind of makes sense with Univar where it is.

  2. I still follow this – think the warrants are interesting. They trade thin but UNVR’s closer to integration synergies and hopefully the macro environment improves in 2020. They are trading at about 30cents.

  3. Any update on the warrants knowing expiration is next summer? I have some outstanding and wanted to know if there’s any upside/liquidity on the warrants. Doesn’t sound like there’s much trading.

    1. Definitely upside still but real value depends on UNVR moving upward to be in the money. Helpful to keep in context that we still have over a year before expiry so that’s worth something. But honestly this year will be make or break. I don’t think Q4 or Q1 will be awe inspiring given chem markets today. But if Q2 and Q3 are weak (I.e. no signs of restocking) then it probably makes sense to cut & run.

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