If you guys have sometime read it, thought of sharing this article from a industry veteran who has been the insider and worked extensively with big funds (sorry Hotcopper is very bad with formatting tools
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12 Signs Your Stock is Targeted forBuyout Theft
Are youfrustrated with the performance of your stock? Has the price been dropping formonths for no reason at all? It might be intentional. Wall Street might betrying to steal your company for cheap.
Buyout theft iswhen a company is bought out or taken private for less than its fair value.Usually with no real merger premium. Buyout theft is when Wall Street destroysa stock price and then buys out the company for peanuts.
It happened toGasLog back in February, and it happened to Casper on November 15th, 2021. Boththese companies share similar traits which will we explore below.
Buyout theftshould be illegal because small investors get screwed. In the case of Casper,the stock went public in February 2020 at $12/share and closed the first day oftrading at $14.50. If an ordinary person invested their hard-earned cash in thecompany, they would have gotten ruined. In the last year the stock had a highof $12 and a low of $3.18.
The CEO gets tokeep their job. Institutional investors might keep shares in the newly privatecompany. But a small investor? Joe Sixpack or Jill Yogabutt? They hand overtheir shares at gunpoint. The winners in buyout theft are the acquiringcompany, and anyone who bought at the lows. Everyone else gets fleeced.
Here are 12signs your company is being targeted for buyout theft
1. Stock Pricehas Been Declining for Months
Wall Streetdoesn’t want to steal good companies for cheap. They want to steal greatcompanies for rock-bottom prices. They’re not happy making millions. They wantbillions. But to get those billions, they have to steal from you, althoughbuyout theft is technically legal.
If your stockprice has been declining for months for seemingly no reason at all, this is ared flag for buyout theft. Wall Street knows you check your stocks every day.Maybe even every hour. They know what the psychological effects are of yourstock always being red.
They are tryingto frustrate you into capitulation. You watch the markets. You see junk stocksjumping 20% in a day and think, “Why not my stock? It’s a good company.” Somepeople get depressed and sell. Institutions gobble up the shares and this makesthe buyout theft easier. More shares equals more yes votes on a potentialbuyout.
2. Down 50% ormore from recent highs.
Wall Street cansee your stop loss orders. They often do stop-loss raids to trigger your marketsell order. Most people can’t stomach a 50% loss. Or maybe it’s higher. InCasper’s case, they nuked the stock from $12 to $3. That’s a drop of 75%. Onlythe die-hard true believers were still holding after a beating like that.
The more yourstock is down, the more likely someone is to try and steal it. Imagine walkingaround a neighborhood and the price of each home was posted on the garage. Mosthomes in the area are $500,000. One home is priced at $400,000 but you can’tfigure out why. Yeah, maybe it needs some paint and landscaping, but thatdoesn’t justify a 20% haircut.
A few weekspass and you walk by the house again. Now it’s at $300,000. You knock on thedoor and ask to buy the house. The owner says it’s not for sale at this price.
Two months passand now the price on the house is $125,000. You think this is insane buteveryone else just shrugs and says, “Must be something wrong with it.”
Again, you askthe owner to sell, but he refuses. The next day you wake up and read in thenews that BlackRock has bought the house for $250,000. The owner was quoted assaying, “It was frustrating watching my house decline in value and I was afraidif I didn’t accept this price, my home’s value would fall further. Also,BlackRock already owned 51% of the house, so I didn’t really have any choice inthe matter.”
If thatscenario sounds ridiculous, then you’re starting to realize what a problembuyout theft is. Buyout theft is made possible because many so-called “publiccompanies” are actually controlled by a few large corporations and theirsubsidiaries.
3. Highinstitutional ownership.
Who owns yourcompany? Visit Yahoo Finance and click on holders. This will show you whatpercentage of outstanding shares are owned by insiders and institutions. Therest of the stock is owned by small investors.
If someone (ora group of people) owns more than 50% of a company, they can pretty much doanything they want. All major decisions in a company are voted on atshareholder meetings. If the buyout thieves control more than half the company,it doesn’t matter how the small investor votes.
Here’s whatCasper’s holders look like:
Insiders andinstitutions own 72.76%. If you own Casper stock, it’s completely irrelevanthow you feel about the company going private. Your votes are meaningless.
So, if youthink your company is being targeted for buyout theft, check the holders. Ifinsiders and big funds own more than 50% then a merger could be on the table.
4. Paid bashersclaiming bankruptcy.
Banks and hedgefunds use sock puppet accounts to clutter message boards. They spread fear andmisinformation for two reasons.
1. To get youto sell.
2. To get newinvestors not to buy.
Short sellersand buyout thieves spreading lies about a company isn’t a new thing. It’s beengoing on since the dawn of Wall Street. Learn how to spot paid bashers andstock manipulators here.
Here are someposts I dug up from before the Casper buyout was announced.
Posts like thisconvince naïve investors that yes, selling is a good idea.
FUD: Fear,uncertainty, doubt.
“The sky isfalling!”
Bankruptcy +offering fear.
This accountseems to have been created solely for the purpose of manipulating Casper.Notice it was created July 14th, 2021. Several months before the buyout.
Here’s what theCEO said about the deal. [Source]
They had beentalking for months about a deal. The Hellokittygrinder **promotion blocked** account wascreated on July 14th. From July to November the stock price of Casper slid from$8.38 to $3.18.
While there isno definitive proof, I believe one of the companies or investment banksinvolved in taking Casper private employed people to post negative comments onCasper message boards. They did this to manipulate sentiment and make peoplethink the company was going bankrupt. This allowed them and their friends toaccumulate cheap shares which they used to vote yes on taking the companyprivate. Management appears to have violated their fiduciary responsibility tosmall investors by selling the company for 20% less than where it was tradingin July.
You can findmore posts like the ones above on **promotion blocked** if you scroll back through theCasper board.
5. Companyneeds cash but isn’t doing any capital raises.
Companiestargeted for buyout theft usually aren’t rolling in cash. Business isn’t greatbut it’s not a total disaster. There’s probably some revenue, it just isn’tenough to fund operations past a certain date. Maybe six to 12 months out. Thisis the CFO’s problem. One of their jobs is to make sure the company doesn’t runout of cash.
When dealingwith a shrinking bank account, businesses have several options to raisecapital. They could issue new shares (public or private offering), they couldraise money by issuing debt, or they could recommend massively cuttingexpenses. Sometimes it’s a combination of all three.
Offerings aregood and bad. Existing shareholders get wrecked a bit. Offerings are usuallybelow the current market price. So, the stock price goes down. But the companyreceives a boatload of cash. If they use this cash to fuel revenue growth, thestock price might recover in a few quarters.
Debt issimilar. The company borrows money which adds a liability to the balance sheet.Cash is added to the asset column which offsets the liability. Shareholder’sequity remains unchanged. Until the next update. Because now each month thecompany is spending the cash and paying interest on the debt. So, you canexpect shareholder equity to decrease over the coming months. This is fineassuming the company increases revenue or returns to profitability.
Cuttingexpenses can be either a good or bad sign. Marketing goes first, then jobs,then the company abandons their leases and sells off equipment/infrastructure.Cutting expenses makes it harder to return to growth. (How do you increasesales if you’re laying off your salesforce?) Cutting expenses is a good sign ifa buyout is in the works, but a bad sign if it’s not.
So, if the CFOcan fix a cashflow problem, but why aren’t they doing anything about it? Thecompany you invested in is running out of cash. Revenue isn’t expected to coverthis shortfall until way past the date the bank account runs dry.
This is a majorsign that buyout theft is imminent. The company isn’t raising cash because theyknow they don’t need it. Whoever plans to buyout the company or take themprivate has lots of cash. Enough to cover expenses for several years.
If Casperneeded money to fuel growth, why didn’t they just do an at-the-money offeringwhen the stock was trading at $8 or $9? They could have raised $50 milliondollars, and the stock might not have dropped below $6.90.
6. Managementstops defending the stock price.
A company’sstock price is an asset. The higher it is the better. A high stock price makesissuing capital easier. It makes issuing debt cheaper. It’s prestigious andattracts attention.
“Widget CorpHits 52-Week-High.”
“Widget CorpBecomes World’s First Quadrillion-Dollar Company.”
People likeinvesting in hot stocks. Stocks with hype. Companies that look like they’regoing to the Moon instead of bankrupt.
So, whathappens when short sellers start chipping away the stock price? What if someonepublishes a series of negative articles? What if the stock drops 10% for noreason?
Well,management has tools to combat this. They can get on social media. They canissue press releases talking about upcoming milestones. Current projects.Updates. Guidance. They can bring the hype back to a depressed stock.
So why aren’tthey? Why hasn’t management said anything even remotely interesting in the pastfew months? Why didn’t they take any (or many) questions on the last conferencecall? Why are they on vacation while the stock price is plummeting?It might be because management just doesn’t care anymore. A buyout price has been reached and their golden parachute has been secured.
Buyouts,mergers, and privatization deals take months to hammer out. Companies aren’tapproached for a buyout on Saturday and then drop the PR on Monday. It takes along time to get it done. Months of inaction or laziness by management can be asign that behind scenes they’re working to sell the company or have already cuta deal.
7. Current CEO didn’tstart the company.
If a companyhas been struggling, you’ll sometimes see the founders make an exit. They haveenough to retire and don’t want to hang around and watch their brainchild burnto the ground. People that start a company are emotionally invested in it. Newhires are not. This applies to everyone, especially the CEO.
Chief executiveofficers are romanticized in the media and popular culture. People wants to beone, date one, marry one, etc. But it’s just a job. You can apply for it justlike any other gig. Yes, most people don’t qualify, but, at the end of the day,to a new CEOs trying to fix a struggling company, it’s just a paycheck.
Despite whatthey say in the media, a new CEO probably cares about their job just as much asyou do about yours. If you were offered three times your current salary to sellthe company to someone else, would you do it? Most people would. A job is job.You can always find a new one. And now your resume shows you negotiated thesuccessful buyout of a struggling company.
“I doubled thestock price from $3 to $6. I’m a hero.” – Chad Disallowed, new CEO
“The shareprice was $12 less than a year ago…” – Jimmy Diamondhands, long-termshareholder who just got ruined due to buyout theft
8. Phantompremium reaches 100%.
When a companyis bought out or taken private, there is often a premium given to the stockprice. This premium might be low or high. When Gilead bought Immunomedics theypaid a 108% premium. This was a real premium because the stock was trading nearrecent highs.
When Casper wastaken private, shareholders got an 88% premium. This is phantom premium. It’sfake. It’s bullshit. It’s a scam.
Casper, justlike GasLog, had recent share price highs that were far above the buyout price.Ordinary shareholders got fleeced, and the institutions got away with financialtheft.
Phantom premiumis the boost a stock gets during a buyout that is a snapback to its fair value.It’s not a real premium. If there’s a lot of phantom premium on the table, thena buyout is more likely. This is because the acquirer has less risk. Buying acompany for $200M is less risky than buying it for $400M, especially if thefair value is $400M. It’s legalized theft. Rich corporations profit and smallinvestors get run over by a tank.
There must beenough phantom premium during buyout theft so the headlines aren’t, “WidgetCorp Going Private for 2% Premium.”
Or in the caseof Casper: “Casper Going Private for -20% Premium.”
That wouldnever fly. People would be furious. There would be shareholder riots.Congressional hearings. Articles in the Wall Street Journal on how the smallinvestor is getting robbed. But an 88% buyout premium? That seems legit.Phantom premium exists as evidence that the company isn’t being stolen. But itis.
9. Unusual optionsactivity
Even thoughinsider trading is illegal, it happens every day on Wall Street. Before amerger/buyout there are always suspicious options trades. Banks, traders,lawyers, management from both companies, maybe even the receptionist. Lots ofpeople know about the buyout before it happens. Some of them act on it bygiving this information to people who trade options. Or maybe even makingtrades themselves.
Here’s what tolook for:
1. Calls beingpurchased near the ask.
2. Puts beingsold at the bid.
Calls payoffbigtime if a company is bought out. Buying at or near the ask is a sign ofconfidence. You can’t buy lots of calls in a hurry at the bid price. There’snobody to sell them to you. Someone who buys a lot of calls at the ask price ishurrying to secure a position.
On the otherside, puts will expire worthless if a stock is bought out. So sometimes you’llsee big put blocks being sold near the bid. This is free money for the sellerif they know a buyout is coming.
Don’t justwatch for options expiring in the near future. People who do insider tradingare sneaky. They’ll try to hide it by hitting options that are several monthsor years away from expiring This crooks earn less money, but it also reducesthe chance they’ll end up in jail.
“I didn’t knowa buyout was coming. I bought options that expire in a year. If I was insidertrading I would have bought options that expire next week.” – Brock Shitheel,mid-level executive at an M&A law firm.
Focus on thenumber of options being purchased/sold relative to the outstanding interest.The larger the spread the better.
For example: Ifthe outstanding interest in $100 April calls is 2,305, and the daily volume is14,000, that’s a red flag. Note these two numbers and check back tomorrow. Seewhat the new outstanding interest is. If it’s more than 16,000 you’re probablyon to something.
10. Pinned forMonths
Does your chartlook like someone is sitting on the stock price? Does your stock not go up forany reason, no matter what the broader market is doing? It might be pinned.
Hedge funds andinstitutions can control the price of stocks. They have billions, if nottrillions of dollars of firepower. When looking at stocks with market capsunder five billion, you must be aware that Wall Street can move the stock upand down at will. They can open and close a stock at any price.
This becomesobvious if you watch the one-minute chart on a stock. Stocks that are beingmanipulated might jump 5% on 100k volume, but then see this 5% chipped awaywith a series of small trades. Stocks can swing up and down on very littlevolume.
A stock that isbeing targeted for buyout theft must be kept pinned so the phantom premiumremains intact. Institutions can’t let the stock climb because it would destroythe narrative that the company is going out of business and needs someone toswoop in and save them.
11. The companywould complement someone else’s business.
Try to think afew years into the future. Your company has been bought out and merged withsomeone. They’re now a division of a conglomerate. Who is it? Which largercompany would love to have your smaller company as a subsidiary?
Are there lotsof possibilities? The more the better. If you can think of another company thatwould be a good fit, it’s likely they’ve thought of this as well. And theymight be making a move to buy you out.
12. Big jumpafter weeks or months of red.
If your stockhas been pinned for months, then why did it jump on Thursday by 6% for noreason? Why did it jump again on Friday by 7% for no reason?
No obviousreason anyway. The reality is a buyout or merger deal might have leaked.Details might be announced over the weekend or Monday morning before themarkets open.
If you’re longat $12 and the stock price is $4 then you’re exposed to buyout theft . In thissituation, if I thought my stock was being targeted for buyout theft, and itjumped big on a Friday for no reason after months of being pinned, I wouldhedge against a buyout.
Hedging againstbuyout theft is as easy as buying more stock or buying short-term call options.If there’s no buyout announced by Monday, you can always close the newposition.
Even if yourstock isn’t bought out (or taken private) buyout theft could still occur.Someone might take a major stake in the company when the stock price craters.Like when Morgan Stanley announced a near 10% stake in Waitr Holdings, causingthe stock to run up 250% in the next 10 days.
What can you doif you think your company is being targeted for buyout theft?
1.Hedge against an imminent buyout with call options.
2. Hedgeagainst months of declines with put options.
3. Share thisarticle and make other investors aware of buyout theft.
If a companygoes public, it should be banned from going private for at least five years.Otherwise, the future of IPOs will be more buyout theft. Stock prices will bepumped to the Moon and then massacred with retail left holding the bag. Then abuyout or privatization.
It’s wrong andit should be a crime.
(Disclaimer: This post does not constitute financial advice.)
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