The Electronic Arts Deal Comes Through – The Special Situations Report Episode #39

Episode Summary

Executive Summary: This episode of the Special Situations Report covers key event-driven activity including a potential $38B buyout of AES by BlackRock/Brookfield, the confirmed $210/share all-cash buyout of Electronic Arts, Alphabet's potential spin-off of Verily, stock buybacks at Progress Software and Catalyst Pharmaceuticals, insider purchases at Miami International Holdings, and activist involvement at Acadia Healthcare. The hosts also discuss rumored deals, spin-offs, and C-suite transitions.

Main Topics: Rumored Deals: AES and Electronic Arts (Priority: 5/5): AES is nearing a $38B deal with BlackRock/Brookfield, while EA was confirmed to be acquired for $210/share by a consortium including Silver Lake and Saudi Arabia's PIF. The hosts discuss the significance of debt in the AES deal and the rare market-hours leak of the EA deal. Spin-offs: Alphabet's Verily and Honeywell's Solstice (Priority: 4/5): Alphabet is working to decouple Verily for a potential spin-off, as revealed in court testimony. Honeywell set October 17th as the record date for its Solstice spin-off, with distribution on October 30th. Stock Buybacks: Progress Software and Catalyst Pharmaceuticals (Priority: 4/5): Progress Software announced a $200M buyback (11% of market cap) following insider purchases, while Catalyst Pharmaceuticals authorized a $200M buyback (8% of market cap) with a high IA score of 93. Insider Purchases: Miami International Holdings (Priority: 3/5): Murray Stahl of Horizon Kinetics purchased $1.2M worth of Miami International Holdings shares post-IPO, signaling confidence in the exchange operator's growth despite competitive pressures. Activist Involvement: Acadia Healthcare and CSX (Priority: 4/5): Chrome Capital Management pushed Acadia to explore strategic alternatives, while Ancora Holdings pressured CSX to pursue a merger, though Berkshire Hathaway and others declined interest. C-Suite Transitions: Perpetua Resources and USA Rare Earth (Priority: 3/5): Perpetua Resources' CFO resigned with a transition to non-executive role, while USA Rare Earth's CEO resigned amid speculation of ties to the Trump administration.

Key Arguments: Bonds in M&A deals offer a way to participate in rumored deals with less downside than stock options, as seen with EA's bonds trading below par due to change of control clauses. Rumored deals have a 42% success rate of translating to confirmed deals, based on Inside Arbitrage's tracking of nearly 1,000 situations since 2017. Alphabet's decoupling of Verily from its proprietary infrastructure to Google Cloud is a technical prerequisite for a spin-off, as stated in court testimony. Progress Software's insider purchases by a director after 17 years on the board and the CEO's first purchase since 2020 signal confidence, despite high net debt and short interest. Miami International Holdings benefits from new stock listings like the Texas Stock Exchange, which create options trading opportunities. Acadia Healthcare's declining revenue and earnings over three quarters justify activist pressure for a strategic review, while Lifestance shows signs of recovery with positive earnings and debt reduction.

Data Points: AES potential acquisition price: $38 billion - Enterprise value including $29 billion net debt EA acquisition price per share: $210 - All-cash deal, stock jumped 15% to $193 on rumor Rumored deal success rate: 42% - Based on Inside Arbitrage tracking of nearly 1,000 situations Progress Software buyback: $200 million - 11% of market cap at announcement Catalyst Pharmaceuticals buyback: $200 million - 8% of market cap, IA score of 93 Miami International Holdings insider purchase: $1.2 million - By Murray Stahl at ~$36/share in late August Acadia Healthcare market cap: $2.5 billion - Enterprise value ~$5 billion due to debt Perpetua Resources stock gain: 140% - Over the last year driven by antimony demand USA Rare Earth stock gain: 138% - Over the last year, 68% since IDEAS conference

Pivotal Quotes: "42% of rumored deals actually translate to a confirmed deal." — Asif Surya: Discussing the success rate of rumored deals based on Inside Arbitrage data "The bonds offer a way to participate in rumored deals without as significant of a downside that stock options would have if the deal does not materialize." — Asif Surya: Highlighting the opportunity in EA's bonds due to change of control clauses "Heather Atkins, Google's vice president of security, stated the company has been working for the past two years to technologically decouple its life sciences unit in Verily... such that the business can eventually be sold or spun off." — Tamana Surya: Revealing Alphabet's progress toward a Verily spin-off during antitrust trial testimony

Implications: Listeners should monitor bond opportunities in M&A deals, track insider purchases for signals, and watch for spin-offs like Verily and Solstice. The high success rate of rumored deals (42%) suggests they merit attention, while activist pressure on Acadia and CSX may lead to strategic changes. Antimony and rare earth stocks remain volatile due to geopolitical factors.