BOARDWALK PIPELINE PRTNRS-LP BWP
May 08, 2018 - 1:50pm EST by
straw1023
2018 2019
Price: 9.35 EPS 0 0
Shares Out. (in M): 250 P/E 0 0
Market Cap (in $M): 2,300 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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Description

This is an arbitrage idea that involves an unusual situation. All prices from this morning when I started writing.
 
The trade idea is:
 
Buy 108 shrs of BWP at $9.18 and then buy 1 shr per day going forward at the closing price.

---
 
I will skip the basics of BWP and jump right to the technical arbitrage here.
 
BWP is a midstream MLP whose sponsor/GP is Loews (L). The Limited Partnership Agreement contains an unusual clause:
 
 
 
RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
 
Section 15.1  
Right to Acquire Limited Partner Interests.
 
 
(b) Notwithstanding any other provision of this Agreement, if at any time: (i) the General Partner and its Affiliates hold more than 50% of the total Limited Partner Interests of all classes then Outstanding and (ii) the General Partner receives an Opinion of Counsel that the Partnership’s status as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by subsidiaries of the Partnership that are regulated interstate natural gas pipelines, then the General Partner shall then have the right, which right it may assign and transfer in whole or in part to the Partnership or any Affiliate of the General Partner, exercisable at its option within 90 days of receipt of such opinion, to purchase all, but not less than all, of all Limited Partner Interests then Outstanding held by Persons other than the General Partner and its Affiliates, at a purchase price for each class of Limited Partner Interests equal to the average of the daily Closing Prices per Limited Partner Interest of such class for the 180 consecutive Trading Days immediately prior to the date three days prior to the date that the notice described in Section 15.1(c) is mailed.
 
---
 
BWP informed/reminded unitholders of this call right last week. The market was very surprised.
 
BWP informed unitholders that Loews was "seriously considering" this potential call right.
 
First, does the call right apply? The 50% threshold is met. And the way the language is written about the "maximum applicable rate," the recent FERC action regarding an income tax allowance for cost-based rates triggers this clause. One potential argument would be that BWP is not charging the maximum rates on its pipelines so the FERC ruling is irrelevant. However, the "maximum applicable rate that can be charged" language seems to dismiss this concern.
 
If the call right does not apply, I expect this to trade back to the $11 price it was before the call right was revealed. However, I expect the call right to apply.
 
---
 
Will Loews exercise call right? I believe that Loews would be wise to exercise the call right if they can buy the LP units below $12. Like many MLPs these days, the vehicle is not serving the purpose for which it was created. Again, if they do not exercise, I expect units to rebound back to $11 range.
 
---
 
So, assuming they do exercise, what is this worth? Here is the timeline as I see it:
 
May 31 -- Opinion of Counsel announcing call right option. This is the biggest timing variable as Loews has an incentive to delay this Opinion of Counsel. However, they expose themselves to a lawsuit if they intentionally delay the Opinion knowing that it means a lower price. I have tried to pin down BWP mgmt on the timing of the Opinion, but I have not been successful.
 
Clearly, this idea falls apart if Loews can simply delay the decision indefinitely. Courts look askance at parties not availing themselves of their rights quickly (theory of laches). I believe the clock is running, and it would be absurd to suggest they can delay Opinion indefinitely. Given their own announcement, I do not believe they will do that.
 
---
 
Given that the current price is lower than the price 9 months ago (i.e. 180 trading days), they probably will take their sweet time in actually acquiring the company. So I assume they take the full 90 days and acquire the company on August 31. And they will announce 10 days before that and so the last day of pricing used will be Aug 18.
 
That means that the price paid will be determined by closing prices starting Dec 1, 2017 thru August 18. That means that we already know 108 of the prices. And the average thus far is $11.83 versus current price of $9.18. And BWP goes ex div tmro so only paying $9.08. This is a 30.2% return (in less than 4 months) on the $9.18. However, the remaining 72 shrs will return 0% over an average of 2 months. We do not know the exact gross return because we do not know how much the future purchases will be, but it will be about 20% over an average of 3 months (100% annualized).
 
Note: Unless Loews tries to really mess with the price, we would also receive a distribution in August as well. I have not included that in the math because Loews could eliminate distribution after announcing option to purchase..
 
Risks:
 
The two risks are clear:
 
- They delay the Opinion of Counsel decision. Let's say they delay by 2 months from my assumption above. Then, the 180 trading day window will run from Feb 1 thru mid-October. And there have been 67 days thus far at an average price of $10.91. This is only a 20% gross return on only about 1/3 of the days with 6 months remaining. And so this will reduce the entire gross return to a bit under 10% over an average of 4 months.
 
- The value of BWP drops during this exercise and Loews does not want to acquire even at a $10 price.
 
Note that if the price trades up and it becomes questionable whether L would want to acquire, then can sell at a profit. And if stock goes down, more likely L will buy.
 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

There are three catalsysts:

First, the Opinion of Counsel

Second, the announcement of whether they will exercise option to purchase

Third, the closing of the purchase

    sort by    

    Description

    This is an arbitrage idea that involves an unusual situation. All prices from this morning when I started writing.
     
    The trade idea is:
     
    Buy 108 shrs of BWP at $9.18 and then buy 1 shr per day going forward at the closing price.

    ---
     
    I will skip the basics of BWP and jump right to the technical arbitrage here.
     
    BWP is a midstream MLP whose sponsor/GP is Loews (L). The Limited Partnership Agreement contains an unusual clause:
     
     
     
    RIGHT TO ACQUIRE LIMITED PARTNER INTERESTS
     
    Section 15.1  
    Right to Acquire Limited Partner Interests.
     
     
    (b) Notwithstanding any other provision of this Agreement, if at any time: (i) the General Partner and its Affiliates hold more than 50% of the total Limited Partner Interests of all classes then Outstanding and (ii) the General Partner receives an Opinion of Counsel that the Partnership’s status as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by subsidiaries of the Partnership that are regulated interstate natural gas pipelines, then the General Partner shall then have the right, which right it may assign and transfer in whole or in part to the Partnership or any Affiliate of the General Partner, exercisable at its option within 90 days of receipt of such opinion, to purchase all, but not less than all, of all Limited Partner Interests then Outstanding held by Persons other than the General Partner and its Affiliates, at a purchase price for each class of Limited Partner Interests equal to the average of the daily Closing Prices per Limited Partner Interest of such class for the 180 consecutive Trading Days immediately prior to the date three days prior to the date that the notice described in Section 15.1(c) is mailed.
     
    ---
     
    BWP informed/reminded unitholders of this call right last week. The market was very surprised.
     
    BWP informed unitholders that Loews was "seriously considering" this potential call right.
     
    First, does the call right apply? The 50% threshold is met. And the way the language is written about the "maximum applicable rate," the recent FERC action regarding an income tax allowance for cost-based rates triggers this clause. One potential argument would be that BWP is not charging the maximum rates on its pipelines so the FERC ruling is irrelevant. However, the "maximum applicable rate that can be charged" language seems to dismiss this concern.
     
    If the call right does not apply, I expect this to trade back to the $11 price it was before the call right was revealed. However, I expect the call right to apply.
     
    ---
     
    Will Loews exercise call right? I believe that Loews would be wise to exercise the call right if they can buy the LP units below $12. Like many MLPs these days, the vehicle is not serving the purpose for which it was created. Again, if they do not exercise, I expect units to rebound back to $11 range.
     
    ---
     
    So, assuming they do exercise, what is this worth? Here is the timeline as I see it:
     
    May 31 -- Opinion of Counsel announcing call right option. This is the biggest timing variable as Loews has an incentive to delay this Opinion of Counsel. However, they expose themselves to a lawsuit if they intentionally delay the Opinion knowing that it means a lower price. I have tried to pin down BWP mgmt on the timing of the Opinion, but I have not been successful.
     
    Clearly, this idea falls apart if Loews can simply delay the decision indefinitely. Courts look askance at parties not availing themselves of their rights quickly (theory of laches). I believe the clock is running, and it would be absurd to suggest they can delay Opinion indefinitely. Given their own announcement, I do not believe they will do that.
     
    ---
     
    Given that the current price is lower than the price 9 months ago (i.e. 180 trading days), they probably will take their sweet time in actually acquiring the company. So I assume they take the full 90 days and acquire the company on August 31. And they will announce 10 days before that and so the last day of pricing used will be Aug 18.
     
    That means that the price paid will be determined by closing prices starting Dec 1, 2017 thru August 18. That means that we already know 108 of the prices. And the average thus far is $11.83 versus current price of $9.18. And BWP goes ex div tmro so only paying $9.08. This is a 30.2% return (in less than 4 months) on the $9.18. However, the remaining 72 shrs will return 0% over an average of 2 months. We do not know the exact gross return because we do not know how much the future purchases will be, but it will be about 20% over an average of 3 months (100% annualized).
     
    Note: Unless Loews tries to really mess with the price, we would also receive a distribution in August as well. I have not included that in the math because Loews could eliminate distribution after announcing option to purchase..
     
    Risks:
     
    The two risks are clear:
     
    - They delay the Opinion of Counsel decision. Let's say they delay by 2 months from my assumption above. Then, the 180 trading day window will run from Feb 1 thru mid-October. And there have been 67 days thus far at an average price of $10.91. This is only a 20% gross return on only about 1/3 of the days with 6 months remaining. And so this will reduce the entire gross return to a bit under 10% over an average of 4 months.
     
    - The value of BWP drops during this exercise and Loews does not want to acquire even at a $10 price.
     
    Note that if the price trades up and it becomes questionable whether L would want to acquire, then can sell at a profit. And if stock goes down, more likely L will buy.
     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    There are three catalsysts:

    First, the Opinion of Counsel

    Second, the announcement of whether they will exercise option to purchase

    Third, the closing of the purchase

    Messages


    SubjectAny idea why the opportunity exists?
    Entry05/08/2018 03:03 PM
    Memberpunchcardtrader

    Thanks , very interesting idea. Great teaser "buy 108 shares and 1 share each day "

    My question is: why did it trade down on this news? Any forced/non-economic sellers? I can imagine nobody wants to pay more than the past X day avg , which might be a reason why this option triggered a buyer/seller imbalance with the latter gaining upper hand? Do you agree with this explanation?

    I'd summarize the risk this way: the ratio = value/price going down -> getting us closer to the situation where the 180avg price is unattractive for the buyer at expiry (but with a fat margin of safety being today's absolute arbitrage profit you mention). Is that correct? Any sense how volatile the underlying asset value will be?

    Thanks a lot!


    SubjectShort option
    Entry05/08/2018 03:09 PM
    Memberpunchcardtrader

    Thinking about my last question why the price might drop: a buyer has to be enticed to buy the shares (us) but is actually capped in his upside (but not downside).

    If the value/price ratio goes up instead, all the upside goes to the buyer..?

    Today's 'return' is simply the premium for this option.. is it a justified premium though? 


    Subjectinteresting idea
    Entry05/08/2018 06:07 PM
    Membermajic06

    What's downside risk in the next 6 months and why would we see that downside? (absent death spiral selling due to this event - I mean fundumentally).  

    Seems the risk is we're left long BWP if Leows decides it's not worth $10 or $11 due to something happening?  Maybe the contract renewals?  Is it worth more than $10 even in the worst case outcome there?   How much oil/gas risk is there?  I don't mean on current cash flow but sentiment/renewal pricing?   I'm not an MLP investor, just trying to figure out the odds the biz/industry goes to shit and Leows walks as that seems like your biggest risk.  Basically, I'm asking what punchcardtrader is asking.

    Did you come up with May 31 randomly as the date for the legal opinion?

    Thanks.


    SubjectTAM Capital
    Entry05/08/2018 09:11 PM
    Memberstraw1023

    https://www.businesswire.com/news/home/20180508006231/en/TAM-Capital-Management-Sends-Open-Letter-Boards

    This hit the wire just as I was finishing the VIC write-up. Here are my thoughts:

     

    1) His first argument is that Section 15.1(b) does not apply because the FERC ruling will not affect BWP until 2023 re-negotiations (and frankly, there is a good chance BWP will not get anywhere near FERC limits then). My reading of the language is that this is not a winning argument because the language says it only needs to affect the maximum rate (even if that is irrelevant for real-world pricing), but I am happy to be wrong. The language seems to be anticipating the exact situation that is occurring. My sense is that this is a pretty slam dunk Opinion letter, but I'd love to hear some lawyers out there.

    Aside: I wonder if such a clause is even enforce-able. I have never seen such a contingent call option built into a publicly traded equity--C Corp or MLP. Does this run afoul of any NYSE or SEC rules? I did not pursue because I figure Loews' attorneys knew what they were doing 13 years ago.

    2) I do agree with Tsachy that Loews will be seen acting in bad faith if they depress the unit price for a prolonged period  by delaying the Opinion. The Agreement clearly contemplates their depressing the price for 90 days (about 60 Trading Days), but not the entire 180 Trading Days. This is why I think they can delay the Opinion only so long. And I hope that Tsachy does sue to force the Opinion timing.

    3) In his letter, Tsachy says that Loews "would make a decision by the end of 2018." I do not know where this language is coming from. I have read the 10-Q, 13-D, and call transcript, and I cannot find this. To be clear, if they do not purchase BWP until Dec 31, 2018, then this idea is bunk. There would still be a small arb (based on April's contribution to final price), but it would not be worth it. This idea hinges on the Opinion coming soon and then Loews having 90 days (about 60 Trading Days) to exercise resulting option. 


    SubjectRe: Any idea why the opportunity exists?
    Entry05/08/2018 09:21 PM
    Memberstraw1023

    First it traded up on positive results. Then it traded up even further on news that Loews was going to buy. But then panic set in when holders realized the terms of the Partnership Agreement.

    As for underlying value, I have been following from the sidelines. BWP got out ahead of the MLP beatdown a few years ago and slashed their distribution to fund capex. As well, they announced that a larger portion of their pipelines would be be up for re-negotiation in 2017-2019. And that rates would be coming down. The market has assumed some draconian outcomes, and the market also seems to be missing the already-funded growth capex that is coming online in next 24 months.

     

    I'd point you to TAM Capital for detailed analysis. https://seekingalpha.com/article/4150000-looking-boardwalk-recontracting 

    I am comfortable with the valuation, and I am comfortable that Loews would buy this at $11/unit.


    SubjectRe: interesting idea
    Entry05/08/2018 09:33 PM
    Memberstraw1023

    The downside is that Loews delays the Opinion of Counsel for 6 months and then more panic ensues in market and they buy it for $6/unit, and the prices before May 8 are not included in the 180 day window.

    May 31 is hopefully not completely random. It is my guess as to how long this Opinion letter should take. This all went down over a week ago, and I would guess that they had already engaged their attorney on the matter. They may already have an Opnion in hand. They do not need to tell us. FWIW, 15.1(b) seems to fit this situation perfectly. My guess is that they knew about the tax arb 13 years ago and wanted a way out if MLP structure if it went away.

    As I told punchcardtrader, I have followed this from the sidelines as it has gone thru re-contracting. TAM Capital has published some detailed analysis of the re-contracting process and the already-funded growth capex coming online.


    SubjectRe: Short option
    Entry05/08/2018 09:39 PM
    Memberstraw1023

    I agree with this way of thinking, but in this case, i think the option is fairly deep in the money so not a lot of risk.

    I would think that Loews would be willing to pay a lot to get out of this now inefficient structure. I would think this is true of a lot of MLP sponsors but Loews in particular. Further, I think that due to re-contracting and slashed distribution, it trades unfairly low. And now they can get out of structure not only without paying a premium . . . but paying a discount.


    SubjectRe: TAM Capital
    Entry05/09/2018 09:16 AM
    Membermajic06

    Re:   "would make a decision by the end of 2018." 

    I think he changed the language from the Loews conference call.  The actual language is "Although we expect to be able to make a decision sometime this year, no decisions have yet been made. "

    I don't think that language is a thesis killer.


    SubjectGreat idea
    Entry05/09/2018 12:20 PM
    Membertugger85

    I absolutely love this idea.  I looked at this last year and thought it was worth ~$20 but passed given a lack of any near-term catalyst.  This really speeds things up.  Great work.


    SubjectRe: Re: Great idea
    Entry05/09/2018 12:45 PM
    Membermajic06

    I'll make it a threesome - I also love this idea and sized it max yesterday/today.  I don't see the point in being cute w/ the 108/1/1/1 structure.

    Loews will steal it at 11, 12, maybe 13 - and will love doing it.  I don't think they will be cute and I think market will keep BWP in the 10 to 10.50 range vs 9.45 now.


    SubjectRe: Re: Re: Great idea
    Entry05/09/2018 01:59 PM
    Memberstraw1023

    majic, bdad, and tugger:

    I think you guys are thinking about it correctly. I am not buying the 1/1/1. . . each day either. Just presented it for completeness.

     

     


    SubjectBarclays Comments
    Entry05/10/2018 02:56 PM
    Memberstraw1023

    https://seekingalpha.com/news/3355382-barclays-questions-loews-tactics-boardwalk-pipeline-tease

     

    Probably just preaching to the choir, but another voice questioning Loews' timing.

    To repeat, it would not surprise me if the Opinion has already been issued and the 90 day (60 Trading Day) clock has already started. And it seems to me that Loews is in a strong legal position to delay the full 90 days, but I do not think they are in a strong legal position to delay the Opinion itself.

    I am not advocating this practice, but I suspect we will see ramp ups in the stock price on each day's close. It is an easy way to squeeze out a few more percent from the situation. And note that Loews cannot do the opposite because they hold less than 51% of the LP units and the cluase only applies if they retain 50% ownership. There are other reasons as well, but the point is that anyone playing this has an incentive to drive up the price on each day's close.


    SubjectRe: Barclays Comments
    Entry05/10/2018 03:21 PM
    Membermajic06

    I promise to buy 100k shares the last minute of every day if everyone else in this thread promises to do the same.  You can trust me!


    SubjectRe: Re: Barclays Comments
    Entry05/10/2018 03:29 PM
    Membertugger85

    Me too


    SubjectNew TAM letter
    Entry05/11/2018 02:09 PM
    Membermajic06

    https://www.businesswire.com/news/home/20180511005285/en/TAM-Capital-Management-Responds-Loews%E2%80%99s-Failure-Address#.WvWPPyoasbM.twitter

    Says Loews responded.  (They didn't have to.) 

    Ultimately, I think Loews *already has* the opinion of counsel & that's why it changed it's 13D.  Yes, they get to profit off of the stock dumping for the next 90 days (65 trading days or whatever) but I agree with straw that this will not be some open ended outcome.  


    SubjectRe: New TAM letter
    Entry05/11/2018 07:48 PM
    Memberstraw1023

    Below is Loews reply (via Bloomberg) to TAM's first letter.

    With respect to TAM's refined argument in second letter:

    1) I think that the argument that Loews should not have 90 day option is weak because explicit in the Agreement.

    2) I think that Tam's argument that Loews has already taken too long from March 15 FERC action to get Opinion is reasonable and could be a winner. This would add some value to my thesis.

    3) And like majic, I think the argument that Loews needs to get Opinion soon (or they already have Opinion) or declare not seeking Opinion is very strong. This is the basis of my original thesis. The two arguments above would be gravy.

    And TAM needs to leave out the bagholder retiree argument. I am not being unsympathetic, but it does not aid the argument and comes across as weak. Moral, emotional arguments never work in these circumstances. Its a Hobbesian, amoral world out there.

     


    SubjectSell December calls against?
    Entry05/17/2018 11:45 AM
    Membermajic06

    I'm probably being cute but I sold December 12 calls against some of the position.  50-60 cent range.

    Given I think it's likely (>75% chance) Loews buys in BWP no later than end of August, what's my risk here?  The odds the average price is >$12 is virtually impossible.  In the event that Loews walks because the biz deteriorates, obviously the call premium I took in will offset some of those losses.  

    Basically, how does this go above $12.50?  Would need Loews to walk out & stock to re-rate higher.  Even if that happens, so?  Very good gross return from here.

    Also get 20 cents in dividends b/w now and Dec opex.   

    From a downside perspective, it's rather self fulfilling absent a business/macro blowup.  Since the stock has caught a bid and is not in a death spiral it's likely that arbs will keep it in this range till Loews exercises it's option which will ultimately get us a price in the mid/high 11's.


    SubjectRe: Sell December calls against?
    Entry05/17/2018 04:54 PM
    Memberstraw1023

    I like the added wrinkle, and I agree that the options are mis-priced given the probable ceiling on the price and likelihood that the time value of the option may be cut short.

     

    And I agree that $12.50 seems like a ceiling. Even if they received Opinion of Counsel shortly after the FERC decision on March 15. Let's say they had Opinion in hand on March 31 (which I increasingly think is likely as I ponder this situation). Then 180 day window average price will be about $12.50. 

    And it would make very little sense for stock to trade above $12.50 with the call right not resolved because the call right strike would end up being lower than the trading price.

    So I agree that $12.50 is a ceiling until this  call right is resolved.

     

    And the scenario where they announce exercise of call right in a month and a half and we see stock jump a dollar and 12 strike calls drop to near zero is likely.


    SubjectRe: Re: Sell December calls against?
    Entry05/17/2018 09:24 PM
    Memberstraw1023

    majic,

     

    I ran the numbers and the 180 day window to today is 12.77. This seems un-realistic. 

    More realistic scenario: If the Opinion was issued on March 31, 2018 and they waited max time, then the window would run from October 2, 2017 to June 15, 2018. Of this window, we already have 158 days with an average of $12.48. If we averaged $11.50 (about where I think this should trade) for the remaining 22 days, the average of the entire 180 window would be $12.36.

    This supports the case that shorting the Dec 12 calls for 55 cents makes sense.

    If one really had guts, one would short at a higher than 1:1 ratio and be naked short some calls.


    SubjectRe: Re: Re: Sell December calls against?
    Entry05/17/2018 10:32 PM
    Membermajic06

    straw

    1) glad you liked the idea of selling covered calls.  i owe you for posting this.

    2) i was too lazy/dumb to actually do the math you just did.  i was just ballparking it.  you'd think i'd have done it before trading but...no.  thank you for doing it for us.

    3) agree w/ all you said EXCEPT using $11.50 as the average for the next 22 days.  seems more like a price target/fair value.  i think the most likely price of the next 22 days is today's closing price, at least for model purposes.  it really doesn't matter as it prob just shaves a few pennies off of your $12.36.  

    You could sell 13's instead but I liked 12's cause of the added downside protection if they screw us (wait months to get Opinion) or they walk (screw us) due to macro reasons etc.  Was more a feel than anything else.  11's seemed like giving away too much.


    SubjectJPM
    Entry05/18/2018 09:51 AM
    Membermajic06

    Out with a note today that L should pay $13 if they want to avoid securities fraud...

    The pressure on them is good.  My guess is if they didn't have the opinion already (and were delaying) they 100% have it by now which means this should all be resolved by August but I'm leaning towards what you think - that they had it in April.


    SubjectRe: JPM
    Entry05/18/2018 11:17 AM
    Memberstraw1023

    majic, below is an excerpt of JPM note that is on twitter.

     

    here is my problem with the line of reasoning that Loews is going to throw BWP owners a bone:

    1) they are greedy, amoral people . . . just like myself and pretty much everyone in this crazy game. I can count on no hands the number of times I have seen a company just be nice like this. In credit markets, in particular, i have seen many a time companies use forgotten and un-read loopholes like this. And everyone gets angry and says the market will never lend to that company again. "Reputation is shot." And then three months later, their new bond/loan issue is 5x over-subscribed. "There's no honor among thieves."

    2) I could see a settlement if this was between two or three parties to an agreement to avoid litigation, but the legal situation changes significantly because this is a publicly traded stock and there is no way to properly "settle" with all shareholders past and present. So if Loews uses a different window than they are required to use, are they admitting some level of manipulation? Can shareholders who sold at $9.25 then sue? They open up a can of worms if they deviate from the Agreement even if to the benefit of existing unitholders. I'd love to here from the lawyers, but I'd bet that most security lawyers would advise against this notion of a "settlement" in this case.

    I do think that Loews can "be nice" and lower the probability of litigation by moving quickly . . . both in getting the Opinion of Counsel and in exercising the call right. And I increasingly think this is what we will see.

     

    (btw, I have no idea why JPM using VWAP rather than closing prices below)

     

     


    SubjectRe: Re: JPM
    Entry05/18/2018 11:50 AM
    Membermajic06

    I like your ratio idea but I sold 13's to top it off and didn't fully cover it there.

     


    SubjectRe: JPM
    Entry05/18/2018 07:24 PM
    Memberele2996

    Loews has shareholders also. Why should management be nice to people who will no longer be associated with Loews to the detriment of continuing Loews holders?


    SubjectRe: Re: JPM
    Entry05/21/2018 10:52 AM
    Membermajic06

    Who said Loews should be *nice* to BWP shareholders?  They simply need to follow the terms of the agreement.  As straw has outlined, the most controversial part is how long it would take them to get an Opinion Of Counsel.  I don't see them putzing around to save $1 or $2 given the size of BWP vs L and how undervalued BWP probably is in general.

    Putzing around = bringing on lawsuits, etc.

    Now that BWP is $11, it makes even less sense for them to delay delay delay.  But why wouldn't they take the full 90 days from the Opinion?  We don't know when the Opinion was/is granted but my guess was almost certainly known by earnings which means we should hear from them mid summer.


    SubjectBandera Partners Letter
    Entry05/21/2018 12:08 PM
    Memberstraw1023

    Similar letter to TAM

     

    https://www.prnewswire.com/news-releases/bandera-partners-issues-public-letter-to-board-of-loews-corporation-regarding-boardwalk-pipeline-partners-300651820.html


    SubjectRe: Bandera Partners Letter
    Entry05/21/2018 05:19 PM
    Memberpunchcardtrader

    Interesting, and great call!

    At the least the public letters are letting the deal reflexivity work.. maybe that is all they're aiming for.

    In the ancient code of Hammurabi, the punishment for false accusations would be punished as if the accuser committed the crime he laid upon the innocent party.

    In this case, that would arguably be fitting, ironically, as the accuser is indeed committing that very same crime.


    SubjectRe: Re: Bandera Partners Letter
    Entry05/21/2018 07:34 PM
    Memberstraw1023

    pct,

    Happy you enjoyed all the recursive-ness inherent in this situation. A game-theorist dream.


    SubjectRe: Re: New TAM letter
    Entry05/25/2018 07:08 AM
    Memberstraw1023

    TAM says they have filed class action lawsuit against Loews. It will be interesting to see if it forces Loews to give up timing of Opinion of Counsel or other timeline information.

    As for getting the full $13+ they are demanding, i remain skeptical.


    SubjectTiming
    Entry05/25/2018 12:00 PM
    Memberstraw1023

    Next week is our first timing milestone.

     

    The FERC decision came on March 15.

    If the Opinion of Counsel happened simultaneously, then they would need to make public the exercise of the call right option next week.

     

    I assume that they would make the announcement after the close of the last trading day of the 180 day window. And if they maxed out 90 day option, this would be at day 77. And today is day 71.

     

    As well, to avoid litigation, they might be inclined to follow this schedule even if the Opinion of Counsel has come later. This would eliminate any charges that they delayed the Opinion of Counsel.

     

    Of course, they may be seeking to maximize the optionality, threat of litigation be damned, and told their attorney to take a long vacation . . .

     

    I am not counting on it, but I would not be surprised if call right is exercised in next few weeks.


    SubjectRe: Timing
    Entry05/25/2018 12:29 PM
    Membermajic06

    Can you elaborate on this?  I don't follow.  If it's after the close of the 180 day window AND they wait 90 days, wouldn't that be day 91?  What do the terms actually say regarding notice and closing?

    "I assume that they would make the announcement after the close of the last trading day of the 180 day window. And if they maxed out 90 day option, this would be at day 77. And today is day 71."


    SubjectRe: Timing
    Entry05/25/2018 01:44 PM
    MemberTheSpiceTrade

    Like majic, I also don't follow your timing. What is the relevance of day 77? Wouldn't it be day 90 (i.e. 90 days after March 15th)?


    SubjectRe: Re: Timing
    Entry05/25/2018 01:51 PM
    Membermajic06

    Oh, I think we're confused cause 180 days = trading days and 90 days = calender days.  So 77th day refers to trading days (90 calender).  

    But I still don't see how we are notified till June 15th at earliest and more likely weeks later as they didn't have Opinion on March 15.  

     


    SubjectRe: Re: Re: Timing
    Entry05/25/2018 03:16 PM
    Memberstraw1023

    Majic, i was not making point about trading versus real day.

     

    My reading of the Agreement is they must close the purchase 90 real days after the Opinion. But they must give 10 real days notice with mailing. And the 180 trading day window ends 3 real days before the 10 day mailing. 90-10-3 = 77 real days. We are on real day number 71 today.

     

    I am about to get on plane, but will take a look at Agreement later to see if my understanding is wrong.

     

    Edit: you need to read 15.1c to understand this timing, and i did not include this in write up.


    SubjectRe: Re: Re: Re: Timing
    Entry05/25/2018 05:18 PM
    Memberstraw1023

    I re-read 15.1.b and 15.1.c, and i am sticking with my interpretation. Note that the Agreement is in the june 18, 2008 8k as exhibit 3.1.

     

    Note that today is day 71 since the ferc action while the key date according to letter of Agreemebt is day 77 since the Opinion. Of course we have no idea if/when Opinion was or will be written.

    Btw, i doubt that they would not give themselves a day or two of leeway and announce a couple days early and not use up exactly 90 days in case some problem with closing.

     


    SubjectRe: Re: Re: Re: Re: Timing
    Entry05/25/2018 06:02 PM
    Membermajic06

    thanks straw for doing that work for us.   would have taken me 2 hours to even find the language.


    SubjectRe: Re: Re: Re: Timing
    Entry06/05/2018 01:40 PM
    Membermajic06

    Straw

    If we assume the Opinion was issued sometime between March 31 and the earnings date of April 30th, gives you a window roughtly of:

    June 17-July 17 for the trading window to end and June 20-July 20 for them to announce, allowing for 10 day notice.  

    If we assume the stock remains at $10.50 indefinitely, what is the range of values in that window?  I know June 17 would be max value and July 17 would be min value and I assume it goes down by a few pennies each day but was wondering if Straw had a spreadsheet handy with the June 17 value or approximate?


    SubjectRe: Re: Re: Re: Re: Timing
    Entry06/05/2018 04:02 PM
    Memberstraw1023

    majic:

    I have that exact spreadsheet. I have cut and paste.

    First column is end of 180 day window

    Second column is implied Opinion of Counsel date (i.e. 77 days before First Column)

    Third column is the average close price assuming $10.50 for all future days.

    Note that I do not expect them to max out full 90 days. Why not give yourself a week extra to close even if it costs you 10 cents per share more. You know that shareholders are going to be watching like a hawk for any breaches of the process.

    5/31/2018 3/15/2018 12.56
    6/1/2018 3/16/2018 12.53
    6/4/2018 3/19/2018 12.51
    6/5/2018 3/20/2018 12.48
    6/6/2018 3/21/2018 12.46
    6/7/2018 3/22/2018 12.43
    6/8/2018 3/23/2018 12.41
    6/11/2018 3/26/2018 12.39
    6/12/2018 3/27/2018 12.36
    6/13/2018 3/28/2018 12.34
    6/14/2018 3/29/2018 12.32
    6/15/2018 3/30/2018 12.29
    6/18/2018 4/2/2018 12.27
    6/19/2018 4/3/2018 12.25
    6/20/2018 4/4/2018 12.22
    6/21/2018 4/5/2018 12.20
    6/22/2018 4/6/2018 12.17
    6/25/2018 4/9/2018 12.15
    6/26/2018 4/10/2018 12.12
    6/27/2018 4/11/2018 12.10
    6/28/2018 4/12/2018 12.07
    6/29/2018 4/13/2018 12.05
    7/2/2018 4/16/2018 12.02
    7/3/2018 4/17/2018 12.00
    7/5/2018 4/19/2018 11.97
    7/6/2018 4/20/2018 11.95
    7/9/2018 4/23/2018 11.93
    7/10/2018 4/24/2018 11.90
    7/11/2018 4/25/2018 11.88
    7/12/2018 4/26/2018 11.86
    7/13/2018 4/27/2018 11.83
    7/16/2018 4/30/2018 11.81
    7/17/2018 5/1/2018 11.79
    7/18/2018 5/2/2018 11.77
    7/19/2018 5/3/2018 11.75
    7/20/2018 5/4/2018 11.73
    7/23/2018 5/7/2018 11.71
    7/24/2018 5/8/2018 11.69
    7/25/2018 5/9/2018 11.67
    7/26/2018 5/10/2018 11.65
    7/27/2018 5/11/2018 11.63
    7/28/2018 5/12/2018 11.60
    7/29/2018 5/13/2018 11.58
    7/30/2018 5/14/2018 11.56
    7/31/2018 5/15/2018 11.54
    8/1/2018 5/16/2018 11.52
    8/2/2018 5/17/2018 11.49
    8/3/2018 5/18/2018 11.47
    8/4/2018 5/19/2018 11.45
    8/5/2018 5/20/2018 11.43
    8/6/2018 5/21/2018 11.41
    8/7/2018 5/22/2018 11.39
    8/8/2018 5/23/2018 11.37
    8/9/2018 5/24/2018 11.35

    SubjectRe: Re: Re: Re: Re: Re: Timing
    Entry06/05/2018 04:45 PM
    Membermajic06

    I figured you did.  Thanks Straw.

    Would seem me that $11.80 to $12.35 is a pretty good indication of where we end up.  Surprised it's trading $10.50 as a result.  Street really think they might delay opinion of counsel for months?   Just makes no sense.  

    Should be closer to 11 I'd think which would also get you a few more pennies in the range ultimately.  


    Subjectdeadline
    Entry06/14/2018 09:28 AM
    Membertugger85

    what's the last day where we can conclude no deal is coming?


    SubjectRe: Re: deadline
    Entry06/14/2018 12:57 PM
    Memberedward965

    Question for Straw on the same topic:

    You mention March 31st a couple of times re potential date for Opinion of Counsel.  Is there anything concrete behind that which you could share?   

    Thanks


    SubjectRe: Re: Re: deadline
    Entry06/14/2018 01:48 PM
    Memberstraw1023

    nothing concrete.

    here is the timeline as we know it:

    March 15 -- FERC order

    March 19 -- BWP press release saying no effect on profit . . . which is still true

    April 30 -- this is when BWP mentioned call right and they were "seriously" considering; and then there was statement about yearend

    When I wrote up the idea, i had assumed they did not yet have Opinion on April 30, but the more I considered it, the more I became swayed that they did have it by April 30.

    I view this in one of three buckets:

    1) they moved diligently to get Opinion shortly after FERC decision -- if so, we should be hearing about exercise any week now. this is the "March 31" scenario.

    2) they stalled a bit but were seeking Opinion by April 30  and so would receive in May -- this was my assumption in writeup . . . and we should be hearing about exercise in July/Aug

    3) they are gaming the "free option" of delaying Opinion . . . and then who knows

     

    Clearly, the last scenario is the vulnerability of the idea (and I discuss this at length in writeup). As I argued in the writeup, I believe they will run into legal problems by indefinitely delaying the Opinion so I suspect that is not what they are doing.

     

    As I have thought about this, I do not think they would make April 30 announcement as they did without having Opinion in hand or at least having sought Opinion.

    But that is the risk of the idea. I would point out that the risk is not huge though as the value slowly bleeds away over time.

     

     

     

     


    SubjectRe: Re: Re: Re: deadline
    Entry06/14/2018 03:26 PM
    Membermajic06

    If you think about it, they can't be seriously considering something if they didn't already have the legal opinion to do so no?  Would seem if that was the case, they'd almost had to have said "seriously considering pending an opinion of counsel that allows..."

    I absolutely agree they had the opinion by April 30.  How could it possibly take more than 6 weeks?  It seems very straightforward and even angered bulls don't think they aren't in their legal rights to exercise the call option.


    SubjectRe: Re: Re: Re: Re: deadline
    Entry06/14/2018 03:51 PM
    Memberstraw1023

    majic,

    you are preaching to the choir . . . 


    SubjectRe: Re: Re: Re: deadline
    Entry06/15/2018 03:37 PM
    Memberedward965

    Straw:  Thank you for the clarification.  I was wondering if I was missing something that made March 31st a specific date.  I got in today…let´s see what happens.

     

    I felt like March 30th was the first realistic date to get an Opinion, assuming 2 weeks is a reasonable turnaround time from the FERC announcement.  So…really the clock starts ticking next Monday for an announcement.  I´m not sure why they would announce early since the closing seems cut and dry but maybe I´m wrong.

     

    What I don´t get is how BWP could take 4 days post FERC decision to determine effect on profit, but they would need much longer than a few weeks to have Counsel do a simple letter?  I feel like the March 19th date could be used in court to show a long delay is unreasonable.  Which as you say is what this  hinges on, that Lowes has a legal or reputational incentive to not bleed minority SHs dry.  Because otherwise they could stretch this way out and save $200M+.

     

    Am guessing the price is down late this week because people were thinking 90 days post the FERC decision would be some deadline and so there is disappointment.  No doubt this stock could bleed a few cents a day until we get closure, and maybe that is shaking weak hands out.   Its like owning an option that decays nearly every day.


    SubjectRe: Re: Language from Loews Conference Call
    Entry06/18/2018 02:08 PM
    Membermajic06

    All very good points.  They gain nothing from the uncertainty except hurt their reputation if they have already came to the conclusion they are not going to take out the minority holders.

    So it's likely they have come to the opposite conclusion and just waiting for the 90 days to exercise.  Bottom line is buying at $9.90 is likely to result in a good entry and the conclusion should happen by mid August but really I'd think by mid July.


    SubjectSettlement near?
    Entry06/25/2018 01:27 PM
    Membermajic06

    Reporting that settlement to TAM's class action lawsuit is coming.

    If you look at TAM's holdings, BWP is a huge part of the fund - and they paid much more than $10.75 for their shares.  I really doubt they would be settling unless we either getting a 12+ takeout shortly OR Loews agreed to walk which I think would result in the stock going to 11-12 anyway.


    SubjectRe: Settlement near?
    Entry06/25/2018 01:42 PM
    Memberstraw1023

    I do not have the court filing so not sure what that tweet is.

     

    if they do settle with class action, then I would think they would be agreeing to stop the rolling window and just buy it at the most recent 180 day window.

     

    there would be no reason to settle if they were walking away.

     

    And I continue to refuse to believe that Loews is going to pay the $13+ demanded by TAM.

     

    my guess is that Loews optionality has run out anyway and so sure, they'll "settle" the lawsuit and exercise the option. I think we are about $12.10 right now on most recent 180 day window. I need to run the numbers exactly, but that is about correct.


    SubjectRe: Re: Settlement near?
    Entry06/25/2018 01:45 PM
    Membermajic06

    Boardwalk Pipeline Nears Settlement on Loews Buyout Lawsuit By Arie Shapira (Bloomberg) -- A settlement in the class action lawsuit brought by TAM Capital Management President Tsemach Mishal and other investors against Boardwalk Pipeline Partners may be near, according to a court filing. In the letter, Delaware Chancery court judge Travis Laster recommended that if counsel concluded that settlement terms fall within "a range of reasonableness and should be approved, then they should" present them to the court Shares of BWP are trading at $10.22 per share, or ~2.7% off of today’s intraday low See May 25 story: Boardwalk Investors Claim Loews Tried to Force Shares Down Case is Mishal, et al. v Boardwalk Pipeline Partners LP, CA No. 2018-0372, Delaware Chancery Court (Wilmington)


    SubjectRe: Re: Re: Settlement near?
    Entry06/25/2018 01:55 PM
    Memberstraw1023

    12.155 is the average of the 180 day trading window ending on Friday, June 22, 2018.

    stock seems very cheap because what is worst case here? TAM agrees to a set optionality window . . . something like Loews agrees to make decision by July 15, 2018 . . . this seems like worst case if there really is a settlement. And then you would know you were going to get bought at about $12 or Loews going to walk. Seems to me like should be trading mid-11's . . . but I am talking my book. 

     


    SubjectRe: Re: Re: Re: Re: Settlement near?
    Entry06/25/2018 02:15 PM
    Memberstraw1023

    bdad,

     

    I think Loews would be idiots to try to buy the company outside the call right. TAM can settle and agree to sell their shrs at, say, $12.50, but that does not obligate all the other holders to follow suit. And then Loews would be giving up its right to buy via call right because the 90 day window would surely have passed. Settlements with some shareholders in publicly traded companies are tricky. I think only real settlement would be closing of Loew's optionality.

    I have never understood the argument that Loews would settle to acquire company at a higher price. Never made sense to me given the particular circumstances here. But I hope I am wrong. Nothing would make me happier (or more money) than these guys getting taken out at $13+.


    SubjectRe: boom...June 29 is cut off day for 180 days
    Entry06/26/2018 07:04 AM
    Memberstraw1023

    From post 57, this is the "settlement" i expected. I do not think it is much of a settlement at all. The only ambiguity in the contract is the timing of the Opinion. So perhaps they "settled" on when the Opinion should have come even of it did not really come on that date.

    I cannot imagine why loews would engage in this process unless they intended to exercise call right. Why limit a future ability to exercise call right, etc.? Not what lawyers do.


    SubjectRe: Re: Re: boom...June 29 is cut off day for 180 days
    Entry06/26/2018 07:57 AM
    Memberstraw1023

    Majic, not sure i understand your question about timing. I think we will know whether exercised or not this weekend. And we now know price is about 12.08. The main risk is now taken care of. The only question now is whether loews wants this for $12.08. I think a no brainer, and their actions suggest to me, it is a done deal. But weirder things have happened!


    SubjectRe: Re: Re: Re: Re: boom...June 29 is cut off day for 180 days
    Entry06/26/2018 08:20 AM
    Memberedward965

    Majic - maybe I´m reading it wrong but I think they can exercise next Tuesday.  Because the exercise notice uses a price based on the 180 day average price immediately prior to the three days prior to the date the notice is mailed.  So...if exercised and mailed Tuesday...then three days prior is M, Sunday, Sat...and the trading price cutoff is the day immediately prior to those three days.

    Of course, they could notify us before...

    And btw it says the lawsuit is settled IF Lowes exercises.  So if they don´t exercise the lawsuit is back on?

     

     

     


    SubjectRe: Re: Re: Re: Re: Re: Re: boom...June 29 is cut off day for 180 days
    Entry06/26/2018 08:40 AM
    Memberedward965

    Majic - I reread and was in the process of editing my post.  I originally was thinking of notification on next Tuesday, with exercise (internally decided) June 29th.  But that´s not right.

    Todays 8-k verbage doesn´t tie well with the Partnership agreement language so its a bit confusing.  But I am am leaning to your 2nd theory - they exercise June 29th with 180 day trading window ending June 25th (not 26th).  Which would be the day immediately prior to three days prior to June 29th.  And also the last (somewhat) unaffected date.  

    I´ll hold off on the high fives till we clear the exercise date..

     

     


    SubjectRe: Re: Re: Re: Re: boom...June 29 is cut off day for 180 days
    Entry06/26/2018 08:53 AM
    Memberstraw1023

    If we do not hear by market open on monday, i'd be nervous.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: boom...June 29 is cut off day for 180 days
    Entry06/26/2018 09:05 AM
    Membermajic06

    And good catch by Edward...

     The Proposed Settlement provides for the settlement of the lawsuit if BPHC elects to cause the General Partner to exercise its call right pursuant to Section 15.1(b) of the Limited Partnership Agreement as provided in the Proposed Settlement. 

    There is no settlement if they don't exercise the call.  


    SubjectRe: dec 12 calls
    Entry06/26/2018 09:53 AM
    Memberstraw1023

    funny. i smacked them at 45 cents. is it possible that option mkt makers do not understand the situation here and are still pricing via standard option vol models? seemed like madness when i saw that bid in size. dec 12 calls are worth about 8 cents if exercised and probably about 70 cents if not exercised (I am assuming sell off but large jump in vol) . . . i'd say these are worth about 12 cents . . . 


    SubjectRe: Re: dec 12 calls
    Entry06/26/2018 09:56 AM
    Membermajic06

    I got 50 and 60 cents this morning... :)

    Another way to play this is July 11/12 spreads.  Even at 70 cents they seem like a great setup.  This thing should be pricing in 90% chance which would be 1 up 9 down.  At 70 cents it's 3 up 7 down or basically 1 up 2 down.


    SubjectRe: Re: Re: dec 12 calls
    Entry06/26/2018 10:03 AM
    Memberstraw1023

    damn you . . . 

     

    i have been trying to get more 11/12 call spread action but cannot get any liquidity this morn.

     

    i bot some aug 11/12 call spread yesterday on the close at 35 cents. market maker on other side cannot be having a good morning. not sure what these MMs are thinking . . . most of these option MMs have desks that focus on these sorts of situations. and the computer guys tend to sense irregular situations quickly and do not provide much liquidity, but this case seems different. option mkts have not seemed to recognize the situation throughout. Their AI algos have not been reading VIC . . . or perhaps they have and appropriately discounted author . . . 

     

     


    SubjectRe: Re: Re: Re: dec 12 calls
    Entry06/26/2018 10:11 AM
    Memberstraw1023

    got some aug 11/12 call spread at 70 cents this morning. this seems like madness too. if this goes thru, worth $1 in 2 weeks. if it does not, it will not lose all value. still worth 10-20 cents.  so mkt saying only a 60% chance Loews exercises call right this week . . . seems quite wrong to me, but at this point, I may have some cognitive bias.


    SubjectRe: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 10:54 AM
    Membermajic06

    The options market was/is just wrong but is correcting.  The Sept 11/12's were even better.  They filled at 65 cents.  If this breaks they prob worth 30-35 cents.  So it was pricing in 1 up 1 down!   Basically the implied Sept 11 put is underpriced and the Sept 12 call is overpriced...feels like those spreads should be 80-85 cents.

    The more I think about this 8k, I just don't see how they don't exercise.  Wouldn't they have put in the 8k that they currently aren't planning on exercising but if they did would do so by June 29th?  What do the have to gain by misleading market for 3-4 days and then walking?  Just more harm to reputation.  Plus we know they want to buy it!  That's why they went through all of this in the first place.

    The current 3% gross spread is way too high.  But the options/spreads are even better than common, assuming a 10 break.

    I got off some Sept 11/12's 1x2s for 34 cents!  Just crazy.


    SubjectK-1 and Taxes
    Entry06/26/2018 01:12 PM
    MemberRulon Gardner

    I don't think anyone has mentioned this.  But I think your tax preprarers are going to hate you guys for this trade come April next year.  


    SubjectRe: K-1 and Taxes
    Entry06/26/2018 01:30 PM
    Memberstraw1023

    This K-1 will be trivial.

     

    Options bot and sold are not MLPs. And if exericised and sold on same day . . . no position in MLP--MLP net positions are reported daily to partnership.

    As for the MLP, trivial. The vast majority of tax attributes will be the ST cap gains (assuming this works). The pass-thru tax attributes will be trivial.

    This K-1 should be rather simple.

     

     

     

     


    SubjectRe: Re: Re: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 02:07 PM
    Memberstraw1023

    I have been out-of-pocket all day and finally had a chance to read the 8-K and 13D closely. Here is my conclusion:

    The following sentence is an error: "In summary, if the Boardwalk general partner elects to exercise its call right no later than June 29, 2018, as described below, all claims relating to the litigation will be released and the litigation ended, subject to court approval."

    I do not think this sentence makes sense within the context of the original Agreement and the new circumstances.

    Remember that the settlement cannot change the terms of the original Agreement. TAM does not have that power. This class has not been properly certified or given opt-out chance. The real purpose of the lawsuit was to force Loews to issue Opinion and not allow rolling 180 day window to keep rolling.

    So it seems to me that the sentence above is confusing the exercise timing with the timing of the 180 day window. Unlike Majic, I do not think the 180 day window has closed. It will close on Friday. And it would not surprise me if they announce immediately at 4:01 pm on Friday that they will be exercising due to the screw-up of the inclusion of the sentence above.

    But it makes no sense for them to place pressure on exercise timing given the language about court approval. I think all they really agreed to was to stop the timing option and agree to not allow the rolling 180 day window to keep rolling indefinitely.


    SubjectRe: Re: K-1 and Taxes
    Entry06/26/2018 02:25 PM
    MemberRulon Gardner

    The options will be fine.  It's the daily pick up of shares that will probably drive the accountants nuts.  If a distribution is received during the time frame, they have to make some manual adjustments to the tax lots.  At least that was my experience.   


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 02:30 PM
    Membermajic06

    There is an error there, it has to be.  Because both can't be true:

    If forced to exercise by June 29th then the June 29th (and 26th, 27th, 28th) prices won't be counted per the terms of the agreement. 

    So something is wrong.  That said, it makes little sense signing an agreement that includes the next 3 days of trading.  Seems rather arbitrary.  I think Edwards is more correct with this thinking:

    Todays 8-k verbage doesn´t tie well with the Partnership agreement language so its a bit confusing.  But I am am leaning to your 2nd theory - they exercise June 29th with 180 day trading window ending June 25th (not 26th).  Which would be the day immediately prior to three days prior to June 29th.  And also the last (somewhat) unaffected date.  

    Seems too concidental that June 29th exercise would just happen to fit with the day before the 8k comes out.

    Regardless, if they don't exercise by Monday pre-market the stock will tank and it will be really bizarre.  Because there is nothing to game at that point unless you wait till Tuesday to get the Friday price included, per Edwards thinking before he saw the June 29th clause in first line.

    Edit:  Put another way, if they announce it at 4:01PM on Friday, how can they legally include Friday, Thursday, Wed, and maybe Tues prices?  That's not what the terms say.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 02:30 PM
    Memberedward965

    Straw - thanks for the read - I´d been chewing on this the last hour because one (or both) of the two statements is clearly wrong.  I just don´t see why it has to be one or the other, why they couldn´t ¨exercise¨(assumed translation:  notify) any day now, taking the proper lookback for the 180 day window.  That would fit within the Partnership agreement.  But the agreement never used the word exercise that I saw so I´ve been confused all day.

    I assume we´ll see the court approval in the next day or two to clear it up, since I doubt the language was as imprecise there.

    Still...that means we´ll hear from today post market close, to Tuesday before market opens if they did the mailing Tuesday.

    Edit: I just saw Majic´s post 45 seconds before mine.  We´ve got the best minds on it and can´t figure it out, but we´ll hear soon enough and so doesn´t matter much.

     


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 02:37 PM
    Membermajic06

    They will absolutely wait till the last possible day.  The only question is if it's Friday or Tuesday (to include Friday's prices).  If they screwed up in the 8k, they will have to correct it.   But it sure says they have to exercise on Friday.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 02:56 PM
    Memberstraw1023

    you are conflating the public announcement with the mailing of notices as described in 15.1.c.

    These are different events. A public announcement as per a press release is meaningless in the Agreement.

    I have always figured they would announce that they intended to exercise call right immediately following the close of the last day of the 180 day period.

     


    SubjectRe: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 03:12 PM
    Membermajic06

    I guess I assume that the 8k is referring to the formal notice not an announcement...a legal notice.  But I really have no idea.  Either way it seems we all agree we hear by Friday after close.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: dec 12 calls
    Entry06/26/2018 03:12 PM
    Memberstraw1023

    "In summary, if the Boardwalk general partner elects to exercise its call right no later than June 29, 2018, as described below, all claims relating to the litigation will be released and the litigation ended, subject to court approval."

    What does "elects to exercise" mean? Does this mean the BoD votes? Does this mean they mail notices as per Section 15.1.c? Or does it mean they publicly declare they intend to exercise?

    The first and third are meaningless events within the context of the Agreement. Only the second has meaning. If it is the second, then I agree the window closed yesterday or today.

    But there is no way Loews would make itself vulnerable to a court delay (except as to the 180 day window) . . . what if the court does not approve settlement before Friday? This is why I think this only applies to locking in the 180 day window and the above line is a mistake. 

    If the 180 day window ends on Friday, I expect them to voluntarily announce intent to acquire (or to not acquire). This is not required by Agreement, but I do think it would be viewed as a good-faith gesture that has virtually no cost to Loews. If they do not announce until they mail notices as per 15.1.c, then I agree Monday will be one long day as no one will have any idea what is going on. I think highly unlikely.

     

     


    Subject"Purchase Date"
    Entry06/28/2018 09:41 AM
    Membermajic06

    I'm not so sure the Purchase Date has to be w/in 90 days of the Opinion.  This whole thing is very confusing.  Yes, they need to exercise the option w/in 90 days of Opinion but does that mean close on it w/in 90 days?  Don't they then have 10-60 days with the mailing?  Edward (and anyone else) what do you think?  I think they have 60 days to close not 10 days.

    (b) Notwithstanding any other provision of this Agreement, if at any time: (i) the General Partner and its Affiliates hold more than 50% of the total Limited Partner Interests of all classes then Outstanding and (ii) the General Partner receives an Opinion of Counsel that the Partnership’s status as an association not taxable as a corporation and not otherwise subject to an entity-level tax for federal, state or local income tax purposes has or will reasonably likely in the future have a material adverse effect on the maximum applicable rate that can be charged to customers by subsidiaries of the Partnership that are regulated interstate natural gas pipelines, then the General Partner shall then have the right, which right it may assign and transfer in whole or in part to the Partnership or any Affiliate of the General Partner, exercisable at its option within 90 days of receipt of such opinion, to purchase all, but not less than all, of all Limited Partner Interests then Outstanding held by Persons other than the General Partner and its Affiliates, at a purchase price for each class of Limited Partner Interests equal to the average of the daily Closing Prices per Limited Partner Interest of such class for the 180 consecutive Trading Days immediately prior to the date three days prior to the date that the notice described in Section 15.1(c) is mailed.

    (c) If the General Partner, any Affiliate of the General Partner or the Partnership elects to exercise the right to purchase Limited Partner Interests granted pursuant to Section 15.1(a) or (b), the General Partner shall deliver to the Transfer Agent notice of such election to purchase (the “Notice of Election to Purchase”) and shall cause the Transfer Agent to mail a copy of such Notice of Election to Purchase to the Record Holders of Limited Partner Interests of such class or classes (as of a Record Date selected by the General Partner) at least 10, but not more than 60, days prior to the Purchase Date. Such Notice of Election to Purchase shall also be published for a period of at least three consecutive days in at least two daily newspapers of general circulation printed in the English language and published in the Borough of Manhattan, New York. The Notice of Election to Purchase shall specify the Purchase Date and the price (determined in accordance with Section 15.1(a) or 15.1(b), as applicable) at which Limited Partner Interests will be purchased and state that the General Partner, its Affiliate or the Partnership, as the case may be, elects to purchase such Limited Partner Interests, upon surrender of Certificates representing such Limited Partner Interests in exchange for payment, at such office or offices of the Transfer Agent as the Transfer Agent may specify, or as may be required by any National Securities Exchange on which such Limited Partner Interests are listed. Any such Notice of Election to Purchase mailed to a Record Holder of Limited Partner Interests at his address as reflected in the records of the Transfer Agent shall be conclusively presumed to have been given regardless of whether the owner receives such notice. On or prior to the Purchase Date, the General Partner, its Affiliate or the Partnership, as the case may be, shall deposit with the Transfer Agent cash in an amount sufficient to pay the aggregate purchase price of all of such Limited Partner Interests to be purchased in accordance with this Section 15.1. If the Notice of Election to Purchase shall have been duly given as aforesaid at least 10 days prior to the Purchase Date, and if on or prior to the Purchase Date the deposit described in the preceding sentence has been made for the benefit of the holders of Limited Partner Interests subject to purchase as provided herein, then from and after the Purchase Date, notwithstanding that any Certificate shall not have been surrendered for purchase, all rights of the holders of such Limited Partner Interests (including any rights pursuant to Articles IV, V, VI, and XII) shall thereupon cease, except the right to receive the purchase price (determined in accordance with Section 15.1(a) or 15.1(b), as applicable) for Limited Partner Interests therefor, without interest, upon surrender to the Transfer Agent of the Certificates representing such Limited Partner Interests, and such Limited Partner Interests shall thereupon be deemed to be transferred to the General Partner, its Affiliate or the Partnership, as the case may be, on the record books of the Transfer Agent and the Partnership, and the General Partner or any Affiliate of the General Partner, or the Partnership, as the case may be, shall be deemed to be the owner of all such Limited Partner Interests from and after the Purchase Date and shall have all rights as the owner of such Limited Partner Interests (including all rights as owner of such Limited Partner Interests pursuant to Articles IV, V, VI and XII).

     


    SubjectRe: "Purchase Date"
    Entry06/28/2018 10:59 AM
    Membermajic06

    Also, fwiw, I got a copy of the court filing and it does not say they have to exercise by June 29th.  That line in the 8k was an error I believe.  I still think they tell us after close tomorrow but I wouldn't at all be shocked if we hear on Tuesday.

    The other bullish part of the official filing is Loews is paying up to $1.8M in legal fees but only if they exercise option.  I just don't see why they would negotiate all these fine points, sign it on Tuesday, and then walk less than a week later making the whole document worthless.  


    SubjectRe: "Purchase Date"
    Entry06/28/2018 11:32 AM
    Memberedward965

    Majic,

    The agreement say they need to give notice 3+1 days post the end of the 180 day trading period.  So we will hear by Tuesday.

    Whether we then get paid 10, or up to 60 days depends on when the legal Opinion was given because the purchase agreement still stands and it’s 90 days to purchase.  Since I think the Opinion was almost certainly given in April, I think we will get paid in close to 10 since time is running out.  But if I’m wrong and Opinion just happened, then yes they can wait 60.  Still...it will be a firm purchase agreement from L so the arb discount starting Tuesday will be very small so who cares.  

    Also, does Lowe’s have an incentive to close fast or slow?  Given the dividend they won’t delay closing past early August I think given their cost of capital.


    SubjectRe: Re: "Purchase Date"
    Entry06/28/2018 11:48 AM
    Membermajic06

    Edward I thought same (re Dividend).  Not sure they could suspend it.   Agree with rest.

    The court date to approve the settlement is September 27th.  It says this:

    "all proceedings in the Action other than proceedings necessary to carry out or enforce the terms and conditions of the Stipulation shall remain stayed and the Court bars and enjoins Plaintiffs"

    Obviously this means they can exercise since that's the condition of the Stipulation.

    Why would Loews make the court schedule a date to approve a settlement that won't happen if they don't exercise the call?

    Basically I think there is as close to 100% chance as can be that Loews exercises and does so by Tuesday.


    SubjectRe: "Purchase Date"
    Entry06/29/2018 06:25 AM
    Memberstraw1023

    Majic, 

    I have wondered for months whether the company would eventually claim that mailing notices was "exercising" and hence that actual closing could be 150 days from Opinion. This has always been a small issue because the key was always the 180 day window and not when we actually get the money. Of course, 2 months aint nothin even with rates where they are. On the flipside, we are only 6 weeks from next distribution and would be very bad form to cancel. The distrubution would cancel the time value of the 2 months.

    My sense is that the agreement is hopelessly ambiguous and in these cases, ambiguity cuts against the drafter. And to my mind, exercise does not really happen until the money has transferred. But is anyone going to have incentive to litigate over a few pennies of time value? No.

    It seems to me like we should hear by monday nite . . . Or is it tuesday nite?


    SubjectRe: Re: "Purchase Date"
    Entry06/29/2018 09:56 AM
    Membermajic06

    I think it's Tuesday night (and really Tuesday morning cause no incentive to wait till Tuesday night) if you go buy Edward's 3+1.

    Note:  The actual agreement says nothing about having to exercise by Friday (today) from what I read.  It is indeed an error in the 8k.


    SubjectRe: Re: "Purchase Date"
    Entry06/29/2018 10:05 AM
    Memberstraw1023

    One thing to note here is that if they do "exercise" by sending notice, this action should have no contingencies or ways out . . . including the standard MAE/MAC language. So at that point, that price should have weight of Loews 1-2 month unsecured credit, which is not much different from Treasuries. So I'd expect deal spread to be tight and for stock to trade right around $12.

    I certainly think that "exercise" in Agreement cannot be satisfied by signing a standard M&A Agreement with contingency language. This seems like it would be easy to argue and win, and I am guessing TAM would do this.

    So, if I am correct, I expect deal spread of about 50bps assuming they give themselves full 2 months and they do not pay the dime distribution in 6 weeks.

    All this analysis is quibbling over pennies (about 6 of them), and is putting the cart before the horse. We still need Loews to announce intent to exercise. I think probability is high, but we shall see.

    Fwiw, if stock closes today at 11.70, the 180 day average will be 12.0563


    SubjectRe: Re: Re: "Purchase Date"
    Entry06/29/2018 10:14 AM
    Membermajic06

    If Loews doesn't exercise after filing a 20 page settlement that's contingent on exercising w/in 7 days of the settlement then we should all be in index funds.


    SubjectRe: Re: Re: Re: "Purchase Date"
    Entry06/29/2018 10:27 AM
    MemberTheSpiceTrade

    Well said. 


    SubjectRe: boom again
    Entry06/29/2018 05:29 PM
    Memberedward965

    Yup Wow!

    btw notice they got Opinion of Counsel TODAY.  Wow, this could have been a disaster without the class action suit forcing the date.  I was completely wrong there.

    And I was wondering why there seemed to be limitless liquidity for the July 11 calls at 15 cents last week.  Wonder if we got lucky on this one.


    SubjectRe: Re: boom again
    Entry06/29/2018 05:32 PM
    Membermajic06

    I WAS JUST GOING TO POST THAT EDWARD.   Man we would have been really screwed.  That is wild.

    I'm not sure if we got lucky...they prob knew there was no reason to have the opinion if they always knew they were going to settle?   Haha I don't care this one feels sweet.  And I made it really big post Tuesday so the only "luck" would have been pre Tuesdays gains ;)


    SubjectRe: Re: Re: boom again
    Entry06/29/2018 06:39 PM
    Memberstraw1023

    Great result. Congrats to all who played along.

    I am still out of pocket so just getting news. I have not confirmed date of Opinion, but if true, fascinating. It seems obvious in retrospect not to issue Opinion as could always pretend Opinion issued at reasonable time by cutting off window of 180 days if forced. Max out flexibility. Some very amoral, lawyerly play by loews.

    So it means that we must thank TAM for forcing the issue. I did not realize how important that lawsuit would be to this process. I knew that the reasonableness of the timing of the Opinion would be huge, but I did not appreciate what it would take to force Loews to be reasonable.

    So give TAM a big 'thank you' if you know them.


    SubjectRe: Re: Re: Re: boom again
    Entry06/29/2018 06:41 PM
    Memberstraw1023

    And although they deserve no thanks, i appreciate that loews issued PR immediately so that i could enjoy weekend! 


    SubjectRe: Re: Re: Re: boom again
    Entry07/02/2018 08:08 AM
    Memberedward965

    Straw - forgot to give thanks and congratulations.  

    Like Majic implied, I suppose this site ebbs and flows as far as interesting info, and this one was one of the most interesting threads since the late 2000s for me personally.  Felt like getting the band back together with Majic on here.


    SubjectNice work
    Entry07/02/2018 02:19 PM
    Membertugger85

    Nice job straw, one of the best ideas I've seen throughout my career.


    SubjectOCC Memos on Option Contract Adjustments
    Entry07/13/2018 08:12 AM
    Memberstraw1023

    Follow-Up Note:

     

    OCC just posted the Adjustment Memos for BWP options.

    https://www.theocc.com/webapps/infomemos

    The basics are that they will become cash settled options (rather than stock settled) on July 18.

    And all options will expire on Aug 17 (except July options). Of course, all ITM options should be exercised on July 18. 

     


    SubjectRe: OCC Memos on Option Contract Adjustments
    Entry07/13/2018 09:42 AM
    Membermajic06

    Most brokers will auto-exercise I believe so not necessary to manually exercise on July 18 but you should ask your broker.  If they don't settle till Aug 17 might cause you to pay a large margin bill!

    https://www.theocc.com/webapps/infomemos?number=43355&date=201807&lastModifiedDate=07%2F12%2F2018+16%3A03%3A26

    "Additionally, the exercise by exception (ex by ex) threshold for expiring series will be $.01 in all account types."

    "The term exercise by exception refers to the automatic exercise of in-the-money options at expiration. The Options Clearing Corporation (OCC) institutes exercise by exception unless explicit instructions prohibit exercising the option."

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