GREYSTONE LOGISTICS INC GLGI
June 28, 2013 - 8:26pm EST by
chewy
2013 2014
Price: 0.45 EPS $0.00 $0.00
Shares Out. (in M): 26 P/E 0.0x 0.0x
Market Cap (in $M): 12 P/FCF 0.0x 0.0x
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 12 TEV/EBIT 0.0x 0.0x

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  • Reverse split
  • Arbitrage
  • Delisting
  • Insider Ownership
 

Description

Greystone Logistics (ticker: GLGI) announced on June 18th that they will be holding a special meeting of shareholders on August 2nd to approve an amendment to the Company's certificate of incorporation to effect a reverse stock split of its common stock at a ratio of 1-for-10,000 shares. The rationale behind the reverse stock split is to reduce the number of record holders of their common stock to fewer than 300, so that they will be eligible to terminate the public registration of their common stock and eliminate the costs of public filings. Under this reverse stock split, any shareholder owning fewer than 10,000 shares of GLGI will be cashed out at a price of $0.50/sh, which, as of today’s closing price of $0.45, would generate a gross return of 11% in 42 days, for an IRR% of 150%. Given the small dollar amount of the transaction, this idea is strictly for PAs.

The proxy can be found here:

http://www.sec.gov/Archives/edgar/data/1088413/000107261313000287/pre14a_17525.htm

 

Back of the Envelope:

 

Share Price (06/28/13)

$0.45

Cash to be Received

$0.50

Spread

$0.05

Gross %

11%

IRR %

150%

 

Key Dates:

(1)    Announcement of reverse stock split – June 18th

(2)    Effective date for voting rights – July 1st

(3)    Special Meeting of Shareholders – August 2nd

(4)    Estimated Distribution Date – August 9th

Other Notes:

(1)    Insider’s effectively own 47.5% of the company (through preferred and common shares), giving confidence that the deal will go through.

(2)    Simple majority needed to approve the transaction.

(3)    Why leave $450 on the table?

In summary, we believe that you can buy $4,550 worth of GLGI stock and receive $5,000 of cash around August 9th, with very little risk of the deal breaking given the large insider ownership.

I do not hold a position of employment, directorship, or consultancy with the issuer.
Neither I nor others I advise hold a material investment in the issuer's securities.

Catalyst

 
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    Description

    Greystone Logistics (ticker: GLGI) announced on June 18th that they will be holding a special meeting of shareholders on August 2nd to approve an amendment to the Company's certificate of incorporation to effect a reverse stock split of its common stock at a ratio of 1-for-10,000 shares. The rationale behind the reverse stock split is to reduce the number of record holders of their common stock to fewer than 300, so that they will be eligible to terminate the public registration of their common stock and eliminate the costs of public filings. Under this reverse stock split, any shareholder owning fewer than 10,000 shares of GLGI will be cashed out at a price of $0.50/sh, which, as of today’s closing price of $0.45, would generate a gross return of 11% in 42 days, for an IRR% of 150%. Given the small dollar amount of the transaction, this idea is strictly for PAs.

    The proxy can be found here:

    http://www.sec.gov/Archives/edgar/data/1088413/000107261313000287/pre14a_17525.htm

     

    Back of the Envelope:

     

    Share Price (06/28/13)

    $0.45

    Cash to be Received

    $0.50

    Spread

    $0.05

    Gross %

    11%

    IRR %

    150%

     

    Key Dates:

    (1)    Announcement of reverse stock split – June 18th

    (2)    Effective date for voting rights – July 1st

    (3)    Special Meeting of Shareholders – August 2nd

    (4)    Estimated Distribution Date – August 9th

    Other Notes:

    (1)    Insider’s effectively own 47.5% of the company (through preferred and common shares), giving confidence that the deal will go through.

    (2)    Simple majority needed to approve the transaction.

    (3)    Why leave $450 on the table?

    In summary, we believe that you can buy $4,550 worth of GLGI stock and receive $5,000 of cash around August 9th, with very little risk of the deal breaking given the large insider ownership.

    I do not hold a position of employment, directorship, or consultancy with the issuer.
    Neither I nor others I advise hold a material investment in the issuer's securities.

    Catalyst

     

    Messages


    Subjectreally?
    Entry06/30/2013 11:03 AM
    MemberRay Palmer
    I've been a huge proponent of sharing these types of situations more. That said, sharing this situation this publicly is probably the worst idea I've ever seen on VIC.
     
    This isn't a closed end fund where a couple of extra investors arbing the odd lot results in them selling a few extra shares of Apple and IBM. ANd this isn't a huge company with millions in cash where a couple of extra arbs is a complete rounding error.
     
    Greystone is a microcap with less than $400k in cash on the balance sheet, a negative working capital balance, and negative equity- not to mention abotu $5m in debt that's due by March 2014. Concerns about the liquidity of the stock itself aside, Greystone simply doesn't have the cash to support extra arbs.
     
    Consider this: the company is anticipating roughly $230k in payments to shareholders for cash outs. If this post inspires even 25 extra arbs, that's $125k in payments. Throw in the fees to complete the reverse split and we've now taken up ALL of the cash the company has.
     
    So if literally a couple of extra people arb this because of you, you've put the company in a bind. They can cancel the reverse split and thus have to continue bearing the onerous costs of being public. Or they could take on extra debt simply to cash out some arbs. I don't think getting the money would be a problem- the CEO has shown a willingnes to lend the company money- but I do think there's a problem with this. The extra debt would place an already highly levered company a few inches closer to financial distress. 
     
    Either way, this arb is NOT a sure thing. And posting it on here makes it even less so. 
     
    Again, I love the thought process about sharing more of these ideas. But when it jeopardizes both the arb and the potential future of the company, publishing it this widely just doesn't make sense.
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