December 22, 2017 - 11:11am EST by
2017 2018
Price: 12.04 EPS 0 0
Shares Out. (in M): 41 P/E 0 0
Market Cap (in $M): 500 P/FCF 0 0
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT 0 0

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NEWS announced yesterday: 

BOSTON, Dec. 21, 2017 (GLOBE NEWSWIRE) — NewStar Financial, Inc. (NASDAQ:NEWS) (“NewStar”) announced today that its stockholders have approved the acquisition of NewStar by First Eagle Investment Management and NewStar’s related sale of a portfolio of investment assets to a newly formed investment fund sponsored by GSO Capital Partners LP. NewStar expects the transactions to close on December 22, 2017, subject to satisfaction or waiver of remaining closing conditions.

If the transaction closes today (as NEWS "expects"), shareholders get $11.44 per NEWS share in cash by First Eagle and a CVR of $1.00 per NEWS share, 30% of which will be paid in 2018, probably 4q, and rest between 2019-2021. The preceding is my reading of the proxy, which says that if the deal does not close in 2017, the CVR is likely worthless because of the "Tax Bill". 

The IRR is 40% at $12.04 if they are right.

I believe the announcement above suggests the deal closing is almost certain (~95%), in which case you get at least $11.44.

So downside, I assert, is $11.44 per share. Before the First Eagle acquisition announcement last Oct, NEWS traded at an $11.16 vwap (3 month trailing).*

Whether it closes today is less certain, but probably above 80% (given the deal complexity, I do not believe they would say they expect deal to close today if there was a 1/5 chance it would not) and below 100%--say 90%, a 1 in 10 chance they are wrong. 

90% chance of closing today implies CVR worth: $0.90 in future value. 

Market assuming a 61% probability (CVR trading at $0.61) of closing today seems way too low. 

*NEW YORK and BOSTON Oct. 17, 2017 – First Eagle Investment Management (“First Eagle”) and NewStar Financial Inc. (Nasdaq:NEWS) ("NewStar”) announced today that they have entered into a definitive agreement for First Eagle to acquire NewStar, an established lender and investment manager specializing in direct lending to middle-market companies and management of broadly syndicated loans. NewStar stockholders are expected to receive total consideration estimated at $12.32 to $12.44 per share, which represents a premium of 10.4% to 11.5% over NewStar’s 3-month volume weighted average price of $11.16 as of October 16, 2017,

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.


deal closing today

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