Monday 20 May 2019

Bristow Group: Activist Investor Is Not Giving Up On The Stock


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Bristow Group Inc. (BRS) (BRSWQ) filed for Chapter 11 bankruptcy last week and management's complete inaction to appeal caused the stock to be immediately de-listed from the NYSE. Playing a bankrupt stock is a risky game, though it can be profitable if you pick the right one. Stocks like Sears Holdings Corporation (SHLDQ) and Aceto Corporation (ACETQ) have seen significant bounces from their lows, if only temporary, while Synergy Pharmaceuticals Inc. (SGYPQ) has sunk to less than a penny with no bounce of note since getting kicked to the OTC.

Bristow has already seen a nice lift, doubling from its low. Institutions are giving up on the stock while retail day traders betting on a gap fill to 27 cents and shorts covering their positions likely form most of the buy side. One particularly vocal activist investor, Global Value Investment Corp, has released an open letter to Bristow and has nominated four directors to replace the existing BOD. I received confirmation from GVIC's CEO Jeff Geygan that GVIC continues to advocate for equity holders:

This is important because even though Bristow is in Chapter 11 proceedings, a stock is worth exactly how much someone is willing to pay for it. It appears that GVIC remains passionately involved in the story and will be vocal if/when an Equity Committee is formed. GVIC claims to be the beneficial owner of 245,940 shares of Bristow’s common stock. Even though the firm paid a lot for those shares, right now this position has a market value of only $27,000. I believe that it is likely that GVIC will purchase a larger stake to make this effort more worthwhile, to significantly lower its average cost as well as to secure more votes for its slate of Board of Directors should a vote ever take place.

I encourage any retail shareholders who continue to hold through this process to vote in favor of any motion brought forth by GVIC, including the new slate of Board members, because it is obvious that management is very willing to throw shareholders under the bus. This action can be a self-fulfilling prophecy. The more people who back GVIC, the stronger its position gets and the more likely that the stock spikes on rumors of a recovery for shareholders. Sometimes it's more about the noise than reality.

Bristow's 10/15/2022 unsecured notes trade at around 20-25% of par value right now. That should give an indication that the market does not see much hope for full recovery on this set of bonds. And equity generally doesn't get anything until bonds are fully repaid (there have been exceptions to this where equity gets a small stake or warrants in the newly restructured company). So Bristow equity is risky. There is also a chance that GVIC could focus on buying these bonds instead, given that they have a greater chance of partial to full recovery when compared to the stock.

Disclosure: I am long Bristow on a speculative short term trade. I intend to sell some or all of my position in the near term, though I may hold some of my position for a longer period of time.

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