HMHC June 22.5 calls will 10-20x by next Friday via /r/wallstreetbets #stocks #wallstreetbets #investing


HMHC June 22.5 calls will 10-20x by next Friday

So, you want alpha, anon? Well, let me spoon feed you it.

TLDR: HMHC June 22.5 calls will 10 – 20x and HMHC stock will +15% by next Friday (May, Sept, Jan calls will print too). Run the math yourself: https://www.optionsprofitcalculator.com/calculator/long-call.html

Veritas has offered to buy HMHC at $21/share. Multiple prominent shareholders have stated publicly that they will be declining this low-bid offer but would be open at a fairer price ($25-$28). The deadline to decide all this is April 6. Once the shareholders decline this low-bid offer on April 6, Veritas will need to raise the offer +15% to win this asset, and still earn a monster 28% – 37% internal rate of return for their LPs (world class returns for private equity). This will send the June $22.5 calls up 10 to 20x instantly.

Here’s why the buyout will not go through at this low price:

Every shareholder who wanted to sell for $21 has already sold their shares for $21, as the stock has been trading at $21 for over a month now… They have had since February 22 to do so. (Math: 4M average daily volume * 28 trading days since shares went to $21/share = 112M shares traded. There are 127M shares outstanding). Importantly, this means that the shareholders that remain in the stock are not interested in “voting” for this sale to Veritas for $21, unless the price is increased to a fairer price ($25 to $28+). This is not being reflected in the prices of the options = alpha to be had.

According to Computershare: by March 29, two days before the original April 1 deadline, only 0.6% of shares were tendered in support of selling at this low price, before Veritas extended that deadline one week. Source: https://www.businesswire.com/news/home/20220329005578/en/Expiration-Date-of-Tender-Offer-for-Houghton-Mifflin-Harcourt-Extended-to-April-6-2022

99.4% of shareholders refused to give up their shares at $21 which means a significant premium above $21 is needed for an acquirer win this asset, not for a measly 10% or 15%. Not yet reflected in the price = alpha.

Here’s why it’s in Veritas best interests to increase the bid +20% to win this asset:

Veritas owns Cambium another leading EdTech business which would be a highly complementary asset to HMHC. They can be merged to realize synergies worth billions of dollars.

Veritas managers are highly intelligent and would not say no to doing a deal at a 31% internal rate of return, just because they could not get the deal done at a 38% internal rate of return.

Even if Veritas does not increase the bid, the market is determining the fair price of this asset. A rejected buyout offer demonstrates that $21 is too low a price, and the shares will likely rally regardless.

Disclaimer: none of this is financial advice

Position^

Submitted April 03, 2022 at 03:41AM by a1000p
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