Just over three months ago, I wrote about Iron Bridge Resources (IBR – Canada) and noted that with a hostile bid in place at 75 cents, you could buy it at 74 cents and have a situation with minimal downside and quite a lot of upside—especially as my good friend, Josh Young, was calling the shots. My theory was that either; another buyer would show up; Velvet Energy would increase the price of their hostile offer or Josh would go it alone and raise additional capital to increase production. In all cases, there was minimal downside due to the hostile bid that validated the asset value.
After three months of entertaining “white knight” offers, Iron Bridge determined that a sweetened all-cash offer from Velvet was superior to various other offers that were predominately equity based. With a take-out price of 84.5 cents, this represents a 14% return in three months, during a time when most comparable junior energy companies declined dramatically.
While I was hopeful that Iron Bridge could get an offer north of a dollar, this still works out to a very strong annualized return—especially as the risk level was inordinately low.
I intend to tender my shares and will likely deploy the cash proceeds into additional offshore drilling assets (they’ve sold off somewhat lately).
For those of you playing along at home, Josh tells me he recently bought 19% of Journey Energy (JOY – Canada). I have no position, but he has the hot hand today. Caveat Emptor.
Disclosure: Funds that I manage are long shares of Iron Bridge