If you thought the short squeeze of Beyond Meat stock - which sent BYND over $200 per share - was insane, you haven't seen anything yet. Here comes an "infinity short squeeze" on Revlon stock. Revlon's Entire Float is Sold Short Ronald Perelman has amassed…
If you thought the short squeeze of Beyond Meat stock – which sent BYND over $200 per share – was insane, you haven’t seen anything yet.
Here comes an “infinity short squeeze” on Revlon stock.
Ronald Perelman has amassed an 87% ownership stake in Revlon, and his daughter is the CEO. Revlon has been struggling, and bears have been shorting the stock.
Because Perelman has brought up most of the float, that means almost all of the remaining 2.3 million share float has been sold short.
The worst-case scenario for short-sellers is if the price should suddenly spike. Normally, we have no idea when or why that would happen.
That doesn’t guarantee a buyer will appear and take the company out at a premium, which would trigger short-covering.
Except that Ronald Perelman has done this before, and it’s why Revlon stock could experience a massive short squeeze.
In the case of Revlon, we do. Perelman has put Revlon up for sale, and he is meeting with bidders this week.
Mittelman Brothers, a hedge fund, owns about 5% compared to Perelman’s 87%. Mittelman believes Revlon is worth $90 per share over the long term. They have been fighting with Ronald Perelman because they don’t want him to take Revlon private for less than its true value.
Nor will Ronald Perelman let Revlon get taken out for less than it’s worth. As far as REV is concerned, he’s bigger than even the biggest bitcoin whale.
The closest competitor is Coty Inc, which trades at about 0.79x TTM revenues.
That would be equivalent to $35 per share for Revlon, which currently trades at $16.44.
When a buyout gets announced, short-sellers will be forced to deliver shares they’ve borrowed, buying them in a market when there are virtually no shares available.
With demand vastly exceeding supply, the price of Revlon stock could skyrocket beyond the buyout price.
Meanwhile, Ronald Perelman will be happy to sell some of his massive holdings to those desperate short-sellers at whatever price the market demands at the time. He’ll sell the rest at the buyout price.
The most likely buyer would be Mittelman. If they truly believe the company is worth $90 over the long term, then buying the rest at $35 or so is a long-term bargain.
But why would Mittelman even bid that high?
Because Ronald Perelman has an ace up his sleeve.
If Perelman doesn’t get a buyout price he likes from Mittelman or anyone else, he can buy up another 3% of Revlon stock, even at a premium to market price in a private transaction, taking his ownership position to 90%.
That triggers a little-known clause in Delaware law that allows 90% owners to undertake a “short-form merger.” That means he can buy the remaining 10% of shares without a shareholder vote, at any price that is “fair.”
What is “fair?” He’ll make the case that it’s the lowest offer from any third-party.
Ed Butowsky, Managing Partner at Chapwood Capital Investment Management, tells CCN:
“That price would likely be too low to be tolerable to Mittelman, which would either take a loss on its position, or fight the price in court. A fight will take both time and money, with no guarantee of a positive outcome. It’s a brilliant move by Ron Perelman.”
That’s why Mittleman would be more likely to grudgingly take over the company at a higher price then they would desire.
And that triggers the infinity short squeeze that will make bitcoin’s recent surge look tiny.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.