I'm long Betterware warrants ($BWMXF). This might be the most attractive special situation I've seen in years. Let's take a look why...

(full disclosure: I did NOT originate this idea, so don't at me. We are all learning from each other in this game)

THREAD

$BWMX is a recently listed SPAC, essentially the Tupperware of Mexico. Yes, its an MLM, and yes, its a D2C biz that relies largely on catalogs

Don't disengage yet. It's growing at 80%+ topline despite COVID:

It's also owned 87% by the founding family who merged the biz into the SPAC; as far as I know they haven't sold a share - insider alignment

The SPAC itself was created by Martin Werner - a pretty heavy hitter south of the Rio Grande:

Here's where it gets interesting. Ref $14, the stock is very cheap for a biz seeing exploding topline (7x EV/EBITDA, 11-12x P/E) - but most importantly they just moved to a NET CASH position and declared a chunky quarterly div (~44c/qtr or ~$1.72/yr annualized)

Why is this important, you ask?

Well the $BWMX warrants are NOT ordinary SPAC warrants. Yes they are 5yr (Mar 2025) and struck at $11.5, but they also include DIVIDEND PROTECTION for any div paid north of 50c annually. Take a look at the docs:

OK, so a $1.7/yr annualized div - the current run rate, it could well go higher given earnings trajectory - implies the strike on the option declines by $1.2 a year, ceteris paribus.

So our $11.5 strike warrant becomes a $10.3 strike a yr from today, etc. Interested yet?

Today you can buy the warrants ($BWXMF) at $2.75, and $BWXM stock is at $14. In other words even assuming NO warrant strike adjustment, you're paying barely anything (25c) for the 5yr time value of the option...

Which if you look at Black-Scholes, you'll realize is a TOTALLY crazy price. This warrant is worth more like $6.2 today - EXCLUDING the value of the div adjustment on the strike (which is clearly huge):

Keep in mind that there are 5mm warrants out vs 34+ mm shares - in other words the potential warrant dilution is meaningful, and the majority owners - the Campos family - will thus want to take them out ASAP to avoid this huge value accretion over time thru the div adjustment

This means of course a tender is quite likely, in the near term (ie before too many more divs get declared to make it obvious what is going on). Of course the price cannot be too low (less than intrinsic) and needs to be negotiated (they need >50% of holders to tender)

In the meantime I think the stock keeps going up. Not making a call on the business longer-term but MLM's tend to burn out, not implode. And the fact they're paying big divs means its probably not a straight fraud (also the biz has quite a long history in Mexico)

But there are no guarantees, and this is why the warrants make FAR MORE SENSE than the common. Its still Mexico, its still an MLM, its still a SPAC - you don't know who is behind everything. Risking a few bucks in the warrants vs owning the common seems far more sensible here

How does it all play out? Probably a tender in the next quarter or two, ideally at a level that makes sense for both parties (company and us as holders). I would guess $4+ vs stock at $14, obvi if stock keeps marching higher then the co needs to pay up.

As always - DYODD.

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