academy · special situations
Academy
How do these situations work?
Operating mechanics, legal asymmetry and the catalogue of the 10 families Sonsolodatos analyses.
Financial foundation
The principle of legal asymmetry: prices that converge by contract
Most stock-market investors operate under directional uncertainty: they buy a share expecting it to rise because the business improves or the market turns optimistic. If the cycle deteriorates, the price falls with nobody guaranteeing a floor.
In special situations, the return depends neither on analysts' opinions nor on the index's direction. There is a legal catalyst (a binding merger agreement, a liquidation with audited cash, a separation or a delisting tender offer) that pushes the market price to converge on a fixed value by a given date.
1. Primary official filing
We do not start from press rumours or leaks. A situation enters the catalogue when its official document is on file with the regulator (SEC Form 8-K Item 1.01, SEDAR+, CNMV), and we link it.
2. Statutory critical path
The file moves through mandatory procedural milestones (HSR antitrust waiting period, DEFM14A proxy, sector approvals, shareholder meeting or tender acceptance period). Each milestone passed reduces the risk that remains.
3. Closing and payment
The deal completes and the paying agent pays the consideration set in the contract. Only then does the spread become a realised return.
The 10 families of the catalogue
Each family has its own mechanics, decision metrics and official documents.
01
M&A
Cash acquisitions, mixed exchanges and binding corporate tender offers agreed with a settlement date fixed by contract.
- Mechanics
- The agreed price and the timetable of statutory approvals create a trading gap (spread) that disappears when the funds are transferred.
- Decision metrics
- Gross spread, annualised IRR, downside to the unaffected price (P_T-1), implied probability and upside/downside ratio.
- Official documents
- SEC Form 8-K (Item 1.01), DEFM14A, Schedule TO, Schedule 14D-9 | SEDAR+ Circular | CNMV / BaFin prospectuses.
02
Spin-offs
Pro-rata distribution of shares in independent subsidiaries to the shareholders of the parent company.
- Mechanics
- Institutional investment mandates force many funds to sell the shares they receive in the spun-off subsidiary immediately, creating extreme price distortions and transitory inefficiencies.
- Decision metrics
- Relative parent/subsidiary market capitalisation, float turnover, institutional capitulation ratio and post-debut fundamental discount.
- Official documents
- SEC Form 10-12B, Form 8-K, Form 51-102F3 (Canada) | Listing prospectuses.
03
Liquidations
Orderly sale of corporate assets, wind-down of operations and distribution of the remaining cash (Net-Net Cash).
- Mechanics
- The company approves a Plan of Dissolution and makes periodic cash distributions to shareholders of record as receivables are collected and liabilities are settled.
- Decision metrics
- Audited net liquidation NAV, discount to liquidation value, litigation reserve and tranche schedule.
- Official documents
- SEC Form 8-K (Plan of Dissolution), Proxy Statement PREM14A, periodic Liquidator reports.
04
Odd-lots
Voluntary repurchase offers (tender offers) relying on SEC Rule 13e-4(f)(3)(ii), which grant a full proration exemption to holders of fewer than 100 shares.
- Mechanics
- The company seeks to eliminate the high administrative cost of carrying ultra-small shareholders by buying back 100% of their position with absolute priority. The arbitrageur exploits this preferential treatment with canonical 99-share lots, rigorously auditing the 5 forensic traps (holding date, SEC Rule 14e-4 net long position, Tender All clause, broker fee friction and auction type).
- Decision metrics
- Net monetary spread ($) and percentage spread (%), fixed-fee Fee Drag (%) and annualised IRR (XIRR); on the card, the DRI (Deal Reliability Index).
- Official documents
- SEC Schedule TO-I / SC TO-I (Offer to Purchase), SEDAR+ Circular, ASX Rules. (Note: prohibited in Spain/EU under Directive 2004/25/EC and Spanish Companies Act (LSC) art. 97).
05
Post-bankruptcy and restructurings
Exits from insolvency proceedings (Chapter 11), mass cancellation of unpayable debt through forced debt-for-equity swaps, and exploitation of the mandate mismatch.
- Mechanics
- Court approval of the Plan (§ 1129) and issuance of new shares exempt from registration under Section 1145. Debt funds convert their claims but are required by their mandates to sell the equity they receive, creating forced dumping that depresses the share price to 1.5x-2.5x EV/EBITDA multiples before assets are revalued under Fresh-Start accounting (ASC 852). The trade requires protection against the 5 forensic traps (Reorg Value not guaranteed, hidden dilution from the MIP and warrants, a prolonged overhang, OTC purgatory and persistent industrial insolvency, 'Chapter 22').
- Decision metrics
- Diluted Implied Reorg Price ($), Spot Discount to Diluted Reorg Value (%), Post-Emergence Net Cash and Spot EV/EBITDA Multiple; on the card, the DRI (Deal Reliability Index).
- Official documents
- SEC Form 8-K Item 2.01 (Emergence from Chapter 11 / Completion of Plan), expert valuation Disclosure Statement, Court Confirmation Order (§ 1129 Docket).
06
Rights offerings
Cash issuance of new ordinary shares with pre-emptive subscription rights that can be traded on the secondary market (Spanish Companies Act arts. 304-308, UK Sec. 561, SEC Form S-1/S-3).
- Mechanics
- Inelastic behaviour and retail capitulation (retail rights dumping) cause the effective subscription cost to trade at a substantial discount to the TERP and to the physical share. The arbitrageur locks in the spread by short-selling the shares with secured borrow until physical delivery at T+21. It requires a rigorous audit of the 5 forensic traps (the fallacy of arbitrage without borrow / HTB, soft underwriting with a MAC clause, expiry through the broker cutoff, a collapse on physical delivery and Rump placement at T+21, and the mandatory 19% taxation of rights sales in Spain under the 2017 reform).
- Decision metrics
- Arbitrage spread vs ex-spot, effective subscription cost (€/$), TERP, theoretical value of the right (VD), compound IRR (XIRR, only with a formal date) and RAAS (P·Spread − (1−P)·Downside).
- Official documents
- Issue prospectuses and securities notes approved by the CNMV (verDoc), SEC Form S-1 / S-3, FCA Prospectus, inside information notices (Hechos Relevantes / OIR).
07
Issuer self-tenders and Dutch auctions
Dutch-auction buyback tenders and corporate programmes for the accelerated delivery of shares through investment banks.
- Mechanics
- The company commits cash to retire a significant percentage of its share capital from the market within a predetermined price range.
- Decision metrics
- Auction price range, net share reduction (EPS accretion), premium over market and percentage absorbed.
- Official documents
- SEC Schedule TO-I, Form 8-K Item 8.01.
08
Uplistings
Migration of securities from secondary markets (OTC) to main exchanges (NASDAQ or NYSE), or selective delistings.
- Mechanics
- Admission to a major exchange lets institutional investors and index funds add the stock to their portfolios, unleashing mandate-driven buying flows.
- Decision metrics
- Increase in institutional coverage, effective float, minimum capitalisation requirements and a prior reverse split.
- Official documents
- SEC Form 8-A12B, Form 25 (Delisting).
09
Holdings / SOTP / Stubs
Structural discount between a holding company's market capitalisation and the net market value of its listed subsidiaries.
- Mechanics
- Combined positions, long the holding company and short the subsidiaries, to capture the convergence of the discount when corporate-simplification catalysts appear.
- Decision metrics
- Calculated net NAV, historical evolution of the holding discount, central structure costs and parent-level leverage.
- Official documents
- SEC 10-Q / 10-K quarterly reports, significant shareholding notifications.
10
Governance and control
Shareholder activism campaigns, proxy fights, governance agreements and appraisal rights.
- Mechanics
- Institutional investors build significant stakes to force sales of subsidiaries, balance-sheet reorganisations or the replacement of board members.
- Decision metrics
- Accumulated voting percentage, board seats won and standstill agreements.
- Official documents
- SEC Schedule 13D, Proxy Statement DEF 14A, Form 8-K Item 5.02.