Announcing the Launch of The Special Situations Report Podcast

Episode #1: The Battle for Lifeway Foods and U.S. Steel

We are very excited to launch The Special Situations Report podcast today. This will be a weekly podcast that we plan to publish every Monday covering key events from the special situations world. You can find the first short episode of the podcast on Spotify, YouTube and Apple Podcasts where we discuss the battle for Lifeway Foods (LWAY) and U.S. Steel (X) along with several other special situations. A transcript of the episode is provided below.

Since this was our first podcast and we pretty much had no idea what we were doing, it is a little rough around the edges. We hope to improve and expand the podcast in the coming weeks. We also have some amazing guests lined up for this podcast in the coming months.

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Transcript of Episode #1: The Battle for Lifeway Foods and U.S. Steel

Asif Suria
Hello and welcome to the very first episode of the special situations report podcast by Inside Arbitrage. This is a weekly podcast where we will cover important activity in the event-driven space that occurred during the prior week, including M&A activity, large buyback announcements, spin-offs, insider buying, activist involvement and more.

Tamanna Suria
And since this is our very first episode, why don’t we take a moment to introduce ourselves?

Asif Suria
My name is Asif Suria. I’m the author of the book, The Event-Driven Edge in Investing. And I’m also the founder and CEO of an investment research platform focused on special situations called Inside Arbitrage.

Tamanna Suria
And my name is Tamanna Suria and I’m a student at the University of California, Los Angeles, majoring in business economics. I specialize in analyzing insider transactions and I’m the author behind the insider weekends articles that we publish on Inside Arbitrage every Sunday.

Asif Suria
We are bringing this podcast to you from the beautiful San Francisco Bay area. There were multiple billion dollar deals announced last week, including the merger of Getty Images (GETY) with Shutterstock (SSTK), and we’ll also touch upon a large buyback by Uber (UBER) in addition to key management transitions related to Uber, as well as a multitude of other developments in the special situations world.

Tamanna Suria
Now, before we begin, it’s important to state that this podcast is for general, informational and educational purposes only. This content does not constitute financial investment, legal or tax advice. Nothing discussed in this podcast should be interpreted as a recommendation to buy, sell or hold any investment or security. Investing involves substantial risks, including the potential loss of principal. You should conduct your own research and due diligence before making any investment decisions.

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Asif Suria
Starting off the first full week of the year, we had eight new mergers and acquisitions announced last week. And we’re going to start this episode by discussing the largest one of them all, the acquisition of Inari Medical (NARI) by Stryker (SYK), one of the world’s most prominent medical devices company. So when I look at Stryker, the initial thought that comes to mind is this is a hip and joint replacement company.

But at the same time when I started digging into the company some more, I realized that this was a very large company with a market cap of $140 billion. Beyond hip and knee replacement devices, they also do emergency patient transportation, medical bed frames, and a whole lot more.

Tamanna Suria

Exactly, and that’s why the acquisition of Inari Medical makes so much sense. Inari Medical, like Stryker, is a medical devices company that specializes in treating deep vein thrombosis. That means they address treating venous blood clots that block the flow of blood within the body with aptly named tools such as their ClotTriever.

Inari Medical has managed to grow revenue by more than 20% year over year in each of the last four quarters, as compared to just over 10% growth in the same period for Stryker.

Inari also has much stronger gross margins, which makes the acquisition a very strategic and attractive one for Stryker.

The deal is valued at a whopping $4.9 billion and is structured as an all-cash transaction with the Inari shareholders receiving $80 per share. Unsurprisingly, the spread is about 1% or an annualized return of a little over 4%.

Asif Suria

What was interesting about this deal was that it was announced after hours on Monday, January 6th, but the news leaked about an hour before the market closed and you could see that the stock jumped up to almost $65 a share on January 6th, even before the market closed. And then as you would expect, it moved up closer to the $80 deal price on January 7th.

The other big deal we want to is the acquisition of U.S. Steel (X) by Nippon Steel. This was a deal that was announced more than 12 months ago and was blocked by the Biden administration on national security concerns.

After the deal was blocked, U.S. Steel and Nippon Steel filed a lawsuit in the US court of appeals.

Tamanna Suria
What was really interesting was that that wasn’t the only lawsuit that U.S. Steel and Nippon Steel filed, correct?

Asif Suria
Yes, it was really interesting because before this deal was announced, there were multiple bidders and parties interested in acquiring U.S. Steel, including Cleveland Cliffs (CLF). And so after this deal was blocked, Nippon Steel and U.S. Steel decided to file a lawsuit against Cleveland Cliffs and especially its CEO alleging collusion and actions to monopolize the steel market.

Investors and analysts are actually quite familiar with Lourenco Goncalves and his vocal opposition to the merger. But the outburst that really put him on the map was an analyst call where he called an analyst a disaster and an embarrassment to his parents. I’m actually leaving out the most colorful part of that outburst.

But for all intents and purposes, it looks like this deal is likely dead.

Tamanna Suria
Okay, this week also brought with it a deal between two household names, Getty (GETY) and Shutterstock (SSTK). I’m used to these companies, especially Shutterstock, being used for school photos or printing out gifts for loved ones. But both Getty and Shutterstock are billion dollar companies that primarily work in or work with stock images and digital media.

This is more of a merger of equals situation as both Getty and Shutterstock have similar market caps.

The deal is structured in such a way that Shutterstock shareholders can elect to receive $28.85 per share of Shutterstock owned in cash or 13.67 shares of Getty. Alternatively, shareholders can elect to receive a mixed consideration of 9.17 shares of Getty plus $9.50 in cash. The spread on this deal is a little over 9 % and is expected to close in January, 2026.

Asif Suria
In addition to announced M &A activity, we also cover pre-deal or rumored deal situations in a tool called the Deals in the Works tool on Inside Arbitrage. One potential deal that has unfolded over the last few weeks is a bid by the French food giant Danone, which made a $25 per share bid for Lifeway Foods (LWAY) last September. Danone is a French multinational food and beverage company known for its brands like Activa, Oikos, Danimals, Silk, plant-based beverages, Horizon Organic dairy Products, and a whole lot more. Lifeway Foods’ most popular product is a kefir that you can find on the shelves of grocers like Safeway. After the initial Danone bid, Lifeway rejected the offer as being too low and mentioned it undervalued the company.

Danone then upped the price to $27 per share by mid November, but Lifeway rejected that offer as well.

Tamanna Suria
So if Danone offered $27 per share for Lifeway, why is the stock of Lifeway still trading at around $22 per share?

Asif Suria
Yeah, the whole situation is interesting, not just because Lifeway is trading under $23 per share, but also because Danone already owns 23 % of Lifeway following an agreement with the company in 1999. Lifeway’s current CEO, Julie Smolyansky, took the reign of the in 2002 after the death of her father, who was the founder of company. Her brother Edward was the COO of the company until 2022 when he was terminated with cause.

This started a battle between Edward and Ludmila on one side, who is Julie’s mother, and Julie on the other side. Edward and Ludmila have publicly called for the replacement of Julie as CEO, and they support the Danone acquisition offer. Edward and Ludmila have a stake of nearly 30% in the company, and Julie owns about 18%.

The really interesting thing is last week, Lifeway reported preliminary fourth quarter revenue numbers and once again reiterated that they were open to a sale at a higher price, but at the same time, they called into question the 1999 agreement between the company and Danone, calling it illegal in the state of Illinois. So despite all this drama, Lifeway stock is up nearly 65 % over the last year and expected 2024 sales are likely to be about 16 % higher than 2023 sales of $160 million. The opportunity does exist because as we mentioned, LifeWay trades below $23 per share and the latest offer from Danone is $27 per share. But unless the family disputes can be resolved and now this new concern about whether Danone really owns 23% of the company can be put to rest, we will not be able to see this deal come to fruition.

Tamanna Suria
Let’s move away from M&A activity and visit the buyback world for a bit, starting off with Uber (UBER). Uber requires no introduction, and the $140 billion rideshare company announced a $7 billion share repurchase authorization in February 2024, which represented about 5 % of the company’s market cap on announcement.

Asif Suria
So why would Uber implement such a large buyback and also do an accelerated buyback?

Tamanna Suria
Right, so Uber’s been consistently buying shares under this existing share repurchase authorization over the last year, mostly to counteract the rising shares outstanding that has been caused by share-based compensation, a very tried and true tale for most tech companies. Uber’s been buying under that 7 billion authorization and earlier this week announced an accelerated buyback agreement of $1.5 billion.

This could be due to the recent stock weakness that Uber has seen, down about 15 % in the last three months, and management could see this as a chance to repurchase stock at a cheaper price.

Asif Suria
Other interesting thing with Uber is Uber’s CEO, Dara Khosrowshahi resigned from the board of autonomous vehicle technology company, Aurora Innovation, whose General Counsel also left earlier this month. Dara joined Aurora’s board in 2020 after Uber offloaded their self-driving unit, Uber ATG to Aurora. While Aurora’s up 100% in the last year, what we see is they aren’t making any revenue and they continue to generate losses but as of Q3, 2024, they still have about $1.1 billion of cash on the balance sheet. These kinds of companies that don’t generate any revenue but are potentially on the leading edge of technology innovation, we like to call them science projects.

Tamanna Suria
There were a couple other notable C-suite transitions in the past few days, including Ulta Beauty’s CEO resigning or retiring earlier this week, effective immediately. The current COO and president, Kecia Steelman, is set to take over the role as CEO.

Ulta Beauty (ULTA) has always been a strong player in the beauty products industry and appeared to be well managed as well, consistently growing revenue and earnings. The company also consistently bought back its own stock, including a massive $3 billion buyback announced in October 2024, which represented about 17 % of the company’s market cap when announced.

As such, the immediate departure came as a slight surprise, but internal promotion makes perfect sense. When a company is struggling, an outsider being brought in as new management makes more sense, but for a company as well managed and well run as Ulta Beauty, an internal promotion from the current COO to CEO is understandable.

Asif Suria
The other interesting management transition that happened last week was the CFO and the Chief Administrative Officer of Southwest Airlines (LUV) both resigning at the same time with an effective date of April of this year. These resignations come after Southwest’s long battle with activist investment firm Elliott Management, which has already resulted in the resignation of its Executive Chairman Gary Kelly, last November.

Watch out for those free checked bags that you get on Southwest flights. You just about might start having to pay up for those freebies that Southwest customers love if Elliot gets its way.

Tamanna Suria
And that wraps up our first episode of the Special Situations Report. What we’ve covered today is just a brief overview of all the special situations landscape. So if you’d like to access a more comprehensive weekly overview of all event-driven activity, go ahead and visit our website, TheSpecialSituationsReport.com.

For daily updates and alerts on the special situations world, as well as access to tools to help you identify opportunities, such as the merger arbitrage tool, check out InsideArbitrage.com.

Asif Suria
If you enjoyed this take a moment to like and subscribe on whatever platform you may be listening on and especially share this podcast with friends who might be interested in special situations or event-driven investing. Thank you.