JB Capital, Alan Weber believe price for acquiring GAIN Capital should be higher

Maria Nikolova

JB Capital and Alan Weber believe that the Board of Directors must negotiate a merger price of $8.00 or more per share to reflect the performance of GAIN since February 26, 2020.

Online trading major Gain Capital Holdings Inc (NYSE:GCAP) has posted a filing with the Securities and Exchange Commission (SEC) revealing that some of its shareholders are pushing for re-negotiation of the terms of the acquisition of GAIN by INTL FCStone Inc. (NASDAQ:INTL).

In particular, the shareholders are JB Capital Partners, L.P., whose principal business is making investments in marketable securities, and Alan W. Weber, whose principal business is acting as an investment adviser and as the general partner of JB Capital. Mr Weber has the power to vote and dispose of the Common Stock owned by JB Capital.

The aggregate purchase price of the 2,893,807 shares of Common Stock beneficially held by JB Capital and Mr. Weber is $18,340,088 (including brokerage fees and expenses). All of the shares of Common Stock beneficially held by JB Capital and Mr Weber were paid for using its working capital, and personal funds, respectively.

On February 27, 2020, GAIN Capital announced it would be acquired by merger with a subsidiary of INTL FCStone Inc. at $6.00 per share in cash. The Reporting Persons – JB Capital and Mr Weber, believe the merger price should be increased by at least $2.00 per share (to $8.00 or more per share) to reflect the improved results (as evidenced by higher adjusted EBITDA and net income) of the broker starting on February 27, 2020.

In its Current Report on Form 8-K dated April 10, 2020, GAIN reported that for the period commencing on February 27, 2020 (the first trading day since the signing of the merger agreement) through March 31, 2020 volatility increased very significantly as compared with both the period commencing on January 1, 2020 through February 26, 2020 (the pre-signing period) and the first quarter of 2019. As a consequence of the volatility, for the period commencing on February 27, 2020 through March 31, 2020 (the post-signing period) adjusted EBITDA was $90.5 million and net income was $65.5 million.

In the Preliminary Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission (“Commission”) on April 10, 2020, the Issuer’s management projected (January 2020 projections) adjusted EBITDA of $37 million for the entire year 2020. The Issuer reported, in a press release dated February 27, 2020 and filed with the Commission on a Current Report on Form 8-K dated such date, 2019 adjusted EBITDA of negative $4.6 million. In a little over one month since the signing of the merger agreement, the Issuer’s adjusted EBITDA is almost three times the combined adjusted EBITDA for 2019 and the projected adjusted EBITDA for 2020.

The Reporting Persons believe that the increase in cash generated and net income of GAIN since February 27, 2020 (until the merger closes) belongs to the current (pre-acquisition) stockholders of the Issuer. The Reporting Persons estimate that net income for the post-signing period was almost $2 per share.

Accordingly, with the volatility already seen in April 2020, the Reporting Persons estimate that the Issuer will gain at least $2 per share in net income prior to the closing of the merger transaction.

That is why, JB Capital and Weber believe that the Board of Directors must negotiate a merger price of $8.00 or more per share to reflect the performance of GAIN since February 26, 2020.

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