Gerova Financial Group (NYSE AMEX:GFC)

Today, Asia Special Si Acquisition  took a move that appears to have significantly increased odds that its recently proposed business combination will be passed on  January 19, 2010.  We originally speculated that the passage of this deal was slim. see note.  But today's move by Victory Park Capital Advisors, to purchase 7.5 million shares from investors who likely would have voted no on the proposed business combination, changes the game.  It now looks like CIO will have  have enough yes votes for passage, giving our arbitrage play some legs. see note.

We are still somewhat concerned that they may sneak in a last minute warrant provision.

Source: Business Wire (January 13, 2010) 

It looks like Asia Special Si Acquisition has abandoned its previous acquisition target in lieu of another one:

Acquisition Targets and Transaction Highlights Source: Business Wire (January 7, 2010)

• Acquisition of two profitable specialty reinsurance companies engaged in the reinsurance of life insurance and property and casualty insurance and the business of investment management with total post transaction assets of approximately $1.5 billion
  
• A simultaneous all-stock acquisition of approximately $650.0 million of assets from two hedge funds principally consisting of performing, non-real estate senior secured commercial loans
  
• Transactions result in a strong balance sheet with low leverage and net equity of $832.6 million, representing an equity-to-assets ratio of 0.55 times
  
• Strong cash flow generation resulting from an investment portfolio concentrated in higher yielding fixed income investments, consisting of senior secured commercial loans to the energy, insurance and legal industries
  
• Enhanced balance sheet will permit the expansion of credit portfolio by taking advantage of the dislocation in the credit markets and the associated undersupply of traditional sources of credit
  
• The fixed income asset backed lending funds managed by Stillwater Capital Partners, were ranked as the #1 Risk Adjusted funds in their asset class for 2006, 2007 and 2008
  
• Addition of a proven senior management team, including incoming Chairman and Chief Executive Officer, Marshall Manley.

Warrant Details:

Data to be considered:

• Current Price of Common Stock: $9.93
• Current Price of Warrants: $0.35
• Strike price of Warrants: $7.50
• Implied intrinsic value of warrants: $9.93 - $7.50= $2.43

Strategy

• Buy the warrants at current price of $0.35.
• If the business combination is completed and the warrants become exercisable then the warrants should approach the implied value.
• Profit = (New Value of Warrant, Properly Priced) minus $0.35.

Note that many of these opportunities have been thwarted by amendments that resulted in a higher strike price and an elimination of the arbitrage strategy.  Thus far, we have not been able to locate such an amendment for Asia Special Si Acquisition.

On March 12, 2009, the Company entered into a Share Exchange Agreement with White Energy and White Energy Technology Company Limited (“WET”). Based in Sydney, Australia, White Energy, an Australian corporation, is a public company traded on the Australian Stock Exchange.

Since the date of execution of the Share Exchange Agreement, a number of events have occurred which, in the opinion of both the board of directors of White Energy and the Company, have had a significant impact on the valuation metrics used in determining the appropriate consideration for the transaction. Since March 2009, the White Energy Market Value has increased significantly as it has continued to achieve designated milestones. As a result, the terms of the transaction have been adjusted, which has increased the purchase price of the transaction.

Assuming White Energy obtains the requisite shareholder and court approvals, the Company intends to hold the Company Shareholder Meeting in November 2009, and assuming it obtains the requisite approvals and complies with the other conditions applicable to a business combination company, the parties intend to consummate the transaction in December 2009.

White Energy is the exclusive worldwide license holder of the Binderless Coal Briquetting process that upgrades lower rank coal to significantly increase its energy efficiency while reducing greenhouse gas and other pollutant emissions.  The advantages of the White Energy process involve creating a higher energy value coal, creating a physically and chemically stable product, significantly enhancing coal transportation efficiencies and creating a higher energy value release. The process has been shown to be cost and operationally superior to competing technologies and represents a first step in building a cleaner coal solution.