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Insider Buying in a Merger With a Dissenting Activist Investor – Insider Weekends

  • June 11, 2023

Ever so often, we stumble across a company that combines two or more of our event-driven strategies, and this week that company was Diversified Healthcare Trust (DHC), a healthcare REIT that specializes in life sciences, medical and senior living properties.

What is unique about DHC is that it is currently in the process of merging with another REIT, Office Properties Income Trust (OPI), an activity investor is trying to get a better price for the deal and an insider has started buying in earnest over the last few days.

Insider buying in an active M&A situation is highly unusual but we have seen it in the past with Biohaven (BHVN), a situation we discussed in May 2022 here. The insider of Biohaven purchased shares right before the deal with Pfizer closed because he saw value in the spinoff and was spot on with his purchase.

In this situation with DHC, the insider purchases by a director of the company do not make much sense on the surface, especially considering the spread on this all stock deal is a whopping negative 56%. In other words, if the merger of DHC and OPI were to close in a few days and the price of OPI remains unchanged, anyone purchasing DHC tomorrow would lose more than 50% of their investment when DHC stock gets converted to OPI stock.

Digging deeper into the situation helped us understand what was going on with this situation. The key to why Director Adam D. Portnoy keeps purchasing shares of DHC even as the stock price runs up, lies in his other role, as Chief Executive Officer of the RMR Group.

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