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Last week, the company announced a strategic combination with Tenax Aerospace, an unlisted defense company. It looks like a typical reverse merger: a stock/stock deal, AIRI shareholders will own only ~5% of the combined company, limited disclosure so far. Understandably, the market reaction was lukewarm and AIRI traded down on the announcement.

However, there is some fascinating stuff in the small print. Most notably1:

If the average volume weighted price of Air’s common stock during the twenty trading days prior to the closing is less than the Debt Adjusted AIR Share Price, the Merger Agreement calls for Air to commence a tender offer to acquire up to one million shares of Air’s current shareholders’ common stock. In addition, on the first anniversary of the merger, shareholders of Air as of the business day immediately prior to the closing of the merger will have a contingent right, subject to specified conditions, to require Air to redeem their remaining shares if the twenty-day volume weighted average price for Air shares preceding such anniversary is less than 107.3% of the Debt Adjusted AIR Share Price. This redemption right will not be transferable.

What is the Debt Adjusted AIR Share Price? As per the press release, based on preliminary December 2025 balance sheet, $3.44. And according to the merger agreement:

WHEREAS, as of or prior to the Closing, AIR and a rights agent mutually agreeable to AIR and Tenax (the “Rights Agent”) will enter into the Redemption Rights Agreement, pursuant to which the AIR Stockholders as of the Business Day prior to the Closing will have the right to cause AIR to redeem their shares of AIR Common Stock for an amount in cash equal to 107.3% of the Debt Adjusted AIR Share Price (such amount, the “Redemption Price”) following the first anniversary of the Closing Date;

So, based on the preliminary balance sheet we have the right to sell our shares at $3.69 in about 15 months2. That sounds interesting! Let’s dig in a bit.

Valuing the redemption right

To start with, let’s look at that $3.44. Where does it come from? As per the merger agreement, AIRI is valued at $20.5m minus (plus) any net debt over (under) $24.6m at the time the deal closes - the ‘AIR Debt Target Amount’, divided by the target number of shares: 5.26m. Net debt is calculated as indebtedness plus most other liabilities on the balance sheet minus cash and merger expenses. If net debt is exactly $24.6m the adjusted share price would be $20.5m / 5.26 or $3.90. So as of December, net debt is a bit higher than the debt target.

Should we expect more cash burn until the merger closes? Is the $24.6m debt target in the merger agreement unrealistic? Possibly. But cash burn the past few years has actually been minimal on average. On top of that, the latest 10-Q mentions:

As a result of recent contract awards, as of September 30, 2025, the Company had total unfilled contract values amounting to $269.0 million (including its $131.8 million in backlog plus additional potential funded orders against Long-Term Agreements (“LTAs”) previously awarded to us). These unfilled contract values support a positive outlook for future growth; however, extended lead times for raw material procurement and the complexity of manufacturing processes are expected to delay revenue acceleration until early 2026.

It appears to me that inventory levels are slightly elevated as well (see graph below). Perhaps the company expects to free up some working capital during the next few months. Note that most current liabilities are part of the net debt calculation but receivables and inventory are not, so there is room for some creativity here. Insiders own close to a million shares and are, as such, somewhat incentivized to free up working capital.

And finally: as per the press release AIRI shareholders are expected to own 5% of the combined company. We can deduce the Debt Adjusted AIR Share Price from that. If the debt adjusted share price is small there will be more dilution and vice versa. A 4.5% ownership implies an adjusted share price of $3.313 and 5.5% ownership implies an adjusted share price of $4.05. Seems to me that the company is expecting minimal cash burn or even a small release of working capital the next few months.

What is the present value of a stock with a built-in redemption right? We could do some complicated math but I propose to keep it simple: let’s focus on the downside. I am working with the assumption that the company is not going to burn any cash in the next few months. As outlined above, I think that assumption is reasonable, perhaps even conservative. That means that in 15 months you’ll be able to sell your shares at $3.69. I’m going to discount that back at 15% p.a. to account for counterparty risk4 for a $3.10 present value of the redemption right. On top of that you own a call option on the stock being worth more somewhere in the next 15 months. That call is also worth a few cents to a few dimes, depending on your assumptions.

Closing thoughts

There’s a lot of stuff I didn’t touch in this write-up. Insider ownership and related party loans, the history and leadership of Tenax and AIRI, termination fees, the potential tender offer at closing, what happens if the deal breaks, etc. As always, I am lazy, I don’t want to hold your hand. You should do your own due diligence and if you disagree with me or think I made a mistake I’m all ears.

That said, I think this actually looks like a sensible deal. At the very least the two companies merging build and sell tangible widgets and operate in the same industry. That is already a big step up from the average reverse merger5.

AIRI insiders avoid bankruptcy, get back the money they loaned to the company and retain the upside of their ~17% stake in AIRI with a cash floor.

And on the other side of the deal, for ~5% dilution Tenax buys a public listing and a tuck-in acquisition with a $269m order book where they can probably cut some costs. The current AIRI stock price implies a ~10x EV/EBITDA multiple. That is certainly not cheap but not crazy either. With a protected downside, a low float and an industry with some tailwinds, who knows what can happen.

Just after the deal was announced AIRI traded below $3 and I think that was a very decent proposition. Unfortunately shares traded up a bit since and the current price looks slightly less attractive to me now. I still own a decent chunk. If AIRI manages not to burn too much cash during the next few months you are paying very little for a call option on the Tenax listing. If the company actually frees up some working capital you get the call option for free.

As always, I encourage you to do your own work. My advice in situations like this is to not focus on a single number (i.e. the $3.44 from the press release) but on a range of outcomes. What happens if the company unexpectedly burns through $3m the next few months? How does changing the discount rate to 20% affect the present value of the redemption right? What happens in case of a deal break? How likely is a deal break? Make your assumptions explicit and play around with them. That way you get a feeling for what is important and what is not and you can quickly adapt when circumstances change.

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The grocery store

It’s been about four months since my last post. A lot has happened since then, but at the same time not much has happened. I operate my portfolio like a grocery store. Lots of different products are on the shelves; everything is for sale. There is always turnover but most of it is unexciting. Not much I did during the past few months is worth sharing 1. Small trades (I shared one or two tickers on Twitter), situations that have been written up elsewhere, stocks that I will probably forget in a few years. That’s how I like it. Don’t expect any grand ideas or oversized positions from me. Boring is good.

The grocery store will never generate insane returns. It is too conservative and too diversified for that. If anything you could accuse me of being perennially under-risked. The flip side is: I have never had a down year yet and always sleep like a baby. And I am quite content about my returns: over the past decade the IRR of my portfolio was about ~20% p.a. in EUR. I don’t expect that to be sustainable though.

We live in a fascinating time where influencers on FinTwit experiment with putting 100% of their portfolio in nail fungus stocks 2. Sure, your risk preferences depend on your age, net worth and job prospects but I still prefer the opposite approach. If you oversize positions and have no edge you risk going broke and going crazy. If you undersize positions and have no edge you risk achieving average returns.

With a grocery store portfolio you will get familiar with a wide range of companies and industries quickly, you will never get bored and it is easier to stay emotionally distant. Also, you generate a large sample size of investment decisions quickly, making it easier to ascertain whether you have an edge or not. In short: I highly recommend diversification.

Position updates

I sold my position in Five Point Holdings LLC. When I wrote it up I thought that the combination of all things I pointed out made it likely that a return of capital was in the cards. But two quarters later nothing happened on that front, with the CEO stating in the most recent conference call:

We ended the year with cash of $425 million and total liquidity of $643 million. Importantly, our balance sheet and liquidity provide us with exceptional flexibility around capital allocation, including the ability to engage growth opportunities, which I will discuss later, as well as the ability to potentially return capital to shareholders over time. To be clear, however, our first priority is to pursue our growth strategy as we seek to expand recurring revenues.

It looks to me like the CEO is paying lip service to the idea of returning capital while plowing all cash into transforming FPH into an asset manager. First the builders wanted to go asset-light and they got rid of their land. Now even the land banks want to go asset-light .. Frankly, it is probably not the worst idea in the world but it is not something I am comfortable with betting on. I am a simple man: I just want cash returned to shareholders. If you are really ‘exceptionally flexible around capital allocation’ I would think that you can reinvest in the business and return capital to shareholders at the same time, if your stock is in the gutter. And if FPH chooses not do that, what does that imply? Either the company has huge reinvestment plans, is not so flexible after all or management does not care about returning capital at current prices. Or I am missing something. I don’t like any of those options. No hard feelings though. The outcome was not what I hoped for but I am content with my process here. I might get back in at some point, still an interesting company.

Regarding Hookipa: The Gilead transaction closed last October and the company announced yesterday that it sold some oncology assets. No price was disclosed, probably a small deal. The buyer is an unknown vehicle. Perhaps insiders are cherry-picking some assets? I did not like to see that the company still has a ‘chief R&D officer’ at this point in time. Apart from those two updates Hookipa has been very quiet but that is par for the course if you invest in trash like this. I am content with owning the uncertainty while waiting for more news, my key assumption being that the distribution range in the proxy is still directionally correct. It is up quite a bit though, clearly less attractive than it was at the time of my write-up.

Galaxy Gaming is still in limbo. The merger is not closing but not breaking apart either. Part of me just wants to see this deal collapse: a timely close would yield the best IRR but a deal collapse would be so interesting. The main reason for the delay is that the Nevada Gaming Commission has not approved the merger yet. In fact, it has not even been on the agenda yet, presumably because the regulator is concerned about gambling in prohibited jurisdictions.

I could act outraged and surprised3 but the painful truth is that online gambling is a “wild west industry” where the chances of stepping in a turd are higher than average. On the flip side, when I bought GLXZ I was not blindly banking on the merger closing as expected. Unfortunately, the past few months have been disappointing as well fundamentally with underperformance compared to both 2024 and the 2025 projections in the proxy statement. And the possible regulatory crackdown on shady overseas practices could be bad news as the company generates quite a bit of revenue outside of the US.

I think the odds of the deal closing have gone down and the company is fundamentally less attractive on top of that. I still hold a small position to see how things work out but am not too thrilled about it. Its only redeeming feature is the undemanding valuation.

Rambling

A few months ago I told you that I like the format of Clark Street Value’s blog4. No nonsense, only concise stock pitches. Yet here I am rambling about a grocery store.

I would love to write more stock pitches but it is very hard to write one that adds value. In fact, I am not even sure if I am capable of doing that consistently, if at all. The market is very efficient and there are thousands of investors out there writing up every single stock you have ever glanced at. As per the grocery store approach my positions are usually small and low-conviction. Often I have nothing to add to write-ups that are already out there and even if I do those stocks are often too illiquid to write about5.

Even worse, I do not think I am a great analyst. And no, that is not me being humble. I have a background in high frequency trading. My specialty is sifting through all the noise out there, copying the occasional good idea and staying rational most of the time. I can work with numbers and odds pretty well but I have no clue about the competitive landscape in the chemicals industry or whether Satya Nadella is steering Microsoft in the right direction. My biggest fuck-ups are usually those where the numbers look good but I underestimate the qualitative aspects (I hope Galaxy Gaming does not end up in that category).

In any case, I like writing so I am probably going to continue doing that but I am still unsure about what, when and how to publish. A first step is that I have added a section named ‘ramblings’ to the website. I first opted for ‘principles’ but I am not as pompous nor as rich as Ray Dalio. I will collect my tangential thoughts about investing there so they do not interfere with any write-ups. You can opt out of that section if you just want stock pitches. Let me know if you like (or dislike) me rambling about grocery stores. Cheers!

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• July 24: FPH reports quarterly earnings. The market is disappointed and shares drop 15%. Note the following snippet from the conference call.

• September 3: the CEO, CFO and COO receive large stock grants with aggressive hurdle rates. See the fine print below. Shares closed at $5.68 that day. These thresholds implied a 15% - 32% IRR over 5 years, with the stock having to quadruple for the highest threshold. These grants were off-cycle and in many ways atypical. More details about the grants here.

  

• September 15: FPH announces a debt refinancing. They push out maturities to 2030 and will save about $20m in interest annually.

• September 26: FPH files its new debt indentures with the SEC. Buried in the fine print are two key changes. First of all, the indentures now take into account cash when calculating the leverage ratio (FPH has a lot of cash on its balance sheet). Second, the old indentures only allowed ‘arbitrary’ cash payments pursuant to clause C (repay subordinated debt) and clause D (make some investments). Those restrictions have been removed. What are clause A and B payments that were forbidden beforehand? You guessed it: dividends and buybacks.

  

  

It is my belief that an atypical stock grant often has some signal value. In this case, two-thirds of Q3 had already passed when the board made the grant. It would be a bit of a backstab to grant officers equity with aggressive hurdle rates when you already know that the current quarter is going to be a disaster.

I think it is more likely that exactly the opposite happened. The board was aware about the upcoming debt refinancing and the potential for capital returns and made a ‘spring-load grant’,2 i.e. they made a timely grant of cheap equity when the stock dropped after disappointing Q2 results, just before the good stuff was shared with the public.

An open question for the reader: has all the good stuff been shared with the public? What do you reckon management is incentivized to do when 1) there’s a boatload of cash on the balance sheet and debt maturities are now half a decade away 2) debt indentures have been tuned to allow capital returns and 3) they need the stock price to quadruple to hit the jackpot?

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But every now and then you encounter a situation where there is just not much to research. Only a snippet of information is available and you have to roll the dice based on that snippet and the stock price. I have a soft spot for situations like that - I am lazy and if there is nothing to do it reduces the chance that somebody will get the better of me through sheer hard work.

Hookipa Pharma (OTC:HOOK)2 is a nice example. It is a busted biotech that, after backing down from a stupid merger, decided to throw in the towel, sell its assets and liquidate. I own some shares and my whole thesis is based on a single line on page 43 of the latest proxy statement:

There are no detailed financial projections in the proxy statement. There is no pro forma balance sheet. There are no recent financials. I don’t expect future financials. You can try to make an extensive model in Excel based on the limited information that is out there but if push comes to shove would you rather trust that than what management is saying?

The vote to liquidate has already passed. Shares traded at $1.15 before the company announced on July 18 it would delist from the NASDAQ. Since then shares dropped over 25% on no news whatsoever from either Hookipa or Gilead (the asset purchaser).

I think this checks a lot of boxes for potential mispricing. It is an illiquid3 nanocap, recently delisted, buying implies a brutal 3-year lockup of capital, it’s a black box and on top of all that it doesn’t even do crypto treasury. But I’ll gladly take all that for an uncorrelated 15% - 20% IRR.

Now as I said previously, I am lazy. But I didn’t just buy a ton of shares directly after seeing that one sentence in the proxy (it was pretty close though!). I’m not going to spoon feed you everything that I did, but here is some of the stuff that I would recommend doing before you hit the “buy” button:

• Make sure that the latest quarterly financials in combination with the Asset Purchase Agreement and your assumptions about the liquidation square with the expected payout.

• Understand the capital structure and make sure that it is appropriately reflected in the share count given in the snippet I pasted above.

• Assess the risk of Gilead disputing the transfer plan payments and the effect that has on the estimated payouts.

• Look at the shareholder base, the board and the management suite. Are there any notorious fraudsters or scumbags involved? Any activists? Do insiders own stock?

• Read the background section of the proxy to see if anything stands out (for example: were there alternative suitors?).

• Ensure there are no legal issues outstanding4.

• Check whether you agree with my timeline.

If you find anything interesting, please let me know. Maybe I am wrong and there is more due diligence to do! Also, should I continue using footnotes as much as Matt Levine or do you hate that format?

Finally,

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Galaxy Gaming has been a FinTwit and VIC darling for years.1 A brief history: some geniuses had the insight that it would be fun in Blackjack to have the option to earn extra money if you win with a pair of queens. They called this side bet ‘Lucky Ladies’ and patented and trademarked the hell out of it. The house edge of this bet is approximately 25%, meaning that you piss away, on average, 25 dollars every time you wager 100 dollars. You might say: that’s stupid. You’d be wrong. Galaxy Gaming turned this extortionary concept into a successful licensing business model.

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Unfortunately, while revenue was growing at a nice clip, Galaxy was forced to borrow too much money. Rates went up, interest payments ballooned, shareholders got frustrated. After a few years of disappointment Evolution AB decided to scoop up Galaxy Gaming last summer for $3.20 per share, a 100%+ premium over the undisturbed price.

The merger was expected to close in mid-2025. We now live in mid-2025 but Galaxy Gaming is trading around $2.80. Clearly something is off here. I think the market is concerned about the antitrust risk of the largest live online gambling provider buying IP that could hamstring their smaller competitors.2 How should investors deal with that risk? My solution is simple: I’m ignoring it.

Financials

Why? Let’s have a look at Galaxy. The company makes money licensing their IP to both physical and virtual casinos. Revenue grew 12% p.a. over the past decade, 8% over the past five years. Gross margins are close to 100%. Cash conversion is excellent.3 What should be obvious is the operating leverage of the licensing business model. As long as Galaxy can keep costs in check incremental revenue has a big impact on the bottom line.

Earlier this year I thought an important piece of news was released: Galaxy refinanced its debt. As of Q1 2025 they pay SOFR + 3.5% (about 8%) on a reduced debt balance of $45m. This will save the company $3m+ per year in interest payments. Galaxy can finally start paying off meaningful amounts of principal.

What would Galaxy look like in a few years? I could (and probably should) make a big model in a spreadsheet, but, fortunately for me, management shared their business outlook in the merger proxy. Note that this outlook is already a bit outdated because 2024 was a better year than projected.4

The extended outside date for the merger is January 18, 2026. Let’s assume the deal falls apart at that point due to regulatory intervention. If so, Evolution is required to pay a $5m ‘parent termination' fee’ to Galaxy. On top of that, I reckon Galaxy should be able to pay down at least ~$5m in debt in 2025 by itself. This brings the net debt position down to ~$35m5, leading to a $105m enterprise value at the current market capitalization. Management guidance for 2026 implies that equals a ~6x forward EV/EBITDA multiple or a ~7x forward EV/EBIT multiple. That seems cheap to me for a company that:

• has close to 100% gross margins.

• has excellent cash conversion and requires little capex.

• has grown revenue 12% p.a. the past decade.

• has 18% insider ownership.

• projects EBIT and cashflow to roughly double in 5 years.

• has enough (history with) leverage to make capital allocation obvious.

Note that early in 2024, before the merger was announced, Galaxy was trading at an enterprise value of ~$70m with 2024 guidance of $12.5m in adjusted EBITDA, a 6x multiple. In other words, the current price already implies a pre-deal multiple if the deal falls apart, even though Galaxy is in much better shape now due to the debt refinancing.

Conclusion

I think Galaxy is potentially in a limbo. Fundamental investors don’t care too much about 15% upside in a risky merger arb and are hoping the deal falls apart so they can feast on the carcass. And special situation investors don’t like the regulatory risk and the huge premium offered to the undisturbed stock price.

Usually when I evaluate a merger I try to determine a weighted IRR of all outcomes. I’m not doing that here. My point is this: I am a happy owner of Galaxy Gaming at $2.80. The market seems to imply that Galaxy will drop like a brick if the merger falls apart but I’m skeptical about that. Is it really going to trade at 4x forward EV/EBIT? If so, I’m probably buying more and I won’t even feel bad about it. I think Galaxy is finally in a good spot where the debt situation is under control, the company is GAAP profitable and modest growth will have a big impact on the bottom line. It looks very cheap a few years down the line if you extrapolate past results. I don’t really care for the merger either way.

Is this an ‘excellent idea’? Nah. Is this a big position for me? No, it isn’t.6 But it is good enough for me to dip my toes in the water. Maybe the better play is to wait for the merger to break down and hope that the stock crashes. Up to you. Let me know what you think.

Nothing has changed in that regard but publicly jotting down your thoughts supposedly makes you a better investor, being accountable and open for criticism and all. Also, I’m getting older and sometimes when I look at my portfolio I wonder why I bought some crap in the first place. Maybe I can look that up here in the future.

For me, Clark Street Value epitomizes the perfect investing blog.1 Why? His pitches are brief, quantitative and original. But most importantly, there’s no bullshit. No ‘weekend thoughts’, no twenty page write-ups full of AI-generated fluff, no macro comments and especially no meta-articles about monetizing your investing Substack account (which at this point I see more often than actual stock pitches). If he doesn’t have actionable content he doesn’t post anything.

Unfortunately I have lots of thoughts about lots of subjects and, as my significant other can attest, I usually cannot keep my controversial opinions to myself. So here is the deal I made with myself. Please indulge me with this first post. From now on, if I post something (a big if - I’m not planning to churn out content regularly) I’ll try to make it a stock pitch or a case study. If I feel the urge to sprinkle in some other stuff you don’t care about I’ll try to do so at the bottom or in a footnote.