Fast Acquisition Update

Summary

  • Wow, what a world day makes, apparently Tilman Fertitta thinks the Fast deal is so good he wants it all to himself or there’s something else going on.
  • Apparently the drift down in stock price was more than the market, “somebody always knows.”
  • Fertitta Entertainment tried to initiate a termination of the merger of the companies involved.
  • Fast Acquisition responded that the merger could not be terminated.
  • There’s $10 cash in trust under the shares, so not much downside.

The Fast Acquisition merger is in jeopardy. Here’s what to be concerned with, what not to be concerned with and how to play it.

Seeking Alpha news gave a play by play so far here: 

Fast Acquisition Corp. stock price down as SPAC deal for Tilman Fertitta’s firm (purportedly) collapses

Fertitta Termination Notice

Fertitta Entertainment sent a letter to Fast Acquisition informing them they wanted to terminate the merger. 

Fertitta letter filed with SEC.

It was pretty plain. 

“Re: Termination of Merger Agreement

Gentlemen:

Reference is made to that certain Argeement and plan of Merger, dated as of February 1, 2021 and amended on June 30, 2021 (as amended, the “Merger Agreement”), by and among Fertitta Entertainment, Inc., a Texas corporation (“Florida”), FAST Acquistion Corp., a Delaware corporation (“SPAC”), FAST Merger Corp., a Texas corportion and direct, wholly owned subsidiary of SPAC (“SPAC Newco”), and FAST Merger Sub Inc., a Texas corportion and direct, wholly owned subsidiary of SPAC (“ Merger Sub”). Capitalized terms used but not defined herein have the meaning given to such terms in the Merger Agreement.

Pursant to Sectoin 10.02 of the Merger Agreement, Florida hereby provides SPAC, SPAC Newco and Merger Sub with written notice of its election to terminate the Merger Agreement and abandon the transactions contemplated thereby pursuant to Section 9.01(A) thereof due to the failure of the Closing to have occurred by the Termination Date.

The contents of this written notice are without prejudice to any rights which Flordia may have pursuant to the Merger Agreement or otherwise, which are hereby expressly reserved. Nothing herein is intended to limit or waive any rights of Florida related to the Merger Agreement or otherwise.”

What Fertitta is stating is that because the deal was not done on time, they want to cancel the deal. Pretty to the point. 

I think it could also be a ploy to negotiate even better terms for Tilman Fertitta, which is in his nature do that. 

Fast Acquisition Response 

Fast acquisition responded that Fertitta did not have cause to terminate the deal because they were the ones who caused certain delays. Further, if Fertitta did not proceed with the deal and remedy the current situation immediately, then FAST would sue. 

Fast letter filed with SEC

“Re: Response to Purported Notice re Termination of Merger Agreement

Gentlemen:

Reference is made to (1) that certain Agreement and Plan of Merger, dated as of February 1, 2021 and amended on June 30, 2021 (as amended, the “Merger Agreement”), by and among Fertitta Entertainment, Inc., a Texas corporation (“Florida”), FAST Acquisition Corp., a Delaware corporation (“SPAC”), FAST Merger Corp., a Texas corporation and direct, wholly owned subsidiary of SPAC (“SPAC Newco”), and FAST Merger Sub Inc., a Texas corporation and direct, wholly-owned subsidiary of SPAC (“Merger Sub”); and (2) that purported notice re Termination of Merger Agreement (the “Purported Notice”), dated as of December 1, 2021, delivered by Florida to SPAC on December 1, 2021. Capitalized but undefined terms herein have the meanings ascribed to them in the Merger Agreement.

The letter is being provided in response to the Purported Notice. Florida is not permitted to terminate the Merger Agreement pursuant to Section 9.01(A) because “the right to terminate this Agreement under this Section 9.01(A) shall not be available to any party hereto whose action or failure to fulfill any obligation under this Agreement or the Separation Agreement shall have been the primary cause of the failure of the Closing to occur on or prior to such date”. Florida’s actions and failures to fulfill its obligations under the Merger Agreement, including, without limitation, Florida’s failure to deliver the financial statements required by Section 7.01(A) of the Merger Agreement until July 2021, despite being required to provide them no later than March 31, 2021, are unquestionably the primary cause of the failure of the Closing to occur by the Termination Date.

Accordingly, the Purported Notice is invalid, unenforceable, of no legal force and effect and is hereby rejected. We hereby demand that Florida withdraw the Purported Notice immediately and take all necessary steps to consummate the transactions contemplated by the Merger Agreement forthwith. The Purported Notice and any further failure to comply with Florida’s ongoing obligations under the Merger Agreement constitute a material breach. Florida remains bound by its obligations pursuant to the Merger Agreement, including, without limitation, the obligation set forth in Section 7.18(b) of the Merger Agreement to, and to cause its Subsidiaries to, use reasonable efforts to obtain all material consents and approvals of third parties and to take such other action as may be reasonably necessary to satisfy the conditions set forth in the Merger Agreement and to otherwise comply with the Merger Agreement and consummate the Transactions as soon as practicable.

Florida’s material breach has and will cause irreparable injury, and we intend to take all necessary steps to protect the SPAC and its investors. You are hereby placed on notice of breach and that should your breach not be immediately remedied, we intend to initiate litigation.

The contents of this written notice are without prejudice to any rights which SPAC, SPAC Newco or Merger Sub may have pursuant to the Merger Agreement or otherwise, which are hereby expressly reserved. Nothing herein is intended to limit or waive any rights of SPAC, SPAC Newco or Merger Sub related to the Merger Agreement or otherwise.”

Again, pretty to the point. They’re saying that Fertitta slowed the process and that they can’t use that to back out now. If Fertitta tries to back out, then FAST will sue. 

Of note, interesting use of word “purported.”

Reviewing My Thoughts On Fast Acquisition And Fertitta Entertainment

As you know, I believe the synergies of the merger of Golden Nugget and all its restaurants with entities including a share of DraftKings (DKNG) which bought Golden Nugget online would be a great deal for shareholders. 

In analyzing the entire deal, it is on and beneath the surface a great basket of assets that can continue to expand via gambling and restaurants, but it plays in the growing online gaming space which was the “kicker” part of the deal that got me on board. 

I have speculated that Fertitta would like to do more mergers and acquisitions, potentially a deal with MGM Resorts (MGM), or other smaller casinos, in order to grow that empire. He tried to buy Caesars (CZR) before El Dorado jumped him in line. 

What’s Next For Fast Acquisition And Fertitta Entertainment?

Well, there’s really only two things can happen. 

  1. The deal goes through because FAST adds some sweeteners for Fertitta. This seems the most likely thing to me because clearly Fertitta dropped info to CNBC that they sure are doing well without the deal. 
  2. The deal breaks and they go to court, in which case, Fertitta will settle for some minimal amount to shareholders
    1. The caveat is that if Fertitta did something illegal, the settlement and potential fines could be higher.

I have watched this all develop for a year now. I suggested that Fertitta would keep coming back for as much as he could get. He did twice before already.

Clearly Fertitta was using the capital from the SPAC as a way to create optionality for Fertitta Entertainment, that’s fine. If the deal goes down, I think there is very legitimate cause to think Fertitta did something shady. 

That is more than just playing hardball to get every scrap he can jam into his wallet. It seems like this should result in a sweetener that gets the deal done, but who knows.

My observations over the many years I’ve followed the gambling industry (I play a bad poker player on a few tours from time to time) beginning with family connections and into finance are that Tilman is very pro-Tilman. So, we’ll see in a day or two how this will go. 

Investing In Fast Acquisition

So, FAST is a SPAC which means it has a cash trust. That trust is worth about $10. So, with shares currently trading within a buck of that, there is very little downside to owning or even buying shares right now. 

If the deal gets done, it’ll be with a sweetener to Fertitta, which means less for shareholders. But, I thought this deal was priced at a massive discount to peers and has the potential for explosive upside over time with online gaming, restaurant development and future deals. 

If the deal goes through, there’s very little long-term risk to the stock in my opinion given the undervaluation versus peers. 

If you can take a small risk to speculate on a potential big gain, then I rate FAST (FST) a buy right now. 

And, if the deal does not go through, the pivot very well could be DraftKings (DKNG) which is beat up right now. More on that later.

Disclosure: I/we have a beneficial long position in the shares of FST either through stock ownership, options, or other derivatives.