Mudrick Capital Acquisition Corporation II

Mudrick Capital Acquisition Corporation II (NASDAQ: MUDS) is a blank check company that was formed for the purpose of merger, acquisition, purchase of stock of other business entities.

Recent Highlights:

• On April 6, 2021 the company announced its merger with The Topps Company, Inc., a global leader in sports and entertainment collectibles and confections. The group has a presence across a multi-platform product portfolio consists of physical and digital collectibles, trading card games, sticker and album collections, memorabilia, trading cards, curated experiential events, etc. After the successful merger, the combined entity will be named Topps and would be on NASDAQ under the new ticker symbol “TOPP.”
• The merger consideration would include a combination of stock and cash consideration of USD 1.3 billion, or 12.5x 2021 projected adjusted EBITDA less the net indebtedness of MUDS amounting to ~USD 150 million.

FY20 Financial Highlights (The Topps Company, Inc):

• The company posted revenue of USD 567 million, v/s USD 460 million in FY19. The increase was driven by higher income from Physical Sports and Entertainment and higher income from Digital Sports and Entertainment.
• The company reported its Adjusted EBITDA at USD 101.04 million, increased from USD 51.466 million in FY19.
• The company reported Net Income of USD 83.654 million v/s USD 8.802 million in FY19. The period was marked by lower interest expense (USD 11.656 million v/s USD 13.139 million in FY19), a slide in depreciation and amortization (USD 4.193 million v/s USD 4.693 million in FY19) coupled with lower Sponsor management fees & expenses (USD 2.199 million v/s USD 2.271 million in FY19).

FY20 Income Statement Highlights (Source: Company Presentation)

Risks: To fund the above merger agreement, MUDS has opted for a private placement of USD 250 million of common stock. Thus, the future risks might include liquidity crunch due to failure of capital issuance coupled with the risk of failure of new business segments.

Stock Recommendation:

The business prospect of MUDS remains positive as Topps has a portfolio of iconic brands with a competitive moat and high barriers to entry. The company has notable strategic licensing partnerships, including Major League Baseball, Major League Baseball Players Association, UEFA, Bundesliga, Major League Soccer, etc. Moreover, the company is focusing on expanding its footprint across Blockchain and would build a secondary market revenue stream. However, the above business depends upon consumer preferences, and a change in consumer preference might lead to a lower traction, which would subsequently impact the company’s future revenues. The stock soared on the acquisition news and we expect some consolidation going forward. Hence, we prefer to remain on the sidelines and give an ‘Avoid’ rating on the stock at the closing price of USD 10.87 on April 07, 2021.

Price Chart (as on April 07, 2021). Source: Refinitiv (Thomson Reuters)

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