Mercantile Bank (MTL) has long been too small to be listed, too tightly held to be traded and too under-performing to really care. Earlier this year, the Bank issued a cautionary announcement indicating how it's Portugese parent was considering buying out minorities and delisting the Bank.

This comes shortly after a failed bid by Bidvest for the Bank Bidvest Bidding for Mercantile Bank) probably rattled some Mercantile ExCo and its Portuguese parent's cage a bit.

Late yesterday, Mercantile released an announcement detailing an offer to buy out its minorities at 52cps in cash.

Mercantile's share price was drifting just below 40c the day before and jumped up to close yesterday at 48c. This over 20% rise in MTL's share price has left a little over 8% arbitrage opportunity on the table, but the problem is that investors now buying at 48c may have to wait for quite a while to get the necessary approval and the final payout.

Not just event risk of a takeover/delisting bid failing, but also actually the time value of money is also built into these types of arbitrages.

Personally, I see quite a number of other opportunities in the market and would leave the 8% on the table, take my money and shift it into stocks that currently have more upside than MTL's capped 8%. Either way, though, if I waited, I would accept the offer on the table of 52c (which is very generous compared to Bidvest's offer of 35.5cps for each MTL share!).

Moving onto two positive trading updates, Spur Corp (SUR) and SilverBridge (SVB).

Silverbridge is a niche software group servicing the financial services, insurance and related industries with most of its own IP and products. The Group has just announced that it expects its EPS to be between 5.6cps and 6.3cps and HEPS is expected to be between 5.8cpss and 6.5cps.

This is extremely good news for the micro-cap, as in the previous reporting period some implementation problems saw it report a nasty little loss.

In a nutshell, using the DCF Model (and my 'rule of thumb' benchmark Cost of Equity of 15%) I arrive at a rough fair value of 144cps.

While capex is relatively low in SilverBridge, the Group has to spend a large amount of money on R&D for Exergy (and related), thus this creates quite a draw down on free cash flow in the Group that negatively impacts the DCF’s free cash flows. If this R&D is excluded from the DCF, then the SVB’s NPV almost doubles.

Bear in mind that a lot of this R&D is capitalized on the Group’s balance sheet and amortized through the Group’s income statement over time, thus making profits look higher the related cash flows and, perhaps, making SVB look better than it really is when only profits are viewed and not cash flows. In other words, SVB's PE ratio will be lower than if it were calculated on a cash-basis.

An extrapolated 12m TP for SilverBridge would be 165cps or implying a total return of 15% with SVB’s current share price of 144cps.

Unfortunately, in my opinion, 15% upside is simply not enough to go on for the SVB’s risks (which include an over concentration of IP in certain key individuals in the Group!) and shares almost complete absence of liquidity in the market.

Still, given SVB’s strong in-house IP and its sizable majority shareholders, this does potentially make the Group a delisting candidate (being an MBO, LBO or even a private equity deal). Perhaps, like Mercantile mentioned above, an offer to minorities may one day appear?

Finally, Spur Corp (SUR) indicated that it expects its H1:12 EPS and HEPS to increase by between 18% to 22%.

Sounds good, doesn't it?

Well, let me visually represent something for you: Famous Brands' (FBR) RoE versus Spur's (SUR) RoE over time.

Famous Brands is increasing in profitability, while Spur is decreasing.

Various share repurchase effects, once-off cost non-re-occurrence and some revenue growth all are the likely culprits for Spur's trading update (we will know more on 27 February when the results come out), while Famous Brand's is all about top-line growth and returns to scale.

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