Mudrick Acquisition II (MUDS) price drop – why?

Since my post on Topps 2 weeks ago, Mudrick Capital Acquisition Corporation II (MUDS) has seen a sharp price drop. As a recap, this is the SPAC that will merge with Topps to be listed as “TOPPS” in NASDAQ soon. Just last evening, MUDS dropped 15.16% to close at $11.58. With such a big price drop, you must be wondering WHY and if it’s time to buy into TOPPS/MUDS now. I’ll share my thoughts below.

A big price drop on Mudrick Capital Acquisition Corporation II (MUDS) – the SPAC that will merge with Topps

Why MUDS price drop

First up – WHY is there such a big price drop in Mudrick Capital Acquisition Corporation II (MUDS)? I see 2 key reasons for the drop.

AMC Entertainment (AMC) Factor

First – the filing disclosure by AMC Entertainment (AMC). AMC disclosed a $230.5 million investment by Mudrick Capital Management in a securities filing posted before the opening bell Tuesday. Mudrick Capital Management had bought 8.5 million shares at $27.12 apiece, a 4% premium over AMC’s last traded price.

For AMC investors, this is great news, as the cash injection helps in liquidity (growth, debt repayment, operating expenses). This resulted in AMC share price shooting up 22%. It’s also a signal of confidence for AMC’s business when as a major fund buys into it. The irony is this – just hours after the disclosure by AMC, Bloomberg reported that Mudrick Capital had sold all of its stock in AMC Entertainment for a cool $40million profit. Flipping does brings good profit but risk incurring the wrath of AMC active investors. AMC investors managed to bring AMC share price from $2 early this year to $20. There might be a lingering concern the action from Mudrick Capital would attract short sellers to MUDS. Or investors might confuse MUDS as the entity that bought (and then later sold) AMC when in fact it’s Mudrick Capital.

Is Mudrick Capital Acquisition Corporation II (MUDS) related to Mudrick Capital Management (who bought and sold AMC)?

From Wikipedia, it looks like both are related. Heck, the name almost sounded the same! Hence, the concern of short squeeze might be valid. There are not many listed shares related to Mudrick Capital to short. However, it is important to note that MUDS (as a SPAC) is quite independent from the recent AMC deal (flip). MUDS as mentioned in my previous article is actually investing in TOPPS and not AMC. I think in the medium term, this will settle down and should not overly impact the price of MUDS.

In short, I don’t think the AMC announcement will have any long-term impact on Mudrick Capital Acquisition Corporation II (MUDS).

Candy Digital “going NFT” in MLB

The other reason for the price drop – probably a bigger factor is the announcement by Major League Baseball (MLB) on a long-term agreement with digital collectible company Candy Digital to release NFT.

Now, this is exactly what Topps seeks to do – having MLB NFT as a growth driver. From the announcement, it sounded like Candy Digital is now coming into to the same space as a direct competitor. Based on the press release here, the word “exclusive” is mentioned – further driving concern if Topps would even be squeezed out of the game. Hence, one of the lure factor in buying Topps via MUDS might be negated.

Time to invest in TOPPS – buy on dip?

The concern on Candy Digital coming into the NFT space for MLB is valid. However, Topps has been around long enough to navigate through competition (think traditional trading cards where there’s Upper Deck or Fleer as competition years back). Topps is not tied exclusively to MLB and they might be looking at tie-ups with other sporting associations/companies. Additionally, it’s not a case where Topps is totally out of MLB. Topps and MLB has an exclusive license on trading cards through year 2025. We will get more clarity if Topps will now be stopped to issue NFT. If it isn’t, I feel that the current price of MUDS is a attractive entry point to invest in Topps.

Update 2 Jun 9.50am:

Topps has just released a statement today.

“Major League Baseball (MLB) and Topps today reaffirmed that their licensing relationship, under which Topps offers a variety of MLB physical and digital products, is unchanged and will continue to include Topps Major League Baseball NFT (non-fungible token) trading card products.”

The other notable statement was:

“ net sales for the first quarter ended April 3, 2021 increased 55% over the same period a year ago to approximately $166.6 million”

This means that Topps is still licensed to issue MLB NFTs and this is NOT exclusive to Candy Digital. The growth in revenue is very encouraging. With this, I have taken a position in MUDS.

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