Proposed LBO of Greenland [Project Melted Iceburg]

Came across this proposed deal today.

https://www.wsj.com/articles/trump-eyes-a-new-real...
At first glance it might appear that LBOing Greenland, likely with 100% debt as the strategic [USA] is highly levered, is a bold high risk high return move. At present, the target seems to be out of favor for the following reasons:

1) Really fucking cold
2) No one lives there (pop of ~56,000)
3) High suicide rate (10% of males attempt)
4) Zero natural resources
5) Weak corporate governance (currently subsidiary of Denmark)

Bull case: the fears over the long-term secular trend of global warming is overblown. Once the ice is fully melted, the unlocked real estate can be used to combat overpopulation and crowding through development of expensive condominiums or mixed-use housing. Large coastline (~44,000 km) can be used for development of resorts for both families and young vacationers.

Bear case: The multiple contraction caused by said secular trend and business risks have resulted in this becoming a VALUE TRAP that will weigh on the strategic's financials until it is inevitably spun off as a failed acquisition. On the same thread, even if the ice is fully melted the temperature issues will not disappear thus preventing any development. Also little to no synergies with acquirer.

Thoughts?

Comments (16)

Aug 15, 2019

I wish I could think of a joke for this.

But it's just too perfect already.

Most Helpful
Aug 15, 2019

Now this is the Green New Deal I want

    • 9
Funniest
Aug 15, 2019

Added to bull case:

Proximity to high visibility Arctic Circle region offers rare opportunity for underground military base development should relationships with other large cap strategics (Russian Federation LP, PR China Group) deteriorate significantly.

Will send slides on precedents ASAP - Louisiana purchase, Texas, Alaska acquisitions. Last time we reached out to the Denmark guys (1946 Greenland tender offer) I got an OOO, do we have updated contact info in the CRM?

    • 6
Aug 15, 2019

Clarifying point - Texas was never purchased. Merger of equals.

    • 4
Aug 15, 2019

Username checks out - will update in v69.

    • 6
Learn More

Side-by-side comparison of top modeling training courses + exclusive discount through WSO here.

Aug 20, 2019

It's actually a really good idea to purchase Greenland, so long as the price isn't exorbitant. The U.S. could create a modern-day Homestead Act that grants, I don't know, 2 acres of land to any U.S. citizen willing to settle Greenland. Make everything legal (e.g. gambling) and create favorable tax treatment--like a 5% federal income tax rate and 0% capital gains tax on Greenland investment.

Capitalism can create an oasis in the middle of the Sahara. Socialism could create a shortage of sand in the middle of the Sahara. Bet on the free market.

Honestly, if humanity can't settle Greenland then what on Earth are we doing looking to Mars?

Aug 21, 2019

Tbh I would love to be part of perpetuating the development of a "new" country. I'd for sure head over there and freeze my ass off if I could just work remote and Swiss Family Robinson it up for a few years.

Aug 20, 2019

This is interesting because all the hypothetical questions we can generate. Is it imperialism if the transaction is voluntary? What has to happens for it to be voluntary, do all of the 56,000 residents have to agree? Does Greenland become a territory like Puerto Rico, or does it become a state? What about all the questions around valuation? I don't have an opinion either way yet but I am interested in hearing more questions on the topic.

Aug 20, 2019

So how do you value a country anyway?

My best guess is DCF of incremental social benefits to incumbent nation (US) - which can be annually calculated as tax rev from Greenland less social services paid to Greenland.

Thots?

Aug 20, 2019

It's amazing to me that their largest employer is "various levels of administration" in the Greenland/Danish government and that the level of subsidization of industry, air routes, fisheries/cold-water shrimperies etc. is so extensive.

Greenland also looks good to me from an "ginormous though not yet commercially viable large rare earth element deposits" standpoint - particularly with China's current dominance in that mining space.

I think probably including a valuation of the natural resources including the ice, renewable power, and maybe a literal price per acre based on the actual land value plus a premium would go along with your thoughts on the DCF.

Aug 20, 2019

Yep - I think you need to include the tax gained on the stuff u mention (eg production tax on the natural resources)

I don't think we should include the full value of the land / resources as they would remain owned by the land owner and not the people of the status quo USA

Aug 20, 2019
Tricky Triangles:

So how do you value a country anyway?

My best guess is DCF of incremental social benefits to incumbent nation (US) - which can be annually calculated as tax rev from Greenland less social services paid to Greenland.

Thots?

I think the price would be divorced from the intrinsic value. You've got one buyer and a reluctant seller (in a theoretical sale)--in other words, you've got an incredibly limited market. For example, the Louisiana territory purchased from Napoleon, Alaska purchased from Czarist Russia, both territories sold at prices laughably below their instrinsic value.

The final price would be whatever the seller would be willing to sell it for and what the body politik of the buyer and seller could accept.

Aug 21, 2019

Yeah that's fair - this is just to give buyer some idea of highest they should pay or to give seller some idea of what they should get... if they are willing to do the math. So much uncertainty in the valuation that it probably goes to what you describe

Aug 21, 2019

Seems like kind of a shithole tbh. Idk, but I'm not a fan of a place where they just like don't have nighttime for a few months of the year and everyone is trying to kill themselves. I'd rather focus our money on things that actually matter.

    • 1
Aug 21, 2019
Nightman Cometh:

Seems like kind of a shithole tbh. Idk, but I'm not a fan of a place where they just like don't have nighttime for a few months of the year and everyone is trying to kill themselves. I'd rather focus our money on things that actually matter.

A form of this criticism has been lodged for nearly every piece of land ever acquired by the U.S., from Florida (too hot) to Alaska (too cold with weird days/nights). Jefferson received unrelenting criticism of the Louisiana Purchase, too, frankly with criticisms at the time that were on more solid intellectual foundation (e.g. giving money to Napoleon was an affront to Great Britian, which was fighting Napoleon at the time).

Aug 21, 2019
Comment