Orange 21 Inc. (NDAQ: ORNG) shares are trading at a discount after a large holder made an offer to acquire the company in a Schedule 13D filing with the SEC. Costa Brava, a hedge fund that owns a 9.6% stake in the firm, offered to purchase the company's remaining shares for $3.90 per share, which represents a 6.8% premium over the current market price. The offer comes at a 30% premium, however, to the August 19th close, and also offers shareholders liquidity not available given the low trading volume.

The proposal is subject to performing satisfactory due diligence on the company and the execution of a mutually satisfactory definitive purchase agreement. Costa Brava indicated that they are available to start due diligence immediately and are prepared to conduct negotiations on a definitive purchase agreement in tandem with the due diligence. Notably, the purchase agreement would not be contingent on any financing, which gives it a higher probability of going through.

Orange 21 has yet to respond to the issues, but many shareholders are hoping that the process will move forward. Others are hoping that the company will hold out for a potentially higher offer that could give shareholders an even larger premium in the event of a buyout. However, it is uncertain whether or not Costa Brava would in fact issue a higher price. The risk of course is that they walk away from the merger and shares return to their $3.00 valuation.

Orange 21 Inc. designs, develops and markets products for the action sports, motorsports and youth lifestyle markets. The Company’s principal products, sunglasses and goggles, are marketed primarily under the brands, Spy and SpyOptic. These products target the action sport and power sports markets, including surfing, skateboarding, snowboarding, ski, motocross, and the youth lifestyle market within fashion, music and entertainment.

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