A Major Overhang In MDC Partners May Have Just Been Removed

Investors in MDC Partners Inc MDCA are breathing a sigh of relief Wednesday following news the company reached an agreement in principle to settle a probe with the SEC.

The stock jumped more than 9 percent in mid-day action Wednesday, and closed up more than 11 percent at $3.95.

This probe was related to allegations former Chairman and CEO, Miles Nadal, improperly incurred expenses, to the tune of $11.285 million.

Under the proposed framework, MDC will not be admitting liability and will pay a $1.5 million civil penalty to the SEC to resolve all potential claims against the company.

In the press release issued Wednesday afternoon, the company iterated SEC Commissioners must still approve the proposed framework which was laid out, and noted that terms of the deal are not yet final.

The news and price action Wednesday follows a massive selloff in the stock over last Friday's session, when the company posted its third-quarter results. Shares tumbled 60 percent over Friday's session.

SEC Settlement News 'Removes A Huge Overhang'

A notable analyst in the name, Albert Fried's Rich Tullo, spoke with Benzinga following the settlement framework news. Tullo reiterated comments he has made in research notes over the last year. His latest note from November 4 -- just one day after the massive selloff -- included an upgrade in his investment recommendation, from Underweight to Overweight.

"This is a great step in the right direction," Tullo said. He highlighted his belief the framework "removes a huge overhang" for MDC and shareholders.

When asked about the price reaction in MDC shares following the probe settlement news, Tullo noted "there has been some dialog about the [investigation continuing] but that is for past management -- not the company's current management."

Tullo reiterated his $7 target on the stock and said he expects shares to "fill the gap on this news."

A Buyout May Be In The Cards

Seemingly echoing the sentiment of some traders in MDC, one of the main bullish points of Tullo's research note from November 4 (and something he has maintained on the name for quite some time) was an urging to merge with a big player like Publicis. He sees the timeline for such a deal before the second quarter of 2017.

Recent Notable Insider Buys

Another certainly-interesting factor in the MDC story: following the earnings-related selloff, four insiders in the stock purchased shares totaling about 215,000 shares. Insider buys in a contested name can sometimes be viewed by investors as a notable flag of confidence for the prospects of the company.