It's been a while since my Special Situations portfolio added to its position in Extendicare (OTC:EXETF), but I'm back to buy more now with the stock's recent weakness. The sale of the company's American unit appears to be on track and that should act as a huge value driver here over the near term.

I began buying Extendicare in December last year as the company had made it clear that it was divesting its American unit, either through a sale or spinoff. Earlier this year we learned that the company had an interested buyer for the unit, but was waiting until it cleared a U.S. government investigation before it could close a deal. Since then, the situation looks a lot clearer and the situation appears de-risked.

In July, the company announced that it had cleared the investigation and tentatively resolved to pay $38 million and create a five-year compliance program that would cost between $1.5 million and $3.5 million annually. But most importantly, the resolution allows the American unit to continue to participate in federal health care programs. Shutting off that revenue spigot would have been a worst-case scenario, and it was entirely reasonable that any buyer wanted the investigation cleared before purchasing the unit.

Now it looks like further negotiations are continuing on the sale of the American unit. Throughout the investigation, management kept the buyer informed of what was going on. That implies the buyer is quite serious and is largely up to speed on what it needs to know to close a deal. A deal could be announced at any point, I think.

How much could the American unit be worth? I go through a few valuation scenarios in one of my previous buy recommendations, and I think they're still reasonable estimates of value today. I think we're getting a cheap call option of the value of the unit and a nice dividend while we wait for this situation to be resolved. For more on Extendicare, follow me on Twitter: @TMFRoyal. And check out my dedicated discussion board.

Foolish takeaway
My Special Situations portfolio is buying more Extendicare, adding about $3,500 – or about 4% of the portfolio – to my position. The stock already comprises 29% of my holdings, but the low downside and the potential for significant upside here looks just too attractive to pass up.