by 10 Bagger Club,
The great news now is that the Share Sale Agreement is signed and is binding.
The next step will be the meeting to get shareholder approval for the transaction. The notice for this meeting (as per the December 1st letter to shareholders) should go out within two weeks of the sale agreement being signed, so we will soon find out details of what they plan to do with the money - US$121 million after tax.
This transaction will drag on a bit as approval is still needed by both the Eritrean Government and China’s Ministry of Commerce (MOC). The Chinese side will also require the State Admin of Foreign Exchange to approve funds outflow to Australia. And there is a smaller department – State-owned Assets Supervision and Administration Commission of the State Council (SASAC) – that has to agree but at this stage it will all be approved.
And we don’t know how they will return funds to shareholders. We expect it will be in a share buy back as that would have the best tax outcomes for most shareholders. It worked very well for shareholders of Euroz Securities in their return of money to shareholders after selling a funds management business.
But it could be in the form of a special dividend or capital return…
The company said it will return these funds and then continue as an ongoing entity. That’s why a share buy back makes a lot of sense and we think the amount returned as cash to shareholders could be a bit higher than the 42c estimate. This is why we believe the stock is trading at 42c. If it was just 42c then the stock would be trading at 35c or so.
There is also the possibility of some shareholder activism before this story is over. A lot of investment funds bought into the stock over the last few months as it was a relatively low-risk way to buy at 32c and 35c and even 42c and end up getting +50c for their stock. But these investment funds could easily call for a higher return of money than the company is proposing.
Let’s see what happens here.
On the other side of this transaction:
We’d be guessing as to what cash amount will be left in the new shell company and what the shares will be trading at. And whether the board will change or numbers be reduced. We suppose a new name is required.
The bottom line is that US sanctions severely hampered this project. And it is they, that will regret this decision, in the coming years.
Please be aware that past performance is no guarantee of future performance. No financial advice given. You are encouraged to do your own research (DYOR) on the above mentioned companies and their strategy/progress and make your own financial decisions.
