quakes99 wrote: Hope you had a Happy Halloween!
And thanks for the interesting responses to my brainstorming thoughts. Almost without exception your replies bring to mind another old saying... can't see the forest for the trees. In this case the trees are Dev, Ross and the Fission Board. Most of you are so fixated on Management (at least you say you are but who really knows) that it makes you blind to the potential outcomes that may have little to do with them at all.
I was quite impressed how you found nothing to argue with respect to the scenario that I put forward, other than how Management is something Lundin may not want anymore. The majority of you have still never looked at Dev and Ross's employment contracts (remember, they are paid employees of the Board... and it's the Board that actually controls the company) and worked out their termination benefits if/when Fission is sold or there is a significant change to the Board of Directors that results in a "change of control". If that were to happen they have the right to quit their jobs and be paid out. Then Dev receives $780K cash+ 2 years paid benefits + immediate vesting of all options and payout of all outstanding bonuses. Ross gets the same deal with $750K cash. Together, all costs considered, they'll get nearly $2M paid out of the treasury. That's why there were Retention Bonuses being offered by Denison that had to be higher than those termination benefits our Management duo would be eligible to receive for just walking away over to Fission 3.0 and taking their staff with them.
You were so fixated on the bonuses that you couldn't see that they actually helped to preserve cash in the transaction. If no Retention Bonuses (to be paid in Mergeco shares) had been offered, and/or Lundin didn't want management to come with PLS, then Denison would have been on the hook for a payout of around $2M in cash, not shares.
So, getting back to the scenario I laid out with respect to someone like China Nuclear wanting to JV for 39% ownership of the Denison big fish swallowing Fission. Some of you laughed at the possibility only because I said Dev and Ross would become the new Management of the very big new fish. BUT, there's no reason for that to be the case. Fission could be acquired and, especially if no Retention Bonuses were offered, Ross and Dev could simply walk away and let Denison find some other CEO and President to fill their shoes, which would result in them having to put up a cash payout of around $2M in those termination benefits. The Dynamic Duo could take their staff with them and carry on exploring at Fission 3.0, where they are still the CEO and President with JV's already running drill programs and there is cash in the bank.
You guys really need to zoom out and see the forest in all its glory. A few trees aren't going to change whether or not Denison or Cameco or Rio Tinto decide to make an offer to buy PLS. If they don't want Dev and Ross then they don't need to take them, simple as that, with a $2M cash payout being their parting gift as they go back to work at Fission 3.0.
That's why I keep stressing that FCU Overhang's noise-making about possible changes to Management only hurts Fission shareholders... suppressing the share price, keeping the Volume Weighted Average Price at near 60 cents.. thereby lowering the amount an acquirer would have to offer... potentially leading to a lower than expected takeout profit. Makes no sense!
You're so fixated on a few trees that you don't notice that a predator could be cutting down the rest of the forest, stealing away your profits while FCU Overhang continues on its quest to drive new investors away. The only way for the share price to rise is to attract new investors!
Changing Directors or Management won't lead to a higher offer by an acquirer... but it could lead to a $2M cash payout to Dev and Ross, including all the benefits, bonuses and options, not to mention the ensuing chaos that would follow.
How is FCU Overhang saving shareholders any money and creating value when that is what it may cost, plus all the legal fees in a proxy contest, options to new directors and the like? You just don't see it. If FCU Overhang were successfull, which seems extremely unlikely, it would result in a big cash hit to the treasury and probably an even lower offer from an acquirer. Sure makes you wonder why there are certain posters that think Jim Gifford is God. What's their real agenda? Why are they trying to lead shareholders down a path to further destruction of shareholder wealth? It certainly won't lead us to a better offer at this stage of the game.
China Nuclear certainly remains the big unknown that could have the most impact, whether it is via a 10% majority shareholder investment, a JV with Denison to takeout Fission, or a complete takeout of Fission standalone if the Canadian government will approve it.
There could be some very exciting times ahead, and very profitable ones too if we can get past this FCU Overhang, bring in new investors and get the share price rising again.
Good luck with your own brainstorming!
quakes99 wrote: As the saying goes... once bitten, twice shy. Let's explore what might get Lukas Lundin past that shyness towards getting involved in another Fission deal.
First off, share price aside, the corporate entity of Denison Mines came away from the proposed deal relatively unscathed. Estimates seem to be that they, like Fission, ended up spending around $1M in legal fees and the cost of sending out the Proxy Voting materials. That's no significant dent in their cash flow coming in from UPC Management and McClean Lake mill revenue streams so, all in all, nothing has really changed for Denison. No staff or director changes, and on a positive note Lundin himself went back to his old job as Executive Chairman to guide the company on.
He didn't get the 2 things he wanted... PLS, the $Billion+ potentially most profitable U3O8 project globally, and Fission's successful Management duo, Dev and Ross, who he (as Dundee said in their recent report) was banking on to unlock the potential in Denison's other huge landholdings throughout the basin and make Denison a new major player in the U space in advance of the next U bull market. Those still remain as unfufilled dreams of his.
And what did he learn from the merger experience?
1. Fission is primarily owned by many unsophisticated retail investors who can't get their heads wrapped around the difference between a merger and a takeover, who don't understand issues of diversification, leverage, and the importance of huge quantities of Institutional and Fund portfolio dollars sitting on the sidelines waiting to be deployed when a U rally gets going. Most retail investors don't see the benefit to a Canadian company in having an NYSE listing. In short... Denison and Fission Boards and Management described and promoted the deal to retail shareholders as if they were sophisticated Institutional investors. The Conference Call, Merger Presentation, Blogs, and even the Town Hall presentations were treating the largest group of Fission shareholders as if they were Institutional investors with long term macro views who could understand and see value in all the nuances of the deal. Big mistake. The retail investors responded with fear and distrust and attacks against management.
2. Fission's retail investors want a deal that is easy to understand... cash and/or shares for a complete takeout. The vast majority appear uninterested in a long term investment whose returns would be based on gradual share price appreciation. Most only relate to a simple sale concept and just want to take the money, sell whatever shares they receive, and move on to another play.
So, if Lukas and Dev are sitting around the table again soon, going through a debriefing exercise to see where things went wrong... I think those issues above will form a large part of the discussion. If another deal is to come then it needs to be simple, easy to understand, transparent with less chance for being misconstrued and falsely characterized by opposing forces. Simple and straightforward is the only path to success.
Given that, it would seem that if Lukas still has the dream of pulling PLS and Fission's Management Team into Denison to revitalize his company and make it the 2nd largest Uranium company in Canada, and the largest Uranium Exploration and Development company in the world, then he is going to have to take a different approach toward achieving that goal. Given that the U sector continues to be weak, and is even weaker now than it has been for awhile (which for experienced investors is often a sign that we are getting close to another inflection point) then Lukas still has time and opportunity to put together a new deal using a different approach.... once bitten, though, it has to be guaranteed to succeed from the get go.
So, what could he come up with? Well, FCU Overhang is certainly playing right into his hands right now. They are helping to suppress share price recovery, keeping retail investors' expectations lower than they would normally be after warding off a merger, which helps to keep the takeout cost of PLS as low as possible. FCU Overhang is helping to set the Volume Weighted Average Price (VWAP) to be in the 60 cent range, and the longer they engage with Fission then the more time it gives Lundin to put together the lowest cost takeover possible based on a premium to VWAP. If Lukas Lundin does want to take another run at Fission, then Jim Gifford is becoming his new best friend. (Funny how enemies can turn themselves into allies after some pivotal event occurs.) Gifford is helping to buy him more time (for no cost:-)
We do know that Lukas Lundin has had 2 of his negotiators in Beijing, trying to work out some kind of deal with China Nuclear since back in April. We also know that Dev and Ross were back in China recently to, as we hear, offer assurances to interested parties there that Fission remains open to investment and takeout possibilities as a standalone company once again.
If Denison still has JV or takeover interest from China Nuclear, then it seems to me that his only real option at this point, for a simple and straightforward takeout that Fission retail investors can understand and accept >67%, is 1.26+ shares of Denison PLUS a signficant cash component being offered by China Nuclear that gives them significant ownership of the resulting world's largest Uranium Exploration and Development company.
That kind of transaction could meet the approval of the Canadian Government under its foreign ownership restriction to 49% of any Uranium project going into production.
How much would China Nuclear need to add in order to sweeten the deal enough to succeed? Say they offered $400M, which would be $1.00 per Fission share. Could that work? At today's DML share price that would be around $1.70/FCU share (1.26 DML +$1.00 cash) and Fission shareholders would continue to hold some upside potential for PLS after the takeout. Might not be simple and straightforward enough for Retail investors to wrap their heads around, and there would be massive dilution from share issuance to China Nuclear for their cash investment, and a large reverse-split to push the resulting share price up to at least $2 or more to be best positioned for Institutional investors ready to jump in at the first signs of a sustained U rally.
Roughly 700M shares for China Nuclear... 500M shares for Fission... plus 600M existing shares = 1.8B shares... 1:4 reverse split = 450M shares outstanding at $2.10/share. $1B Market Cap. China Nuclear would own 39% of those shares. That meets the Canadian Government's 49% threshold.
Some kind of deal like that might allow Lundin to achieve his unfulfilled dreams, though he will have to either enter into a partnership with an entity like China Nuclear or get them to buy both DML and Fission together somehow, with Canada allowing a >49% ownership by a foreign state-owned enterprise.
Result could be the world's largest Uranium Exploration and Development company run by Ross and Dev with PLS, Wheeler, and yet-to-be-discovered Tier 1 assets, part ownership of a mill, shovel-ready Midwest and McClean Lake production through that mill, and fantastic leverage and attractiveness to Institutions when a bull rally gets going. Fission retail investors could choose to continue to hold or sell their shares to pocket around $1.70/share in total, a 180% Premium to VWAP.
I'm just brainstorming and playing with numbers on a lazy Saturday morning. My numbers may be all wrong. You'll probably find all kinds of reasons to dismiss them... which is fine. That's what brainstorming is all about... thinking outside the box and tossing things aside if they fail to be realistic.
Enjoy your day and Happy Halloween!