Market misunderstands reorgI don't understand why the shares traded at
.06, which is roughly 500% above management's estimate of value.
At the current price of
.06, the market is saying that the company has a split adjusted share price of $9.00 and an enterprise value of $229 million. This is tremendously higher than the total outstanding senior secured creditor claims of $136.4 million and management's estimate of value of between $30 and $50 million (see p.17 of the PIL:
https://www.kpmg.com/Ca/en/WhatWeDo/Advisory/TransactionRestructuring/CreditorlinkSites/Adanac/Documents/Plan%20Information%20Letter.pdf).
If the shares trade in line with management's view of intrinsic value, they will be at a post consolidation price of $1.18 - $1.96, implying a loss to those who bought at
.06 of between 78% and 87%. Ouch!
However, in post reorganization equities, the price generally comes under pressure upon emergence from bankruptcy due to the selling pressure from former creditors. Therefore, I expect over the next few weeks for the shares to trade for less than intrinsic value.
I may take a look at buying these shares at around $1.00 - $1.20 (about
.006 in today's share count). This would imply a decline of about 90% off of today's price, which isn't unrealistic.
I have one question though - who was buying today and why? Why not wait a couple weeks and get shares 90% cheaper