RE: RE: RE: PP PP is certainly faster; however management should NEVER sell control of the company at a discount which is what they proposed. The stock has tanked since the PP announcement. The reason IMO is that management was seen as not acting in shareholders interests and horrible capital allocators. Since we are no longer under a time constraint, a rights offering is the fairest way to go. The cost of the offering is minimal in comparison to selling control without a premium.
I would like to see the company be wise about the whole thing. Great mangers know that you only issue stock when it is (1) at a premium to its true value, or (2) when what you are acquiring is worth more than what you are giving up (what the stock times its true value equals). We all knew last fall that the stock was worth more than 50 cents. So that left management to figure out if option 2 was true. To determine that you must know the approximate value of the company. I personally think it is/was around $1.50 per share. Which means the 70% of Mengapur that MMY proposed to buy needed to have a NPV using a minimum 15% discount rate in excess of $265 million to be worth issuing stock. It is doubtful that they were getting that much of a steal. It was a distressed seller but not that much.
Calculation was 140 million shares times $1.50 value = $210 million Plus 70 million warrants times
.80 ($1.50 less
.70 strike) = $56 million. Thus the $266 million total.
That is all past now. The PP was to buy Mengapur which MMY has already purchased for cash. So option 2 is meaningless today. We have to revert back to whether we are issueing stock at a discount or premium to its intrinsic value. The answer is a huge discount. Thus management should cancel the PP.
Great managers (Capital allocators) also know that when your stock is selling at a substantial discount to intrinsic value you buy it back. It is a low risk way to benefit shareholders. This is what MMY should be doing once the warrants expire. This fall they should use the $40 million they will have accumulated by then to to do a Dutch tender and buy back shares at say
.60 per share and reduce the shares by one third. That would leave Selinsing producing $80 million in cash flow on a share base of 120 million shares. That is the wisest and best use of cash. That increases the per share value of the company substantially which is mangements primary purpose.
Once the market views management as capable capital allocators the stock will likely trade near intrinsic value of $1.50 per share instead of a huge discount. This will make it easier to use stock in an acquisition or to fund development of Mengapur in an intelligent manner.