quakes99 wrote: Further to your Math post, G5inc., I prefer we work with a real case... so, as I'm sure many of you will be curious to see, let's use Dev as our case study to run some numbers. ;-)
We are fortunate that all Dev's FIS and FCU share transactions are all filed on SEDI for public viewing. I went through and created a spreadsheet that calculated his average share cost and total investment over the past 2+ years. It turns out that Dev has invested approximately
$1,983,539 in the purchase of his current FCU holdings of
3,821,903 common shares as reported in the new Circular. That makes his average cost at about
$0.519/share.... about $2M spent to hold just under 4M shares.
Now let's run some share price scenarios... with and without the merger... to see what will happen to the value of Dev's investment.
Case 1 - Sentiment improves in the U sector after October and there is a broad-based rally in U stocks. Let's use that $1.50 number you used for a future FCU share price. As well, let's assume that on the day the merger closes or not, FCU share price is pegged at 1.26 x DML, which for the traders is zero premium. So if today's DML share price of $0.56 stays as is then FCU's will be $0.71 on voting day. Your FCU price of $1.50 is 113% above that price. If we apply that same 113% gain to the Denison Energy share price post-merger (ignoring the 1:2 reverse split in this scenario, as it may not get approved) we get $1.19 per Denison Energy share for that same 113% gain - either with or without a merger.
Here's what happens with Dev's investment portfolio:
| With No 1:2 Reverse Split | FCU Merged | FCU No Merger |
| Investment Today | $1,983,539 | $1,983,539 |
| Share Price/Average Cost | $0.5190 | $0.5190 |
| # of shares | 3,821,903 | 3,821,903 |
| # shares post-merger | 4,815,598 | 3,821,903 |
| Share Price at merger | $0.56 | $0.71 |
| New Market Value | $2,696,735 | $2,696,735 |
| Increase in Value | $713,195 | $713,195 |
| % Gain | 35.96% | 35.96% |
| New Share Price | $1.19 | $1.50 |
| Dev's new Investment $ | $5,732,855 | $5,732,855 |
| % Share Price increase | 113% | 113% |
| $ Profit from Investment | $3,749,315 | $3,749,315 |
| % Overall Investment Gain | 189.02% | 189.02% |
So, as you can see, even at today's share prices Dev will still see a 36% gain either way on the day the merger is approved, or not. He's still making a profit either way. And if there is a 113% rally in Denison Energy Mergeco to $1.19/share then he could sell and make a nice 189% profit of nearly $4M. If the merger is Rejected, and FCU trades standalone, then the same 113% rise in FCU's share price to $1.50 will get him to the same place... 189% overall gain.
The only difference is RISK. Which path could lead to a takeout before achieving those gains, and which is more likely to get there based on leverage to the rally in the U sector? Up to you to speculate, analyze, and decide...
Case 2 -
A repeat of Case 1 but this time with the 1:2 Reverse Split. Here's how the numbers stack up this time.
| With 1:2 Reverse Split | FCU Merged | FCU No Merger |
| Investment Today | $1,983,539 | $1,983,539 |
| Share Price/Average Cost | $0.5190 | $0.5190 |
| # of shares | 3,821,903 | 3,821,903 |
| # shares post-merger | 2,407,799 | 3,821,903 |
| Share Price at merger | $0.56 | $0.71 |
| Share Price post-merger | $1.12 | $0.71 |
| New Market Value | $2,696,735 | $2,696,735 |
| Increase in Value | $713,195 | $713,195 |
| % Gain | 35.96% | 35.96% |
| New Share Price | $2.38 | $1.50 |
| Dev's new Investment $ | $5,732,855 | $5,732,855 |
| % Share Price increase | 113% | 113% |
| $ Profit from Investment | $3,749,315 | $3,749,315 |
| % Investment Gain | 189.02% | 189.02% |
Result: the same.. no change. The Denison Energy Mergeco share price ends up twice what it was in Case 1, but because the share price doubled at the close dating of the merger, the 113% increase in the share price ends up generating the same overall gain of 189%.
Case 3 - In this case let's say the Cameco takeover scenario I put forward a few days ago was to come to pass. Let's say that either way the merger vote goes, Cameco makes an offer the day after the vote which is
50% above the share price on voting day. We'll leave in the 1:2 reverse split on the Denison Mergeco side. A 50% premium on $0.71 would be $1.06. The same 50% premium on Mergeco's $1.12 is $1.68 in a hostile offer the day after the vote.
| Takeover offer at 50% premium | |
| With 1:2 Reverse Split | FCU Merged | FCU No Merger |
| Investment Today | $1,983,539 | $1,983,539 |
| Share Price/Average Cost | $0.5190 | $0.5190 |
| # of shares | 3,821,903 | 3,821,903 |
| # shares post-merger | 2,407,799 | 3,821,903 |
| Share Price at merger | $0.56 | $0.71 |
| Share Price post-merger | $1.12 | $0.71 |
| New Market Value | $2,696,735 | $2,696,735 |
| Increase in Value | $713,195 | $713,195 |
| % Gain | 35.96% | 35.96% |
| Takeover Offer | $1.68 | $1.06 |
| Takeover Value | $4,045,102 | $4,045,102 |
| % Share Price increase | 50% | 50% |
| $ Profit from Investment | $2,061,563 | $2,061,563 |
| % Investment Gain | 103.93% | 103.93% |
So, in this case study the hostile takeout with a 50% premium has a serious impact on Dev's bottom line. But it doesn't matter, merger or not, whether the offer is for Denison Energy or Fission Uranium. If Cameco was to offer a reasonable 50% premium then both ways end up at the same 104% gain for Dev.
But look at the net profit!
That lowball bid knocked nearly $2 Million off Dev's net profit! Are you starting to see why Dev want's the merger to be approved and a success as the new mid-tier Uranium Play in the world that has high leverage to rising U prices in the long term?
By circling the wagons with Denison, holding off Cameco and others who might attempt a hostile bid to tired and frustrated shareholders... he and Ross can continue to grow PLS with a reduced risk of a hostile takeover once merged with Denison.
A single asset company trading at near a 52-week low is a prime target for a takeover, whereas a company with a diverse set of assets is less likely to be a target.. so Management has more control over when to sell and for what price, holding off buyers until the Price is Right!
Anyway, what I was hoping to show here is that when you deal with % increases in share prices, both paths can lead to the same kind of gains if allowed to get there. The difference is in the risk in each path, and which one meets your investment needs best. For Dev it is obviously in his best interest to merge and delay the sale of PLS. For you it may be very different, and you may be happy to take a quick lower profit, or a tax loss, so you can put your money in some other stock with leverage in a U rally. Dev thinks Denison Mergeco will be that stock with the most leverage to U prices. You may have a different idea. ;-)
How you vote is your choice... and yours alone.
Good luck with your deliberations!