dilutionSo the upshot is that SEGL is issuing an extra 64 million shares at S$0.161 per share. That's 16% dilution at a 9.75% discount to last trading price.
38 million shares are a private placement, proceeds to be used for working capital and investment /acquisitions. (30% and 70%, respectively)
26 million shares are issued as payment for additional shares in Spackman Media Group, to bring SEGL's stake from 24.5% to 27%.
I'm not thrilled about the private placement. The discount to market is pretty steep, and these guys don't have a great history of acquisition success. Hopefully they push it towards further growth at Zip rather than buying some random assets.
The purchase of an extra 3% of SMG is odd. At S$0.161 per SEGL share, it's costing them about US$3 million for an additional 3% stake. So they're valuing the SMG equity at US$100mm in total. This is for a company with a 7mm tangible asset value and 0.86mm profit last year. Seems very rich. But then you look at this analyst report
https://nebula.wsimg.com/aab93f7b0a41c5b4a822c6552070252e?AccessKeyId=CFB69E6CC12E39216AB4&disposition=0&alloworigin=1
which suggests their stake prior to this transaction was worth $45m, thereby valuing the equity at around $170mm overall. The end result is that their SMG either isn't worth nearly what that analyst thought, or they're getting it for a "steal". Sure doesn't seem cheap to me.
Also interesting: Half of the SMG shares are being bought from DVG Limited. You might recognize that name from SQG's financial statments. From the 2014-2015 consolidated reports:
"During the year ended December 31, 2015, the Company granted a promissory note amounting to US$500,000 to DVG Limited (“DVG”), a company owned by a former executive of a subsidiary of SEGL over which the Company has significance influence. The promissory note is unsecured with interest at 7% and matures on May 7, 2016. The promissory note was considered to be impaired due to the uncertainty of the timing and amount of any payment. Accordingly, the full note amount and accrued interest of $723,073 was written off."
So the history here is that Spackman Equitites (then called Centiva) bought a small stake in Opus and Zip from DVG Limited in 2011. A few years later they advanced $500k, unsecured, to DVG... only to write it off completely within that year. And a little over a year later they purchase a further stake in SMG from DVG. Hmm.
THis is getting long. Mostly I'm writing to have a record of my thoughts on this. Hope someone else gets something from it. Overall my take from this transaction is that SQG shareholders won't realize any value any time soon.
I would've expected SEGL to trade down on this news, but market just opened and it's holding steady on heavy volume... so, what do I know?