This post is for those who are new to the game, and want to know more.
My appologies for not much participation. Duty calls - I should have spelled that "doodie"
First Observation
Baytex is under owned – which results in a large share trading float relative to the fixed amount of outstanding shares. Add a merger, and it becomes even harder to determine what the number really is.
It’s under owned because of NYSE de-listing and low share price performance, added to the possibility of bankruptcy during the pandemic. It’s still a recovery story.
Now, uncertainty caused by the merger will place some interested institutions into wait mode. Add the possibility of a recession, long overdue and no fault of Baytex, and the sidelines appear to be sanctuary for all stocks.
Short positions are now unclear in terms of percentage of outstanding shares, that will change drastically, relative to the combined outstanding shares of both companies. Whether short or long, you have to see this as a bad time to short, unless your time frame resembles that of a teenager with an iPhone.
Second Observation
My personal opinion on the merger is as stated previously. Short term, I hate it. Long term, I am neutral because the new CEO needs to show us he intends to eliminate debt, and reduce share count. Adding new senior secured notes at 8.5% interest means, a lot of money that could be used to pay down debt, will go to note holders, and not to people like us. We are getting less for our capital. Bankers that print money out of thin air do not deserve 8.5% interest. People like us, who worked, saved, and invested, need to be rewarded. Imagine the dividend yield at 8.5%!
If the debt is eliminated on the same schedule as was posted last year, fine. I will support this merger no sooner than November if the information then shows us they intend to eliminate the debt completely. I would rather see the debt reduced to zero before buying back shares.
The old addage “Debt Kills Business” is still valid, no matter what Harvard and Yale teach today. It almost buried this company in the pandemic. What looks good on a whiteboard, may not work in reality.
Third Observation
The sector Baytex belongs to still looks good. The Policies of the US government and all others that run things the same way, have created problems that will benefit Baytex. No matter what they want reality to be, the reality is the world is still consuming 100 Million Barrels of oil a day or so, increasing as time goes on. The world will never run out of it, only the ability to recover it at a price worth it to produce.
We as shareholders need to see Baytex added to additional indexes that force ownership of shares to track those indexes properly. The Russel 2000 to the SP400, and everywhere in between, is what we must see Baytex added to before share price can make a meaningful move.
Give Baytex 75% institutional ownership, and share price will go up. Keep adding debt, and I’m gone at some point. This company, once upon a time, paid a monthly dividend.
Adding debt and paying it down is no more effective than a dog chasing it’s tail – there’s no worthy protein reward to be had.
RS