SFR have shown they prefer farm-in/earn-in arrangements. It's clear that at some stage over the next 3-4 months THX is going to have to raise capital. So hypothetically THX could either raise capital via a rights issue to existing holders, private placement to sophisticated investors or JV, farm-in or the like.
If I'm interested and keen to do a JV with them, keeping the SP limits their options and makes my alternative look safer than the potential for an unsubscribed, expensive rights issue. It's also cheaper to do it that way.
If I'm interested in getting a corner stake in the company with a view to increasing it later and controlling the tenement(s) i'm interested in, then a private placement to me looks a good option; again its lower risk than the company going to market with a rights issue that may or may not be subscribed and has a whole heap of costs that go along with it.
So if option 1 or option 2 are what I want to do then keeping a lid on the SP suits my intentions as the alternative for the company - a discounted rights issue is risky and expensive; also if its a private placement and I get it for a 20%-30% discount to SP and a deeper discount to the intrinsic value (which I believe is 15c+) even better for me.
The less the alternatives or the riskier they are compared to my offer, the more negotiating power to me. the more options that THX has the less my bargaining power. Look at VRX v's TLM if you want to get an idea of what hang alternatives do as opposed to a gun to your head.
All hypothetical of course but plausible to me in terms of some very unusual and manipulative sell side trades that have been going on for about 6-8 weeks.
I banged this out in 30 seconds so apologies for grammar and/or typos.
THX Price at posting:
11.0¢ Sentiment: Buy Disclosure: Held
