Why minorities should take up their rights

The entitlement offer closes Tuesday 18 Feb at 5pm.

Interesting to see William Packer go substantial yesterday which, combined with Magides telling the AFR that he will take up a "percentage" of his entitlements, makes me suspect minorities will own more than the 10% needed to stop RIO compulsorily acquiring us at 15c.

Why do I believe this?

Packer is a very successful investor (see here: https://www.packerco.com) who has been buying above 15c - he bought 2.9m shares at 20-21c before they went ex-entitlement and currently holds 35.9m shares after buying 30m yesterday. As he has been buying on market both before and since the shares went ex-entitlement, I think it is reasonable to suggest he may have also been buying entitlements while they were trading.

Why would he do this? And why would he pay more than the 15c that RIO intends to pay to compulsorily acquire minorities? The only logical conclusion is that he intends to buy enough to get to 10% and stop RIO's compulsory acquisition. If he doesn't, then it is a guaranteed losing trade for him - and he isn't a fool by any means.

At 15c, ERA's diluted market cap (ie including the shares issued in the entitlement offer) = $554m. At 16c, ERA's market cap = $591m. That means that Packer needs to pay $55-$59m to gain 10% of ERA. This is easily manageable for him as it would represent only 2-3% of his $2.5bn portfolio at 31 Dec 19 (see here: https://www.packerco.com/media/newsletters/PackerCo_December2019.pdf)

And that's the max he needs to pay. Magides owns 85.7m shares, which works out to 2.3% of the expanded share count before whatever "percentage" of entitlements he takes up.

If I am correct, then minorities will hold enough shares to stop RIO's compulsory acquisition and hopefully allow us to benefit from the impending rise in U3O8, which will likely happen sooner or later due to the ever increasing supply / demand imbalance in the yellowcake market. As such, I think taking up entitlements at 15c represents a good trade.

Even if I am wrong and minorities don't end up with 10%+, we are likely to be compulsorily acquired at 15c within 6 months and so this is a trade with little downside.

So I will be taking up some of my rights too - unable to take them all up due to portfolio weighting and cash issues, though, but still will be able to almost halve my average holding price.

NOTE: This isn't personal advice and DYOR.