locking up esg scrip

Companies can only issue more shares (without shareholder approval) to a limit of 15% in a twelve month period.

Working backward, that means that 12 month period is going to expire in August. Conveniently at about the same time as I expect the reserves upgrade to come.

Now ESG is fine for cash now. This post isn't about ESG's need for cash. This post is about an opportunity for ESG to put in place an additional blocking stake to guarantee they get top-dollar in a contested auction.

Near enough, there are one billion shares on issue. 15% of that is approximately 150 miilion shares which can be issued in August after the 12 months expires. This can be done without my approval, or yours, or, most importantly without Santos' approval.

Now, if Santos and ESG are working cooperatively with each other, and Santos or GLNG are not a takeover threat to ESG, then disregard the following. But, what if ESG, having got their reserves up in August to a level they are happy with, did decide to place 15% with a non-Santos party..?

Let's just call this party 'Party X'. Party X could be a non-Santos QLD LNG company like Shell or BG; Party X could be a Japanese company like Marubeni; or Party X could be an Australian conglomerate like Wesfarmers, who are being brought in purely for investment/strategic purposes.

So ESG issues 150 million shares to Party X. None to Santos and none to anyone else. Party X now holds 150m/1.15 billion shares, or 13% of ESG. Santos is then diluted down from 20.97% to 18.23%. And ESG Directors and Associates who currently own about 12% would then own 10.4%.

Now, before someone pipes up with the same old chestnut about retail investors (like me) not getting a piece of the action, let me just say this - if your aim is to lock up scrip in the hands of a non-Santos party, it is better locked up in the hands of a large company who can go up against Santos. Retail shareholders are notoriously not good at holding onto their shares! And if such a placement to a non-Santos party ultimately results in Santos or others having to pay more to secure ESG, then all retail shareholders share in that benefit.

But, wouldn't such a placement annoy Santos? You bet! It would water down Santos' 'investment' and it would be provocative. Not something you would want to do before you had your reserves in hand. But, if Santos wasn't able to come to the party on an acceptable deal to ESG ... why not secure ESG by a placement to a third party?

Santos, of course, will be aware of when ESG can place another 15% of shares without their approval. Before August there is a window of opportunity for Santos to act, after August Santos may be in a far less strong position than they are now...

So, after August, we could have:

Santos - 18.7%
ESG Directors & Co. - 10.4%
Party X - 13%

And if Party X wanted to bid for ESG, what better way for them to get a platform from which to do so? It guarantees a multi-party contest and hence top dollar for ESG, and Santos' holding doesn't look quite so threatening. Win-win? Except for Santos, of course. :)

Not only that, as Santos will be diluted down, there will be no more of that naughty creeping over 20% which Santos have been known to do. Back to the naughty spot, Santos!

But, these are all just mischievous thoughts. Maybe Santos is working cooperatively with ESG to commercialise our gas? Shoulder-to-shoulder, arm in arm... or maybe not... :)

Nice to options, so no one steals our jewels too cheaply...

Yaq