I don't like the option at all. OLX gets not one but two bites at it, and the exercise price is "based on the fair market value of Encuentra24 at the time, as assessed by an independent third party" (no clue as to who or what this is) rather than either a simple number or a revenue/profit multiple. This arbiter is surely less able to judge value than OLX and FDV as insiders, dudding us if they err on the low side. If the merged company is going to be a success we get bought out, if it's not we're lumbered with a holding that's probably worthless. That's not a good sort of asymmetry.
This announcement omits a couple of other details that would have been useful in assessing the deal. One is what amount of cash if any Encuentra24 contributes, and the other is to what extent OLX's operations are profitable or loss-making, noting that Encuentra24 had been slightly EBITDA positive in the last two quarters.
Rather like the recent purchases of Lanka propertyweb and iMyanmarhouse, this is interesting less because of the value creation/destruction itself (which is relatively minor) and more as a canary in the management coalmine.
FDV Price at posting:
$1.03 Sentiment: Hold Disclosure: Held
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