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19/11/21

15:17

Post #: 57706379
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Originally posted by WilliamD ↑

Unsubstantiated information

Investors

From investors' perspective, the party that I have had highest hope for when investing in SRJ is Mitsui. I hope the progress to be (i) first stage, SRJ proves its capability via contract works with MODEC (Misui Ocean Development & Engineering Co.) (ii) second stage, SRJ becomes a Misui affiliate (Misui owns > 20%) and (iii) final stage, SRJ becomes a Mitsui subsidiary (> 50%) or is completely acquired by Mitsui. By then, Mitsui would generate income from relationship with SRJ via three sources - holding in SRJ, sale of steel to make SRJ product (noting Mitsui Steel is the one representing Mitsui Group in dealing with SRJ - people can refer back to past announcements), and commission from referring businesses (from MODEC) to SRJ (I understand a number of contracts won recently are MODEC referrals).

I heard the key Strategic Partner that SRJ is trying to bring on board this time is indeed Mitsui. They bought 1m CDI's at IPO and I suspect have been waiting for confirmation of the first stage mentioned above before they move to the second one. This would be the right time for second stage. I heard there is still negotiation with Mitsui in how they want to participate. From my experience with Japanese conglomorates, they might want to first come in via convertible notes / preference shares with performance-based conversion trigger(s). Even with that, they might request a seat or two at the Board.

To me, Ellerston has proven to be a worthy Insto investor. I heard it was the biggest participant to the IPO last year. They are also the key party who picked up Regal's irresponsible dumping (thanks god, Regal is out. I don't have great experience with them). I heard Ellerson will again be a key participant in this round.

I heard the cap raise is oversubscribed. If Mitsui and Ellerston are indeed to main participants in this round, with escrow and Mitsui's Board representation, I would be quite confident about the long-term commitment.

The acquisition

No matter how we put this, this is a classic reverse takeover to me. To incentivise the acquired's key persons to stay on and commit, I suspect it will be a mix of cash and script with the common earn-outs, performance-based deferred payment.

I heard a reasonably thorough due diligence has been conducted. In transactions like this, normally to progress this far, Management would have had the green lights from majority of Board and major holders (who collectively control > 50% of eligible voting shares). I suspect, as other M&A deals, Managements from both side already signed the agreement subject to (i) shareholders' approval, (ii) regulatory approval and (iii) final DD. Of the three, I envisage the second item to be the main pending item which might cost quite some time. Noting ASX has become really tough on reverse takeovers. Also the acquired is an overseas company; hence, whilst I don't feel the presence of common material issues (e.g. anti trust, national security, etc.), regulators in different jurisdictions might still need lots of time to consider, taking into account the upcoming Xmas New Year break.

Integration might take some time too, noting in my experience, companies normally want to implement the initial phase of integration prior to relisting.

In short, I suspect the key pending items are regulatory approval and negotiations with investors about final details of the cap raise.

Again, unsubstantiated information. Hope it has been helpful to our discussions.

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You certainly seem to have an ear to the ground, unsubstantiated or not. Kudos.
SRJ Price at posting: 43.0¢ Sentiment: Buy Disclosure: Held
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0 Great analysis

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