Ann: Trading Halt, page-88

Fellas, the SOA deal (agreement between your Board and the POS Board) ascribed a value of ~5.2c/share for HZL (specifically 5.19c/share). It shouldn't be a great surprise that the HRZ SP fell to around that level soon after the deal was announced and trading resumed. What happens next week and beyond is another matter, but you can think of 5.2c/share for HRZ as the starting point for the deal.

How so?

Shorthand Method:

• The SOA's Transaction Ratio is 0.1156 New HRZ Shares for every 1 POS Shareheld. (It can also be expressed as 1 New HRZ share for every 8.65 POS shares, which was used in the Longhand Method.)
• The SOA articulated an ascribed value for POS of 0.6c/share.
• No mention of an ascribed value for HRZ in the deal, but it can easily be derived.
• 0.6c (per POS share) / 0.1156 (New HRZ Share Transaction Ratio) = 5.19c/share ascribed to HRZ.
• Remember, these values needed to be agreed to by both Boards in order for the Transaction Ratio to calculated and then expressed in the SOA.

Longhand Method:
(This method is *only* for Geeks who are interested in understanding how the respective Boards would have calculated the numbers behind-the-scenes.)

• During the night before the SOA was announced I was mulling over (on the POS threads - here - and with a slight correction - here) what the Transaction Ratio might be (I called it a 'conversion factor'). At the time certain assumptions needed to be made around HRZ's CR raised amount and the value ascribed to POS. But at its core was the need to estimate what the ascribed value for HRZ would be. From there all else would flow.
• Once the deal was announced in the morning I was able to perform a longhand reconciliation/proof (here) using the announced data, rather than assumed estimates. I back-solved to arrive at 5.14c*/share value ascribed to HRZ and then reconciled it to the announced inversed Transaction Ratio. If the resultant Transaction Ratio from these calculations matched that announced in the SOA, then it would confirm the back-solved value ascribed to HRZ. It was within tolerance*. Proof completed.

(*The very slight difference compared to the Shorthand method was due to rounding errors in this longer-form approach.)

Here's the extract of that longer-form reconciliation/proof, for the Geeks in the room.

Adjusted Scenario 2 (Based on a Mid HRZ Post-CR MC):

• HRZ New CR Shares to Issue: 311m (i.e. $14m actual commitments / 4.5c per share).
• HRZ Post-CR SOI: 1,429m (i.e. 1,118m current SOI + 311m).
• Implied HRZ Post-CR MC: ~$73.5m (back-solved by moi, based on the announced SOA, and reconciled/proven in the following steps).
• Implied HRZ Post-CR Value per Share: 5.14c/share (i.e. $73.5m / 1,429 post-CR SOI).
• New HRZ Shares to Issue to POS Holders: ~486m new HRZ shares (i.e. $25m actual value ascribed to POS in the SOA / 5.14c per HRZ share).
• Resultant HRZ

• OS Conversion Factor: 1 new HRZ share for every 8.65 POS shares (i.e. 4,204 POS SOI / 486m new HRZ shares).
• Comment: Reconciliation of HRZ's post-CR SP of 5.14c/share that was implied by the announced SOA is now complete.

Punters can now relate current HRZ trading to the implied value ascribed to it in the SOA. No surprises why HRZ is currently trading around 5.1c."