Yeah the block purchase order relates to systems. Exactly as I wrote it.
EV only have a 12.2% stake and PE firms don't operate by buying shares in businesses and then paying away revenue. It's not how the business model works. So any other situation beyond an acquisition makes no sense.
1. There are over 1bn shares on issue. If you look at the daily volumes of stocks that have day trader activity, the turnover ranges from $2m to $10m a day. Once the news flow comes into the SFI story, the opportunity to acquire a 10% stake for about $10m is relatively simple. Then we look at a hostile takeover situation. EV acquired their 12.2% stake the easy way. There is still so many other avenues for competing bids. This is why EV have limited the US news flow (for as long as possible) in the story to date as it keeps competitors from accumulating shares because the story has no day traders at the moment. If news flow drives volume into the SFI share price and a competitor can accumulate a 10% holding before EV hit their 19.9% hurdles, a hostile takeover is game on and EV will have lost every advantage it holds and paid for.
2. Your second point plays to the first answer. This isn't how a PE model works. Think about this for a moment, why would a private equity firm pay over $12m to develop the SFI system so that SFI can go and operate it globally and signup competitors with the same agreements as EV, for the system EV built and paid for, allowing every competitor to use the technological innovations EV and SFI developed. Doesn't really make much business sense.
3. Your third point is inaccurate. EV has paid for the majority of the research and development and pays all costs for each system upfront. EV are currently paying for and working with SFI in developing the next generation system. They are doing this because there is no tech development risk. The system works beyond all expectations. In terms of business growth, not sure how this is relevant. EV don't want SFI for SFI's business growth, they want the SFI systems for everything they offer the EV business.
In addition, if SFI signup say Verisk to the same exclusive agreements in say Europe, Australia and China then EV have lost any opportunity to expand globally. It would have paid Verisk for their new innovative systems and allowed their biggest competitor all the advantages EV have developed.
The whole point around a takeover is so we can all make a profit and move on sooner rather than later. Instead of having to wait another few years for SFI to develop a business in Australia and the US and then expand globally. The opportunity for investors in the SFI story is around the EV takeover. A takeover price today would be multiples of the current share price. We could take a year(s) to achieve that price.
In the event EV don't acquire SFI sooner and instead work to convert their holding to 19.9%, it doesn't matter for investors either. SFI would be earning US$20m in revenue per year in addition to Australian revenues and global opportunities and the share price would $10, but that scenario is so far into the future you can't forecast it.
SFI Price at posting:
7.5¢ Sentiment: Buy Disclosure: Held
