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Merger - my thoughts, page-2

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IFINO

784 Posts.

10/11/14

08:56

Post #: 14261012

Originally posted by iam ↑

Hi MEOmites or is that soon to be NEONites?

I have been looking at the figures surrounding the proposed merger and have put together this table:

Column 1 Column 2 Column 3 Column 4 Column 5 Column 6

1 Before merger Current SP @09/11/2014 Issued shares Cash on hand Cash value (Cash div. shares) Asset value

2 MEO 0.022 750,488,387 11,700,000.00 0.016 0.006

3 NEON 0.031 553,037,849 25,300,000.00 0.046 -0.015

4 Diff 197,450,538

5 Merger agreement Issued shares Cash on hand
Cash value

6 MEO (* 0.7369) 553,034,892 11,700,000.00

7 NEON 553,037,849 25,300,000.00

8 Total 1,106,072,741 37,000,000.00 0.033

9 New merged group Cash value

10 After merge allowing guesstimate Q2 O/heads and merge costs of $4m

1,106,072,741
34,000,000
0.031

As an explanation and to add a few other observations:

In the present climate the non-producing assets of juniors, no matter what we think their worth, do not appear to affect the SP. The table is based on cash reserves only. I have noted that MEO assets presently have a value of only .006cps and NEN shares are presently undervalued at 0.031c being 0.015cps under cash backing.

It must also be noted by NEN investors that the proportional T/O offer present by Evoworld @ 3.5c is also 1.1c under cash value. This is why it is ultimately such an attractive offer for their purpose which is to take control of the company and strip it solely for personal gain, totally disregarding existing investors in the company.

After the merge, based on the September Q1 reports the combined cash reserves will be .033cps after the increase in shares on offer but this will be reduced once the Q2 overheads and merge costs are deducted. The upside will be a more robust company.

Not included in the table is a comparison of MEO and NEN at today's SP. This could be calculated using the 0.7369 equalising factor in the merge document of NENs present SP of 0.031 = 0.0225c which is reflected by MEO's market price.

Between the two companies MEO has an asset base with limited cash reserves. NEN have cash with little assets making it a target for opportunist. As Ya has pointed out, little value can be put on NEN's WA-503-P. No matter how good the seismic, the testing of permit leads is through the drill bit, as MEO holders know only too well. Two early wells on the permit came up dry. Hopefully future exploration will prove us wrong.

Following on from this it is increasingly difficult to find farm-in partners. This is why the previous MEO business model has become unsustainable. It has been a profitable model for traders over the years but for LT investors it has been an expensive exercise with many a learning curve. Both MEO and NEN investors have been caught up in forgettable Asian encounters over the years. Other competing factors include the surge of unconventional gas, falling oil prices and the majors tightening their belts and being reticent to take on the risk in a softening farmout market. The juniors role of screening permits ready to farmout is becoming more untenable and they must change their business plan and become more proactive. I hope past lessons will create a stronger foundation for the future in whatever form it takes for the two companies.

Like some other MEO holders I was concerned about further dilution of our market cap. Cash is king, though, and for MEO to proceed with their projects it appears that the merged company will provide a more robust foundation. The last CR performed by MEO was for Puka 3. MEO SHs were asked to help out and $2,464,476 was raised through the issue of 123,223,800 shares, with great difficulty I believe. If MEO were to do a similar CR to raise $20m then it would need to issue a further 1,000,000,000 shares to do so as opposed to the total of 197,450,538 shares MEO holders will relinquish for a 50% holding in a funded going concern.

Conversely Neon has the cash and MEO can provide ready-made opportunities for NEON investors as opposed to those being victim to corporate raiders such as Ovoworld. I have been caught out by the group before, as an investor in WMT which became IDG. I posted my research on the group, in another guise, in the IDG threads in 2009:
* IDG - where to from here *

This stock was manipulated, legally by all accounts, and ultimately delisted with the cash assets being distributed amongst the manipulators. I hope NEON holders will not fall into the same trap as WMT.

I will be keeping an eye on Ovoworld should the merger take place. I would say the assets and commitments brought into a merger with MEO would not be favourable to Ovoworld's purposes and they will probably dump their stock. This would hurt in the short term but the resulting stronger company through the merge should offset the pain.

For MEO investors who feel they are losing 50% of the company; the way I have reconciled that is by the fact that we have been floating around for two years since the bad luck in previous drills. The company has been bleeding funds and we all know some new strategy had to be set in order to continue the monetisation of Tassie Shoal and ensure the continuation of the other projects LT SHs have invested in. If the farmouts were as easy as they were in 2008 then I am sure management would have realised them by now. Perhaps the future of offshore O&G may improve in the future but the new stronger merged company will get our investment back on track with renewed energy in a 'buyer's market' as promised in the Merged Investor Presentation:
* Here *

I trust we will all become part of a stronger company through $5m pa less overheads and a stronger commitment to shareholder value through profitable acquisitions.
I am an investor in MEO and am just trying to make my decisions based on the facts as they are presented and through other research. Please don't base your decisions on what I have written here and please do your own research. After all, we are all in the same boat trying to pave a way through this cut throat corporate world and realise sound investments.

Good luck with your decisions.

#:>))

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Very well presented . iam. Thankyou.
I only wish I was as articulated.
Cheers IFINO

NEN Price at posting: 3.1¢ Sentiment: None Disclosure: Not Held

MEO Price at posting: 2.2¢ Sentiment: Buy Disclosure: Held

0 Great analysis

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