I am a MEO shareholder and am opposed to the Mosman takeover proposal (see other threads for reasons), but I feel that I must give recognition to Mosman's brilliant Plan B.
To recap, Plan A was (still is technically) to take control of (and takeover) MEO by a scrip for scrip offer, thus getting (in my assessment of MSMN's priorities):
- MEO cash
- MEO exploration assets
- MEO expertise
- more shareholders.
While offer does not close until 12 June, at 5 May MSMN had only 17.1M MEO shares (2.28% of 750M shares on issue) so Plan A is not likely to work.
So, now for MSMN's brilliant Plan B, which is:
- increase scrip for scrip offer by double to 1:5 (change made 13 May), then unconditional 18 May
- extend date to 12 June
Why is this brilliant?
1. It costs MSMN nothing (dilutes the shareholders for sure, but costs MSMN nothing)
2. MSMN will get MEO scrip which is an asset of increasing value, which it can sell on-market for (much-needed) cash. The currently-advised holding of 17.1M MEO shares will fetch only $308k at current sp of 1.8c, but MEO sp is heading upwards , and I expect that MSMN will get quite a few more acceptances (not that I am recommending acceptance).
Why do I think that MSMN will get more acceptances (in spite of the (IMO) quality of the company)?
MEO has a lot of shareholders, many with small holdings, great majority sitting on paper-losses, and end-of-financial year is approaching. So for many MEO shareholders who may have made capital gains on other shares and so be facing an overall capital gains tax liability, it may be attractive to realise a capital loss by selling MEO shares. They have two options, being:
a. selling on market
b. accepting MSMN offer.
Distribution of shareholdings is in table at bottom (from latest MEO report).
Firstly consider small holdings (below 10,000 shares, i.e. below holding value of $180). For many of these holders, selling cost through broker would be approx $100 (i.e. comparable to holding value or perhaps even greater than holding value), and seeing as they probably bought at more than 25c or even more than 50c, the low cost and easy option is to accept the MSMN offer; and in so doing they realise a capital loss, but having "blown" maybe 25c or 50c or more, they can still say to themselves (as new MSMN holders) the consoling words "but if MEO ever hits the jackpot, I will still get some share of it" - i.e. they can be both practical, but still keep some of their original hope!
So I think that holders below 10,000 shares may readily go to MSMN (3706 holdings of 19.2M shares).
Secondly, similar logic applies to holders of 10,001 to 100,000 shares (currently $180 to $1800), in that end-of financial year tax-driven thinking may make the logic compelling to some - i.e. I have made a big loss on MEO, so realise the capital loss to offset other gains (so get a bit back that way) but keep some hope via a MSMN holding (and so hold on a little emotionally to the original investment decision).
Ditto re larger holders as well, though most of these should be taking a closer interest in MEO and making a different conclusion re MSMN.
So I think that:
- end of financial year
- realising a capital loss
- having no selling cost
- keeping a bit of hope
is likely to work in MSMN's favour more than most on HC may think.
How much?
Well if MSMN ends up with all currently-advised (17.1M), plus all below 10,000 share holdings (19.2M), plus a quarter between 10,001 and 100,000 (35M), plus only 5% of those above 100,001 (30M), they would get 101M shares - which they could then sell - realising $1.8M at current price (more if MEO rises, e.g. $4M at 4c). And they could get more shares.
Those numbers are just estimates of course, but investor thinking near end of financial year (EOFY) is driven much more by NOT HAVING TO PAY TAX than usually.
So, MSMN's Plan B gets them good new $ for paper (scrip) only, and will work much much better near EOFY than at other times.
That is why, IMO, Plan B is brilliant!
...
PS IMO nothing else from MSMN is brilliant!
PPS I am NOT recommending accepting - if I was suggesting courses of action (which I am certainly not), consider first keeping MEO, secondly selling on market (get $, realise loss) then buying back ( I do like MEO's potential!).
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