What Does AA Know?

Over the last two days Exec Chairman Andrew Abercrombie disclosed he had acquired a further 250,000 shares in Humm Group via on market trades taking his interest in the company to around 23%.

So the question is what does AA know that others do not?

Naturally as Exec Chairman he knows the business inside out and knows its forecasts, strategic plans and likely effect of changes in the crucial interest rate cycle.

Therefore logic says with all of this key information we should watch what AA does.

And AA is buying.

AA is limited to buying 3% of Humm's issued capital every 6 months, To gain control of the company at that rate he would need to purchase 6% of the capital every year for the next 5 years. That is a fairly long time frame and I suggest not what AA wants to do.

How could he accelerate that plan? A buyback of shares where he does not participate is one way. Up to 10% can be bought back in any one year.

To reach 51% under a Buyback basis plus buy 6% per annum via on market purchases AA could gain control at 51% in just over 3 years. That timeframe may suit AA better and in the process Humm Group would need to stump up about $120m of cash over the three years to fund the buyback. This process accelerates AA control without having to stump up the cash himself. Not paying dividends is a good way to build up cash.

So a 'Red Alert' action by Humm Group would be the announcement of a buyback program.

In my view HUM is dirt cheap and it would be wise of shareholders to follow very closely what AA does.

Cheers.....D

P.S AA could always launch a full takeover offer but in my view that is unlikely.