Hi JD and thanks to all for your positive feedback.
I don't have any knowledge about Magna or its intentions, but objectively:
- it invested in April 2010 at 25c for 9.9%, and the investment was made at a premium to the prevailing SP.
- it invested further in Nov 2010 at 41c for another 10% and again the investment was made at a premium to the SP. Some of this investment also required FIRB approval.
- in spite of owning almost 20% of the company, it did not demand a Board seat.
- its agreed to underwrite the current rights issue for free and agreed to a renounceable issue.
I think Magna's actions in the past have been very supportive and continue to be entirely reasonable for the following reasons:
1. It was going to be very difficult for CCU to complete another SPP given all of the previous issues were so far underwater. If Magna wanted to play hardball, it could have waited for the company to get closer to running out of cash and then demanded a private placement which would have diluted all other shareholders. The private placement would have required shareholder approval, but the Board would have held a gun to the heads of shareholders by saying "if you don't approve it, the company may no longer be solvent". Magna has not sought to alienate other shareholders by taking advantage of its relative size, in fact, as per my post yesterday, it has actually disadvantaged itself.
2. If Magna wanted to play even harder ball, it could have waited for CCU to default on debt obligations, and then effectively purchased the entire company from the CBA for the price of CCU's debt.
3. I don't see the demand for a Board position as aggressive or unreasonable. It had made significant investments in the past and had supported Mr Lawrence. Ultimately, in spite of several chances, he failed to deliver and I suspect Magna asked him to stand down. As its previous investments in CCU are all underwater, its quite reasonable that Magna now wants greater say over how its investment is used to ensure that no further capital is required prior to the mine being cashflow positive.
For these reasons, I don't see anything sinister in Magna's actions vis-a-vis unfairly gaining control. It has agreed to a capital raising approach that leaves its level of control in the hands of all other shareholders. Moreover, the potential for its level of ownership to rise above 20% has turned out to be dependent on the mine producing a high level of oversize material and requiring additional capital for a ball mill (not to mention the fall in the POS). This is hardly a strategy for unfairly gaining control.
"Would Magna launch a full take over and leave us investors high and dry."
If this is its intention, its adopting a strategy that makes no sense to me. If it wanted to take the company over to the disadvantage of other shareholders, it should have played hardball as described above. Now its giving the company the chance to become cashflow positive in the next 6 months which will only serve to increase the SP and make a takeover more expensive ...
Re: FIRB. I think this is a bit of a non-issue, as for the reason above, a takeover by Magna makes no sense. If the mine continues to pose problems or the POS drops so far as to make the mine uneconomic, why would anybody care whether CCU was taken over or not. If I was the FIRB and confronted with the proposition of a mine closing, jobs lost and no local investors, why would I stand in the way of a foreign investor? Bur again, I think this is a non-issue.
From my perspective, I think the sell down by existing shareholders from over 20c to 13c AFTER the announcement of an extremely reasonable capital raising initiative that has provided a path to positive cashflow is simply irrational. And yes, I'm aware that there are more shares on issue, but the great (in my mind) deals with Magna and the CBA and the now cleared path to positive cashflow, more than make up for this dilution.
I assure you, if Magna ends up with more than 20% of CCU, it won't be because I didn't exercise all of my rights (and more ...).
My 2c only.
Good luck to all.
CCU Price at posting:
13.0¢ Sentiment: Buy Disclosure: Held
