what if?, page-7

This article gets to FEA issues halfway through. It is from www.maynereport.com

Gunns and Brickworks play the delayed record date casino

MAP is certainly not alone in this regard as you can see from this long list naming all companies which left the door open on capital raisings in 2009.

Indeed, we brought you the story of Brickworks in the last edition which left the door open for two days before a $15,000 share purchase plan and saw its register expand almost five-fold.

The ASX should be really alarmed by the distortions this is causing in share prices. Brickworks shares rocketed from about $13 to a high of $16.70 as a frenetic 15,000-plus trades went through in two days on a stock which is normally lucky to attract 200 trades.

However, the opportunists who chased the stock higher could well end up losing more than $1 million because with the record date passing, Brickworks shares have now slumped back to $14.65, a skinny 3.2% above the $14.20 offer price for the $15,000 share purchase plan.

The really smart Brickworks investors were selling down into the frenzy of opportunists scrambling to get on the register and paying silly prices for the privilege.

And that is precisely what the colourful characters at Gunns did after Forest Enterprises Australia announced a 1-for-1 entitlement offer at 7.5c - a whopping 53% discount to the previous close of 16c. Given that the offer also included a placement of 60.8 million shares - the maximum 15% allowable without shareholder approval - at just 7.5c, the share price was always likely to tumble below 10c.

However, because FEA announced all this on September 16, but delayed the record date until September 24, we saw frenetic trading of more than 10 million shares over the next 3 trading days when the stock only got to a low of closing low of 12.5c because the usual army of opportunists were madly buying in. This included four different $500 purchases by camp Mayne.

However, once the gate slammed shut for the record date, the reality of the huge dilution sunk in and the stock closed on Friday at 8.8c, a modest margin of 17.3% above the 7.5c offer price.

So, who were the smart shareholders who sold out to the opportunists before the price collapsed? Step forward Gunns, the second largest FEA shareholder, which revealed on September 28 that it tipped out 2.45 million shares on September 18 and 1.15 million shares on September 21 - the last day to get on board for the entitlement offer.

Gunns pocketed $450,000 from these sales for shares which are now worth $317,000. We've shared in some of the losses and at one level you shouldn't feel sorry for day traders and opportunists attempting to make a quick buck.

However, all of these antics just create a casino atmosphere on our market. Surely if punters aren't allowed to place bets after a race has started, it should also be illegal for companies to continue taking on new share holders after a capital raising has been announced, especially given Australia's "flexible" system which doesn't mandate British-style pro-rata offers which treat all shareholders fairly.