placement - transfer of shareholder wealth

Goodaye Gobris,
the objection I have to the placement of shares to Directors are many - but it is the fact that this "special" placement to directors was coupled with the wholesale transfer of wealth, by way of the placement of 95m shares to new investors.

I will try to illustrate the point.

At 30 June MOS had 632m shares. At date of announcement of placement sp was about 13.5c.
New placement was 95m at 11.5c.

ABN Amro Morgans valued MOS at 37c in a report dated 21 April 2009.
http://mosaicoil.com/Client/54/Library/MOS90421.pdf

So, at a value of 37c and an issue price of 11.5c, the new shares are being issued at a discount to valuation of 25.5c per share.
ie, ABN says the real value of MOS is 37c, but the market only values us at 13.5c, and the Directors are discounting the market price again, and issuing the new shares at 11.5c.

So if we accept the ABN valuation, the new shareholders are getting MOS shares for 11.5c when the value is 37c - discount or transfer of value of 25.5c per share !!!

Thus, the Placement to new s/h has transferred $24.2m (95m x 25.5c) worth of value (or wealth) to these new shareholders.

That unrecognised wealth or value, rightly belongs to the existing shareholders.

Thats why the press, has for the last 6 - 12 months, been screaming about the unfairness of these "placements" to instos and sophisticated investors.
Thats why a rights issue is so much fairer to existing s/h.

When you see the directors transfer this much wealth from existing s/h because its quicker and easier than a rights issue, you have to ask, how are the directors acting in the best interests of s/h?

cheers