Submitted by CrossProfit on stocks Scottish Re (SCT)
An AP article appearing yesterday (
11/27/06
) states as follows;
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Under terms of the agreement, MassMutual Capital, a member of the MassMutual Financial Group, and Cerberus will purchase a total of 1 million newly issued convertible preferred shares of Scottish Re. Those shares may be converted, at any time, into 150 million ordinary shares of the company, representing a 68.8 percent ownership in Scottish Re. …Analysts said Scottish Re’s preferred shares skyrocketed while common shares plummeted because the $600 million investment averages out to a $4 per share price for ordinary shares and gives Mass Mutual and Cerberus seniority over those shareholders, while existing preferred shareholders retain their position. …But the deal still needs approval of the holders of 66.7 percent of its outstanding ordinary shares who are entitled to vote at a special meeting.
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As a shareholder (thank G-D I’m not), what am I supposed to do? If I vote yes then my shares are worth $4 each, perhaps with a 20% good faith premium brings it to $4.80. Not to mention of course that shareholders would now have only ONE THIRD of any potential future gain. If I vote no then my shares could be worth 0 in less then three months. Proceeds from a bankruptcy would go to the preferred shareholders. Why is management rushing into this deal? Have they exhausted all other credit facility options? If the answer is yes, then the common shareholder is in trouble indeed.
This is a good deal for MassMutual. After the ordinary shares drop to two bucks a piece, investors will be thrilled to accept a $3 buyout offer from MassMutual. In essence this is a fire-sale. Yesterday, someone was trying to accumulate shares, presumably to block the vote. Today the volume was a bit lower. In the past two sessions a total of 23M shares were traded. This is 46% of the float!!!
The question is – is ‘0’ worth it?
Disclosure: Observation only, not an analysis by CrossProfit. Disclosure of further details, regarding SCT agreement with MassMutual Capital and Cerberus, is crucial before posting a new evaluation line. As it stands now, this is a crapshoot.
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