Submitted by CrossProfit
When writing a previous article we were still awaiting more details on the Scottish Re rescue deal. Even without knowing the full details it looked like the common shareholders were cornered into either accepting the deal or risk losing it all. Without this ‘loan’ – sale to be, SCT has zero working capital.
In the past 4 trading sessions, over 47% of the float has exchanged hands! We haven’t a clue as to which institutions are selling and who the buyers are, perhaps a MassMutual proxy? In any case this is definitely heavy institutional activity as the sheer numbers far exceed private holdings. For the time being the share price is artificially shored up by the institutional holders. If one major institutional holder gets cold feet, there isn’t a (player) prayer in the (play) book that can sustain the current trading range.
In a newly filed 8-K from
11/29/06
, 65 pages, the company revealed a bit more. First and foremost, SCT has every intention of going through with this deal, superfluous to say that it has no other way to survive. In addition to a $30.5M ‘standby commitment fee’ (cancellation fee) there is an additional expense reimbursement clause for an additional $6.5M on top of the $1.5M already paid.
From the common shareholders point of view, the dilution is worse than 68.8%. The longer it takes to close the deal the greater the dilution up to an annual non compounded rate of 7.5%. In addition the agreement contains clauses that can further dilute the common shareholders stake, as is summed up in item 1.01 of the 8-K;
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The Securities Purchase Agreement provides that, after the consummation of the transactions contemplated by the Securities Purchase Agreement, the Company will indemnify the Investors for breaches of representations, warranties and covenants and the uncollectability of certain reinsurance recoverables, subject to certain limitations. Other than indemnification with respect to the Investors’ out-of-pocket costs, the Company’s indemnification obligations will be satisfied not through a cash payment but rather through adjustment of the conversion ratio of the Convertible Shares.
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How big of an ‘adjustment of the conversion ratio’ is anyone’s guess. Judging by the way Scor (SCO) and Hanover Re (DE: 840221) walked away from the table, this could be substantial.
Shareholders should read the proxy statement when it becomes available. That is of course if you’re still holding on in the hope that a better unsolicited offer miraculously falls from heaven. G-d bless, you’ll need it.
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