EMAK SpA – The paranoia edition
Just to remember: On Friday 18th, before the subscription period, the Stock traded at ~ 2,10 EUR. This equals 0,75 EUR after the split of the subscription rights.
Since then, the stock systematically trades down towards the exercise price of the subscription right (0,425 EUR).
Remark: A lot of the available charts do not correctly adjust for the subscription right. The correct historical chart can be found for instance at Borsa Italiana directly.
So what is happening here ? In my opinion one has always to ask: Do I miss something here ? Or to put it another way: Does someone have a strong incentive that the price will go below the subscription price by the end of the subscription period ?
If we go back one step, we should ask addtionally: What was the purpose of the whole exercise anyway?
When I read the announcement that the majority shareholder Yama SpA wants to sell his other holdings to EMAK, my first reaction was: they need cash. However after disclosing that they will take up their share of the capital increase, the cash effect for the shareholder was relatively small.
Another reason could be the following: Maybe Yama’s real intention is to scare away minority shareholders and take over the minority shares as cheap as possible ?
Lets consider the following:
For a squeeze out in Italy , they need according to this document 95% of the company.
Before the rights issue, Yama held 74% or 20.5 mn shares of a total 27.6 mn shares.
After the exercise of the subscription right, we will hav a total amountof 163.9 mn shares (5 new for 1 old minus Treasury shares).
In the past trading days since beginning of the subscription period, a total of 1.05 mn shares have been trades for around 600 Tsd EUR which resulted in a drop from around 0,75 EUR to 0.48 EUR (low intraday today)
So in theory (paranoia scenario), the following could happen:
– Yama is currently selling its own shares to depress the share price below the subscription price of 0.425 EUR (only 4.5 cents to go, they have plenty of material).
– most shareholders then will not exercise the subscription right. Normally the unexercised subscription rigths will be sold for almost nothing in an closing auction at the last day
– Yama buys all the subscription rights and exercises them
This would result in the following change in percentage ownership, assumed that Yama needs to sell another 1 mn shares, to reach this target:
Yama: 20.5 mn shares, 74%
Minorities 7.1 mn shares, 26%
After: (total 163.9 mn shares)
Minorities 7.1 + 2 mn = 9.1 mn shares or 5.5%
Yama: 20.5 – 2 mn + all new shares (~136 mn) = 154.8 mn shares or 94.5%
So if this works out, YAMA almost reaches the threshold for a squeeze out. If they tehn achieve to hold the shareprice down for a further few months, the might be able to purchase the remainder for a relatively small fee.
Summary: There could be a downside scenario where the majority shareholder has structured this whole exercise to be a clever way of squeezing out minorities at a depressed price level. I am not sure how possible this is, but it should definitely be considered in any investment decision.