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AuRico Gold Inc. Message Board

  • fatfighter59 fatfighter59 Jan 30, 2013 11:39 PM Flag

    Anyone, what is advantage of Dutch auction over management buying on open market?

    What is the purpose of using a Dutch auction - is it supposed to help get a higher or a lower price for the shares? Do companies use this technique often? Why would anyone who wanted to become a share holder pay more for a share than the company itself is willing to pay? I mean, wouldn't they say oh it must not be worth more than $8.30 (not much profit) and so look elsewhere? Was there any good come from this over just buying in the open market or is this an example of CEO idiocy of which this one has been accused? Not trying to bash anyone, just looking for information.

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    • Is the Auction Over? is the important point shares almost always decline during a "Dutch Auction" it is the nature of the beast. It the liquid price of shares that people are tendering. That the price stayed in the 7's is good news. It is strong stock. I expected the 5's during the Auction to force the weak out, which is the purpose of a Dutch Auction/ and or take control of a company. They make take AUQ private after this. Be aware of that possiblility. Carlos Slim would buy it just for the Mexico mines, and take it private.

      Sentiment: Buy

    • The price goes down as the"Dutch Auction" proceeds. The Maxium offer is 8.30, all prices from there are lower. The price on Dutch Auction shares decreases as the time limt progresses. If they fill 8.30, with shares they have to buy, fine but, If the shares are 6 or 7 they get them at that price. There is no guaranty you get the 8.30 in a Dutch Auction. It is a price time match. Be sure you or your broker put a tendered price on your shares. Failed Dutch Auction do not attract any shares, or a few late or early in the auction, notice the price range on the Dutch Auctions with Time component.
      The stock being 6 or 7 is good for the Auction, 5 would be better. Everyone would tender at the higher prices making it over subscibed even at 6. Read up on Dutch Auctions, they vary in price and terms. The most famous failure is AmericanCan/TriCan.

      Sentiment: Hold

      • 1 Reply to warrcee
      • "Failed Dutch Auction do not attract any shares"

        That's actually a success. If the auction attracts zero shares, that means all of the current shareholders are happier holding onto the shares than tendering, which bodes well for the company (vote of confidence) and for the stock price (any pressure will be due to short sellers).

        The results we saw (where nearly half the float was tendered) actually sends a negative signal (that investors are far happier with the cash than the longer-term prospects). And given that the sale is over and people received cash, the fact that we didn't see the cash reinvested in the company (look at the volumes) suggests that investors have less confidence.

    • Aurico is suppose to trash the 40 million shares before the end of the first quarter.

      • 1 Reply to gotgoldies10
      • Get shares cheap. And drive the stock price down for buybacks other than the Dutch Auction.
        Brokers are bankers. All bankers are loansharks. The difference between a loanshark and a banker is this. When loansharks trade loans it is called banking, not loan trading. Banking loans. Loanshark loans. All bankers are loansharks. They trade loans in system known as banking.
        All loansharks are criminals.

        Sentiment: Buy

    • If you are looking for a way in which buybacks can be accretive, check out RFMD (which reaffirmed and extended their buyback program. The structure allows them to buy back on the open market, which shouldn't result in an immediate jump (like what happened with AUQ) and will yield a better weighted average over time.

    • The purpose of the dutch auction was to find suckers so they can cancel these shares. Wait until they erase em.

    • Very simply fatfighter59, I suspect a few large investors wanted to get out. The Dutch Auction was a quick and easy way to prop the price while the investors were able to cash out.

      It was not "shareholder-friendly". Certainly, buying at 7 would be far more friendly than buying at 8.30. I personally think they should have paid a dividend, and probably wouldn't be so bearish if they did.

    • Dutch auction was fast and shareholder friendly. Canadian laws limit the amounts purchased daily and can take a long time. The company wanted to filll the shares and they did. The benefit of the buyback is $30 million in 2013 with 200,000 ounces in production. Roughly $40 million (250,000) in 2014 and $50 million (300,000) in 2015. It adds up every increase in production.

      A smaller open market buyback now would be great too, going forward. Less shareholders and the same profit is a higher dividend and profit. Maybe selling Kemess and Orion will get us to 200 million shares.

      Sentiment: Strong Buy

      • 1 Reply to crewcoachmike
      • Your explanation makes little sense:

        1) They could have paid a dividend instead. That would have completely eliminated any sort of short-term game involving buying AUQ shares and flipping them to the company

        2) If they want to accumulate the shares, they could have done a buyback like other canadian companies have done over time. Sandvine Corporation (another company subject to the same regulations) did a buyback in 2008 which involved buying back shares over time in the market.

        3) It's only shareholder friendly if your shares were bought back. It had to happen at a premium to market price, otherwise people wouldn't tender (open market operations arent subject to this restriction). That premium was extracted from the company and given to those who tendered their shares. Those people who believed in the company and opted not to tender basically lost. Those people who tendered above 8.30 basically lost. The only ones who saw any sort of benefit were those who did see some of their shares redeemed.

        Long story short: the buyback propped the price (thanks to the short term traders) and now the price is falling.

        A good CEO would have issued a one-time dividend -- rewards holding the shares without creating an arbitrage opportunity -- or commenced a longer-term buyback on the open market -- avoids the market shock.

        The Dutch Auction structure benefited a few large investors who were able to quickly and quietly exit their positions. Pretty good cover if you ask me ...

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