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Jaguar Mining Inc. Message Board

  • ohmrun100 ohmrun100 Apr 23, 2012 1:18 PM Flag

    $6.67 Max Acquisition Price and Poison Pill

    Long read, but some decent tie in to possible Kinross rumors and max take out price for JAG.

    This was the rumor Benzinga and Bloomberg circulated early last week:

    "Kinross Gold (NYSE: KGC) is in talks to acquire Jaguar Mining's (NYSE: JAG) exploration and development assets for CAD 6.50 per share. Jaguar has been the subject of several rumors over the past week, including the withdrawal of Shandong Gold's unconfirmed $9.30 per share buyout offer."

    Based on current trading CAD $6.50 = $6.54US

    This made me sharpen my pencil and look at BODs willingness to accept this offer and the alternative of what JAG's value is if a hostile takeover were initiated.

    Assume a prospective buyer "Buyer" were to come in and buy 19.99% of the outstanding shares between $2.90 and $3.50, averaging in at $3.20.

    Buyer purchases 19.99% of company (16.9M shares) @ $3.20 = $54.08M

    Then Buyer puts out a press release to the market and states, “Buyer issues an unsolicited bid to acquire all JAG common stock at a price of $4/share”. Assuming upon the first share they purchase on this news would push them beyond the 20% threshold and trigger the poison pill. All existing shareholders (other than Buyer) would be able to buy an additional share for every share they held for a 50% discount to market (assumed based on what is typical). Taking that scenario in play:

    50% discount to market: Stock holder would have average stock value on the day the news broke of $3.20 (original share) + $1.60 (poison pill share) = $2.40 average per share. $4.00 is now a 67% premium to market or the equivalent of a nearly $5/share legitimate, BOD approved bid based on today’s share price.

    This poison pill will release an additional 67.5M shares into the outstanding shares (84.4*80%*2) creating total outstanding shares of 151.9M shares.

    Buyer already owns 16.9M of that at $3.20 and would buy the additional 135M shares at $4/share. (16.9 x $3.20) + (135 x $4.00) = $594M

    The additional 67.5M shares would debit $108M in cash to JAG (67.5 x $1.60) and credit $108M to paid in capital (shareholders equity)

    The new enterprise value would be $594M market capitalization + $69M in net debt ($251.46 debt - $74.47 current cash - $108M in new issue cash) = $669

    $669M in Enterprise Value is the same as putting a legitimate, BOD approved offer on the company today of $6.67/share ($6.67/share x 84.4M shares + $105.74M net debt).

    To make the scenario work they would need 58M shares from existing stock holders to sell at an overnight 67% gain. It’s really only 28M shares from existing shareholders since shares short would account for 30M of the 58M needed. $4/share would be a gift given that many would be in instant margin call from the shares owed via the poison pill trigger.

    BOD needs to make this quick or the market will take care of it for them.

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