Long-time readers of this site will recall my earlier discussion of Belzberg Technologies Inc (TSE:BLZ) here, here and how it affected my New Year’s Resolutions here. Yesterday, BLZ made a major announcement:
In a positive step for BLZ shareholders, the transaction requires that BLZ’s working capital post-acquisition be distributed to current BLZ shareholders (not the new Frontline shareholders).
Let’s assume that Frontline’s working capital is $2.75 million, which would mean that the amount to be distributed is actually BLZ’s current working capital. Unfortunately, BLZ’s most recent balance sheet is from September 30, 2010 and a lot can happen between then and now. If we use that working capital, we see that BLZ would distribute $12,016 less the $1 million cash being used for the transaction, so $11,016, or $0.75 per share. This represents an 85% premium to today’s closing of $0.405, however there are a bunch of assumptions here that make that figure highly uncertain. Also, I should note that the bid/ask midpoint closed closer to $0.50, so the premium that could be had is lower.
The fact is, investors know very little. I am sure that both companies have received numerous requests for clarification, so stay tuned and see what new information comes out.
Read the full press release here [pdf].
Author Disclosure: Long BLZ
Belzberg Technologies, Inc. (TSX: BLZ) and Frontline Technologies Corp. announces a definitive agreement to merge the two companies through an acquisition of Frontline by Belzberg. The Frontline transaction is expected to close in the second quarter of 2011…This is welcome news for longtime shareholders itching for a change in strategy to help turnaround this Net-Net. More interesting however is the details of the transaction, or rather the alarming lack of details about key information. Information as key as, who is this company we are merging with? Sure, we have a name and a website, but Frontline Technologies Corp is a private entity and, other than the top and bottom line of their last fiscal year income statement, BLZ investors are left with no idea of how this company has performed historically.
In a positive step for BLZ shareholders, the transaction requires that BLZ’s working capital post-acquisition be distributed to current BLZ shareholders (not the new Frontline shareholders).
Belzberg Special DistributionThis is fantastic news, as BLZ has, for the last several years, been an asset investment due to the fact that it traded for such a discount to its NCAV (hence, Net-Net above). Finally, shareholders will receive the value that has been sitting idle. But wait – how much will be distributed? Initially, I thought the referral fees added substantial uncertainty, but upon further reflection, I understand that this is neutral for current shareholders who were not counting on those referral fees in the first place. The amount of the distribution should thus be the current working capital + Frontline’s working capital – $2.75 million. I have emailed the company to confirm, but I am guessing that the $2.75 million figure was arrived at by using Frontline’s current working capital. Simply put, shareholders don’t know because the companies have not given us enough information.
It is Belzberg’s intention to pay a special distribution to the holders of its existing common shares within a year of the closing of the Frontline transaction. The amount of the distribution will be equivalent to the amount by which the working capital of Belzberg, as of closing of the Frontline transaction, exceeds $2.75 million plus the total proceeds received for the referral of the US execution clients of its wholly-owned subsidiaries, less any costs related thereto or to the sale or wind-up of the businesses of Electronic Brokerage Systems, LLC and R.C. Sheehan and Associates, LLC.
Let’s assume that Frontline’s working capital is $2.75 million, which would mean that the amount to be distributed is actually BLZ’s current working capital. Unfortunately, BLZ’s most recent balance sheet is from September 30, 2010 and a lot can happen between then and now. If we use that working capital, we see that BLZ would distribute $12,016 less the $1 million cash being used for the transaction, so $11,016, or $0.75 per share. This represents an 85% premium to today’s closing of $0.405, however there are a bunch of assumptions here that make that figure highly uncertain. Also, I should note that the bid/ask midpoint closed closer to $0.50, so the premium that could be had is lower.
The fact is, investors know very little. I am sure that both companies have received numerous requests for clarification, so stay tuned and see what new information comes out.
Read the full press release here [pdf].
Author Disclosure: Long BLZ
