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Martin, it is not odd to call it a rights issue. Shareholders are given the rights to subscribe to the new issue. A rights issue can be in any types of securities.
What i find odd is the Olam’s rights issue actually do not need to be underwritten by the banks since Temasek is effectively providing the backstop for it. Temasek is effectively the UNDERWRITER for the rights issue and Olam should not be paying so much underewriting fees to the banks. It should be paying just a simple admin cost to the banks to administrate the rights issue.
Is Temasek throwing good money on bad money here? Time will tell.
ReplyI think Temasek is caught in a difficult situation also.
If they refuse to underwrite the issue, the banks will pull all the credit from Olam and it will become a self-fulfilling prophecy.
ReplyIt is always very easy to make a decision, when you only have to take the credit for any success no matter how small. Failures on the other hand are just one of those things.
Isn’t it always been the case ? In any case, it would not be the biggest bomb to explode in the last 5 years.
I seriously doubt anybody’s head will roll, when was the last time anybody was held responsible for any mistakes ? They dont make mistakes, they only do the right thing which happen to be unpopular.
I think they call it “long-term” investing, the long term picture, wonder how UBS is going to turn out in 50 years ?
Olam’s return on capital assumptions for their investments and ventures are probably higher than those used by MW. When a seller sells he chooses to make different assumptions from a buyer which results in a trading agreement for the parties.
Temasek probably has a panel of experts for every investment decision. They are wise to support their position or their original investment will flounder.
“Shock n awe” is awesome!The payoffs are material in this psychological war. Hitler once remarked, “If lies are repeated often enough they become the truth,” – and this, even if Olam is faultless to begin with.
ReplyHi yl,
If this Olam trade does not work out, someone’s head at TH will have to roll. 😉
ReplyWhat is even more bizarre is the nonsensical reason given for this round of fund raising. Olam claimed last week it will not and have no need to raise additional capital and now only a few days later this story has taken a nasty twist. Seriously, raising money that you claim you don’t need just to demonstrate you can raise money? What rubbish is this?
These funds are not cheap, costing ~7.5% because of the ongoing drama, yet management could not articulate what exactly all this expensive money is going to be used for except perhaps just to prove a point to Muddy Waters and as a snub response to their earlier challenge to get existing bonds rated. The board is neglecting its fiduciary duties to shareholders by embarking on such value destructive nonsense to satisfy the CEO’s ego trip. Olam’s historical ROIC has never come close to 7.5% even when you include all the accounting tricks they’ve booked so far.
One popular theory is this is a ploy to force stock owners to recall their loaned out shares and squeeze liquidity on the short sellers. I am not familiar on the exact mechanics of share lending but even if this is true, such trading tactics to manipulate the market for short term stock price appreciation should never be the basis for long term shareholder value destructing activities. Olam claims it’s not a fly by night company, values integrity & transparency, out to make lives better etc etc, but their behavior is that of an opportunistic hedge fund.
But credit must be given to the CEO. He’s a very polished salesman and has somehow managed to sell a story as incoherent as this to Temasek and the general market, but even the most impressive salesman will eventually succumb to economic realities.
ReplyHi Jimmy,
Seems that the market has not taken very well to the news. The price is back where it was before the offer was announced.
Block has his take on this rights issue. You can read his latest release on his website.
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