There are no rules against speculation, Shareholders Association John Hawkins says – but investors piling into TRS Investments [NZX: TRS] need to be aware that’s what they’re doing.
Auckland-based TRS, which is a listed shell company, has announced its intention to merge with alleged internet pirate Kim Dotcom's online storage company Mega.
The backdoor listing proposal, which is yet to get TRS shareholders’ approval, is for TRS to “buy” Mega for $210 million by issuing 700 million shares at 30c to Mega shareholders, after undertaking a 148-for-1 consolidation.
TRS didn’t have a website and had a negligible market capitalisation last week but the Mega announcement has sparked a flurry of trading.
On Tuesday and Wednesday, 71.76 million shares changed hands in 459 trades, on turnover of $678,000.
TRS' market capitalisation has pushed above $14 million today, up from its roughly $1 million on Monday, before the proposal was announced.
Absence of details
Mr Hawkins says based on a trading range yesterday of between 1.1c and 1.9c a share, the value of the consolidated shares, by his calculation, was between $1.63 and $2.81 – on a company with no tradeable assets and only a conditional proposal for consideration.
Plug into that vague picture the fact Mega values itself at 30c a share.
“The conditional proposal is some distance away from a done deal, so people are speculating on what might be without any particular level of information to support the speculation.
“In the absence of any real details about the proposal and about what Mega can bring to the table, we’ll be suggesting to our members that they exercise caution and look carefully at the underlying numbers.
“Speculation isn’t illegal but, if people get caught up in the hype of this sort of thing, there’s no one they can go running to because the rules are there to prevent regulatory risk – they’re not there to prevent individuals taking responsibility for their own commercial decisions.”
The TRS announcement on Tuesday says the acquisition depends on shareholder approvals and possible regulatory approvals to take place on or before May 30, with a notice of special meeting “to approve the transaction and collateral documentation” to be circulated in due course.