Alert Steel North West conversion

[MCB]

Has anyone looked at the details regarding the proposed early settlement of the Alert Steel North West acquisition price? If so, do you think the deal is in the best interests of shareholders other than Capital Africa Steel and the JC Family Trust (i.e "the sellers")? Per my understanding, currently the amount owing to "the sellers" is to be settled by issuing to Capital Africa Steel (CAS) such number of shares in Alert as have an aggregate subscription price equal to all amounts outstanding to CAS (the "price" used to determine the number of shares to be issued to CAS is calculated by dividing the NAV of Alert by the number of issued ordinary shares in Alert, limited to a minimum of 3.3cps). Clearly, if this "price" is determined now, when Alert's NAV is low, CAS gets more shares and thus a larger percentage holding of the company. If the conversion happens at September 2014 (i.e. latest possible conversion date and end of turnaround period) when theoretically the turnaround strategy has been successful and NAV has increased, CAS would get fewer shares. Or is my logic flawed?

[#2]

No need to worry. Share price will be restructured by a 100 fold. 1c AET would be 0.01c. So my logic tells me that overvaluation would be drained down by the ones who are heading for an exit. Maybe after the restructuring, it should be trading at 33c. Hmmmmm. Ya neeh

[KKKK]

it will trade over R1

[MCB]

The share consolidation has no bearing on the percentage of Alert which CAS receives upon conversion of the loan. Any increase in NAV per share resulting from a consolidation of shares is directly factored out by the reduction in issued shares. What is important is NAV per share - ignoring any impacts driven by share consolidation. If the conversion happens now, when NAV is low, CAS gets a higher percentage. If the turnaround strategy is successful, and thus NAV per share grows, CAS gets a lower percentage. One is effectively giving away circa 20% of the company (roughly additional 900m shares issued => R25m liability at 2.8cps) for an interest saving of ballpark R4m (R25m liability * 11% (prime +2%) * 1.5years).

[KKKK]

thanks for this. its something to look at.