Dacian Gold (ASX: DCN) shares are up 80% today. The background to this is an all share takeover offer from Genesis Minerals (ASX: GMD). Genesis already owns 80% of Dacian and wants to take out that minority position. There could be good industrial logic there, GMD certainly insists there is: ”Genesis consider this a logical transaction to simplify the ownership of large-scale Resources, Reserves and milling infrastructure in the world-class Leonora District.” It’s even possible that that’s true. There certainly are economies of scale in mining, things like crushing plants, extraction facilities and transport infrastructure. Having the one organisation controlling all of a district has its attractions at that scale.
So, yes, why not: “Dacian shareholders who accept the Offer will receive 0.1685 new Genesis shares for every 1 Dacian Share they hold (Offer Consideration)
- Offer Consideration implies a value of $0.235 per Dacian Share1 and a total equity valuation for Dacian of A$286 million
- If, during or at the end of the Offer Period, Genesis acquires a relevant interest in at least 95.1% of Dacian Shares on issue, the Offer Consideration will be increased to 0.1935 Genesis Shares for every 1 Dacian Share held (Improved Offer Consideration).
- - Improved Offer Consideration (if payable) implies a value of $0.27 per Dacian Share”
That’s an obvious come on to make sure that the acceptance is high enough that it can then be made 100%.
Dacian Gold share price from Google Finance
But it’s also true that Genesis Minerals is the second most shorted stock on the ASX. Fully 11% of total issuance is out on loan to those short sellers - which for the ASX is a high, high, number.
As we’ve said before about Genesis Minerals: “One thought could be that as Genesis seems to be conducting a roll up - that’s the consolidation part - then is there another deal in the offing which will lead to yet more issuance? Or perhaps, as with the St Barbara deal, is there some thought that it might have overpaid for deals already done?
Worth noting that the general stock market reaction - and it works this way because it’s generally true - is that a takeover is value destructive for the shareholders of the company doing the buying. It’s those who get bought out who take the value in the deal. Not always, not often enough to make takeovers never work, but often enough that that’s more than the average result.
So, highly acquisitive companies can indeed find their share prices fall after a buying spree.”
A rollup can be a highly profitable enterprise on the assumption that there are indeed substantial common costs that can then be reduced by being shared. On the other hand it’s also possible for a company with highly rated stock to then buy assets for that stock at “too high” prices. Which is true here at Genesis is unknown as yet but doubtless we’ll find out in the fullness of time.
If we were Dacian holders then we’d sell into the market to be frank, then make any investment decision about Genesis entirely separately.
