Unique Logistics International Inc (UNQL)

[LJ-Bodhi]

There is some very bad majik being performed in the twitterverse about UNQL and the EAC merger. With aggressive attacks based on completely inaccurate information. So sad!

Here on ihub, one can get good, honest information. As explained Thursday, EAC confirmed that $260m was already repaid from the trust account to the original investors who redeemed 26m shares of EAC. By doing so, EAC confirmed there is now only $17m left in the trust account and only 1.7m shares outstanding. The ONLY reason those shares are trading at $10 on Nasdaq is because those original investors paid $10/share. That is precisely why 1.7m shares are worth $10/share because there is currently $17m in the EAC trust account. Check my prior post with the link to the EAC proxy statement or go to SEC Edgar to read it.

Here's the issue some either don't understand, or blatantly misrepresent. Those 1.7m shares left of EAC are only worth $10/share if 2 very specific things remain the same. There needs to be $17m in that trust account AND the OS needs to remain 1.7m shares. Let's see what happens when either the money in trust, or the share count changes.

We already know that EAC is required to pay its underwriter on the original IPO nearly $10m immediately upon closing of the UNQL merger. Here, read it from the last EAC 10Q report:

"Underwriting Agreement

The underwriters are entitled to a deferred fee of $0.35 per Unit, or $9,660,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement."

That will drop the trust account balance to around $7m. Those 1.7m shares won't be worth $10 anymore. Nope, they will only be worth $4.12/share. Additionally, EAC still needs to repay other loans and pay fees for the merger, so that $7m will drop even further, maybe to zero. That means those remaining 1.7m EAC shares won't be worth much at all, and CERTAINLY NOT $10/share.

Now let's see what happens when we increase the EAC outstanding shares amount. It is so incredibly dishonest for anyone to claim this merger will not result in dilution. There will be over 90% dilution for anyone who holds either EAC stock or UNQL stock through the merger. Why? Just read the Merger Agreement:

"At the effective time of the Merger:
+ each share of Company Series A Convertible Preferred Stock (other than excluded shares and dissenting shares) will be cancelled and automatically deemed for all purposes to represent the right to receive a number of shares of Buyer Class A Common Stock equal to the product of (i) the number of shares of Company Common Stock into which such share of Company Series A Convertible Preferred Stock is convertible, taking into account the effects of the Transactions in accordance with the certificate of designation applicable to such Company Convertible Preferred Stock, and (ii) the Common Exchange Ratio;
+ each share of Company Series B Convertible Preferred Stock (other than Excluded Shares and Dissenting Shares) will be cancelled and automatically deemed for all purposes to represent the right to receive a number of shares of Buyer Class A Common Stock equal to the product of (i) the number of shares of Company Common Stock into which such share of Company Series B Convertible Preferred Stock is convertible, taking into account the effects of the Transactions in accordance with the certificate of designation applicable to such Company Convertible Preferred Stock, and (ii) the Common Exchange Ratio;
+ each share of Company Series C Convertible Preferred Stock (other than excluded shares and dissenting shares) will be cancelled and automatically deemed for all purposes to represent the right to receive a number of shares of Buyer Class A Common Stock equal to the product of (i) the number of shares of Company Common Stock into which such share of Company Series C Convertible Preferred Stock is convertible, taking into account the effects of the Transactions in accordance with the certificate of designation applicable to such Company Convertible Preferred Stock, and (ii) the Common Exchange Ratio; and
+ each share of Company Series D Convertible Preferred Stock (other than excluded shares and dissenting shares) will be cancelled and automatically deemed for all purposes to represent the right to receive a number of shares of Buyer Class A Common Stock equal to the product of (i) the number of shares of Company Common Stock into which such share of Company Series D Convertible Preferred Stock is convertible, taking into account the effects of the Transactions in accordance with the certificate of designation applicable to such Company Convertible Preferred Stock, and (ii) the Common Exchange Ratio."

The Exchange Ratio has already been calculated to be 1 UNQL share for 0.0029 EAC shares. The Series A thru D preferred shares will all convert to 9 billion UNQL common shares. Anyone who claims otherwise cannot read clear English as explained in the Merger Agreement. I just copied it in black and white. Here is the source:

https://www.sec.gov/Archives/edgar/data/1832765/000121390022080653/ea170231-8k425_edifyacq.htm

There are already 800m shares of UNQL outstanding. Sunandan Ray owns 322m of those. Let's assume 3a Capital sells all 63m they previously converted to the public. That would mean the public owns 478m shares of UNQL pre-merger.

Next, we need to calculate how many EAC shares everyone will get. The preferred shareholders multiply their 9 billion shares by 0.0029 to see that they will have 26.1m EAC shares. Add those to the current 1.7m EAC shares to get 27.8m shares outstanding. Then, exchange Ray's 322m UNQL shares (times 0.0029) to give him 934k EAC shares. The public exchanges their 478m shares into 1.38m EAC shares. Add those all up to get approximately 30m EAC shares outstanding. Lastly, Colbeck as the sponsor of this whole deal gets approximately 5m EAC shares which also get added to the new EAC outstanding shares count. Let's just call it 35m shares of EAC outstanding after the merger.

For those who don't understand dilution, UNQL shareholders owned 478m of 800m shares outstanding before the merger. That's 60% ownership. After the merger, the public will only own 1.38m of 35m shares of EAC. That's only 4%. That, my friends, is the textbook definition of massive dilution!

But we're not done yet. What will those 35m shares of new EAC be worth? Well, that $17m will be gone. Let's be super generous and say they manage to keep $5m in cash after all is said and done. There will be a new $25m loan on the books that needs to be repaid at about $4m/year for those Asian Offices. Since the target EBITDA in that merger agreement was only $5m annually, let's be generous again and assume a $1m profit. The best UNQL has done in 3 years of public reporting is $1.7m profit. So, let's be super generous again and say newly merged US + Asia UNQL books a profit of $3m. Heck, let's go crazy and say $5m in earnings! And let's give them a 10x multiple, because, why not?!? So, add that $5m leftover to the new very generous $50m market cap to get a Nasdaq $55m market cap. Go UNQL Go!!!

What will those 35m outstanding shares be worth? That comes out to $1.57/share. That's reality folks. In order for EAC/UNQL to be worth $10/share after the merger with 35m shares outstanding, the market cap would need to be $350m. Hate to bring reality into the discussion again, but publicly traded companies with $5m in the bank and $5m annual earnings aren't worth a $350m market cap. And, since we are being completely honest here, we didn't even reduce those earnings by that $4m annual debt payment for the next 10 years. Trade accordingly.