Tuesday, July 11, 2023 6:32:22 AM
It'd be informative to look up the classes of SAGA shares, and totals authorized and outstanding, and see how they work.
https://www.nasdaq.com/market-activity/stocks/saga/sec-filings
I see from the 5/22 10-K:
On the first page for Nasdaq under Title of Each Class, they list equities as "Units" consisting of shares and Rights:
There are two classes of commons. Only Class A is traded on Nasdaq:
In a business combination, existing SAGA shareholders will also be awarded new shares because of their "Rights":
There are existing holders of Class B but they are effectively restricted from converting to Class A:
However they are likely to bypass that restriction if the SAGA price exceeds $12 for 30 days (it's currently trading just under $11):
Here are the current SAGA classes and totals. Are there enough shares available to issue a meaningful dividend?:
There may be other instruments that need to be accounted for, that could have a strong dilutive effect if exercised (emphasis below is mine):
I saw something interesting on pages 4 and 5 of the ENZC quarterly filed 5/22/23.
Only Series C and Series D are entitled to receive dividends (emphasis below is mine):
https://www.otcmarkets.com/stock/enzc/disclosure
https://www.otcmarkets.com/otcapi/company/financial-report/371665/content
Assuming this can be overridden with a special dividend, and/or whatever bypass is needed for ENZC common shareholders to be awarded SAGA shares, there are further considerations:
- If ENZC shareholders get paid a dividend in SAGA shares, will those be subject to a lock-up period? (eg Dividend shares are restricted and cannot be sold for, say, a year.) Can other SAGA shareholders sell theirs sooner?
- Would fractional shares be issued? Otherwise, would ENZC shareholders with smaller portfolios get any meaningful dividend? Remember as of 3/31/23 ENZC reported 2,880,435,953 common O/S, 941,078 Series C O/S, and 21,259 Series D O/S. Especially the common O/S is a huge pool.
- ENZC has a Common class and Preferred classes A through F. Would a special dividend apply to more classes than Series C and Series D? Would the dividend shares be divided at equal rates or different rates for each class?
- If the "value" of the ENZC-SAGA transaction is $450 million, but equities will be exchanged as payment, that would suggest the cash exchanged will be less than $450 million. Will there be enough cash to fund operations or will SAGA and ENZC still need to raise money for their separate businesses through dilution/other means? The subsidiaries ENZC is selling currently have nonzero operating and research expenses and do not yet have a profitable revenue stream. The subsidiaries ENZC is keeping are likewise. If there's a lock-up period, SAGA dividend shareholders would be along for the ride, for better or worse. ENZC shareholders might also face dilution if ENZC has A/S capacity, no new private investors, and insufficient operating cash to fund its remaining subsidiaries.
Hopefully they address these questions in the upcoming filing.
Some quick and dirty math: If the value of the SAGA transaction is $450M, and SAGA stock is valued at $12, and there's zero other considerations for simplicity, SAGA could issue 37,500,000 Class A shares to equal the transaction value. If that's then split between ENZC Common shares only, the dividend could be equally distributed 1:76, ie one SAGA share for every 76 ENZC shares. Dramatically oversimplified but it's maybe a ballpark. In the real world, there are other parties all entitled to a piece of the very complicated pie.
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