Management gets 2 million shares if the stock is over 20 bucks for 20 days and another 1 million shares if the stock is over 25 for 20 days before April 20, 2012. Warrants, which will be called if the stock goes over 14.25, expire November 2012.
That extra 3 million shares is not really being talked about much, but I bet it's at the forefront of management's minds. At 25 bucks a share that would be an extra $75 million bucks. What would I do if I had $75 million bucks dangling in front of me? First thing, get rid of the warrants. The tender offer seems like a pretty sweet deal so a lot of people are taking it. Second thing, uplist. Third thing, speed up growth with accretive financing. The way people talk about financing in the China small cap space these days it's as if they expect all financing to be dilutive. These people aren't dumb, and there is $75 million at stake here. CCLTF has been able to borrow money in the past, they should be able to do so now. They have about $20 million of cash on hand, at least $31 million coming in this year, and $40 million of planned capex over the next two years. How much would they need to raise to get it all done this year, if the demand is there? Move some of the projected 2012 net income into 2011, and the market should notice.
If that's not enough to move the stock price to 14.25 and call the rest of the warrants, they could use some of the cash flow in 2011 for a buyback. They have already retired warrants this way. In 2011, they will do whatever they have to do to call the warrants, and then use the extra cash coming in to blow through the warrant overhang. Maybe declare a dividend? After all, it would mostly flow in management's pockets anyway. It doesn't have to be permanent, it just needs to look like it is. A dollar per share would get the stock to $20 for sure, probably $25. And then management would have earned an extra 3 million shares.
I'm a really small player in this game, so my decision won't have much effect on the outcome of the tender offer. I bet we have 3-4 million warrants left after the offer. I'm comfortable holding the warrants here to see what happens.
