Friday, September 18, 2009

Amvig Holdings - an investment that went wrong

I purchased Amvig at $4.71 back in early June. In the weeks that followed the shares increased by about 35%, peaking near the end of July. They then started dropping until 10 September when trading was suspended for a few days. Trading was resumed after the company released its results - results that were materially below market expectations - and announced a conditional sale of one of its operating subsidiaries. Since then, the share price has fallen significantly and brokers have been tripping over themselves to come out with downgrades on the stock (too late to be useful as usual).

Leaving aside the fact that the stock fell significantly ahead of the suspension and results announcement - at a time when the market was rising, I need to consider whether I should take the loss and move on or keep my investment.

I am particularly concerned at the proposal to repurchase a substantial block of shares at $7.00 each which represents a huge premium to the share price at the time the shares were suspended and a ludicrous 67% premium to the prevailing price of $4.19. Given these numbers, my initial reaction is that the deal is highly damaging to the interests of shareholders and there is a good chance that the shareholders will vote down the proposal.

I need to spend some time getting my head around the terms of the sale and the impact on future profitability per share before making a decision.

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