I spent some time over the weekend running the numbers on Amvig after the shocking asset sale and share repurchase announcement.
Concluding that the proposed share buy back was an incredibly bad deal for shareholders was a no brainer - paying a massive 29% premium to the market price before the deal was signed was, in my view, indefensible. The explanation (that it was linked to the price paid by the vendor when it originally subscribed for the shares in 2007) was not a reason for the pricing but, in my view, an admission that they did not have a basis for pricing the repurchase so high.
Such a stupid explanation also sends a pretty clear message to shareholders and I really have to wonder what on earth the directors were thinking when they put this deal together?
Given that the deal is subject to shareholder approval, and that neither of the two largest shareholders can vote, there must be a reasonable possibility of the deal being voted down by shareholders. Given the fall out from the announcement, it would not suprise me to see the directors move into damage control mode and issue further announcements.
The whole issue of the repurchase price overshadows the issue of the whether the asset sale was in the best interests of the shareholders and the interim results which came in below market expectations.
The next question was whether I should bail out now, take the loss and move on or whether the share price had dropped to a level where it represents a good investment.
At present price levels I would probably conclude that the stock may represent good value (it is trading at the post announcement price target set by Credit Suisse). However, this transaction has pretty much destroyed my confidence in Amvig's board of directors and management and I have decided to sell on that basis. At an average sale price of HK$3.83 I have taken a 19% loss on this investment.
I was tempted to keep one board lot of shares for the sole purpose of being able to attend the EGM and put some rather blunt questions to the directors but decided I had better things to do with my time.
As a side note, ASX listed Amcor is the controlling shareholder of Amvig. After this affair, I would not invest in Amcor either.