The buyout of Puda Coal (PUDA) is becoming increasingly likely considering the Chairman of the Board submitted a draft merger agreement last week. Though slightly delayed from the expectations of a submission in June, it still backs up his intent to follow through with the proposal from April 29. The delay also isn't too surprising considering the ongoing investigation into his supposed illegal transfers of company assets.
Naturally the details of the merger agreement are more important than just the submission. No guarantee exists that the terms are agreeable. Or whether the price matches the desires of at least some shareholders that think $12 is too low. Will the special committee and BOD be able to negotiate a higher price? It would seem a difficult pill for most shareholders to swallow if Ming Zhao was able to cause the fear and parlay that into a cheap buyout.
Also notable, PUDA submitted plans to regain compliance with NYSE listing standards. Though this might not be that meaningful if a merger agreement is finalized. Clearly they need this option to help with negotiations. Ultimately PUDA needs to be able to regain compliance so the stock could re-trade without a merger agreement.
How will this end? Will PUDA need a new auditor and a completed investigation before accepting a merger agreement? There is actually justification for accepting the $12 if legal matters exist surrounding ownership. Shareholders would likely be best served to take the $12 and run if that becomes a factor. It would be unfortunate because PUDA has very valuable assets likely worth multiples of $12, but fighting a fight on principle to only lose in the end might not be worth it.
Ultimately though, Chairman Ming Zhao has the assets to make PUDA shareholders whole if wrongdoing is proven. A deal in the $15-17 range would likely alleviate most hard feelings surrounding the suggested fraud. Not to mention my investors money is tied up waiting for the investigation and merger to be resolved. PUDA suggests negotiations could take a couple of weeks so maybe we'll hear by mid August at this rate.
Disclosure: Long PUDA in client and personal accounts. Please review the disclaimer page.