Of more immediate interest is that the Toronto Stock Exchange, which is where Powertech stock is listed and traded, has just given conditional approval to this combination. My background in finance tells me that this should be good news for the stock, taking its price higher. Yet the immediate reaction to the news has been negative, with Powertech stock trading at an all-time low of just 3.5 cents a share in recent days. This merits some analysis, which I happily present here in the form of a blog post by Jim Woodward, a Colorado-based CPA who follows developments in this drama closely via his site Powertechexposed.com.
I'd say the Blumont Mining connection is the one to keep an eye on. The vibes coming out of that company aren't very good. Here's Jim's piece:
|NEW October 23, 2014 - The more things change, the more they stay the same, particularly when it comes to Powertech/Azarga's investor communications. Tuesday evening, Azarga officials were positively giddy as they tweeted out "Toronto Stock Exchange approved our merger..." and "$5m cash in the can and the highest grade project among US ISR peers". The next day, Powertech issued a news release that was more specific and not quite as upbeat. According to the release, the TSX "conditionally approved" the "merger" between Powertech and Azarga, the proposed $5 million private placement, and a proposed one for ten reverse stock split. True to form, Powertech did not fully disclose the TSX's conditions, only mentioning a four month lock-up period on shares issued pursuant to the private placement. And describing the transaction between Powertech and Azarga as a "merger" is misleading. The actual written agreement between the companies correctly describes it as a reverse takeover of Powertech by Azarga. The TSX refers to these transactions as "backdoor listings", because a privately-held company (Azarga) bypasses the initial public offering process and assumes the public listing of the target company (Powertech). TSX rules consider a transaction to be a backdoor listing if the transaction results in the existing shareholders of the listed company (Powertech) holding less than 50% of the voting power in the new entity, and if there is a change in effective control. In the proposed Powertech/Azarga deal, existing Powertech shareholders will be left with only 33% of the company, and control will shift to a handful of Azarga executives as well as controversial Singaporean firm Blumont Group. The fine print disclaimer on Powertech's news release notes that Powertech "expects" and "assumes" that "the TSX will approve the proposed transaction", implying that final approval has not occurred, and conflicting with the definitive statement made on Azarga's Twitter page. Perhaps this is why on the same day the news release was issued, Powertech's stock price dropped to an all-time low of three cents. One might expect that demand for Powertech shares would increase on the news, but the opposite was true. And today, the stock price rose to only 3.5 cents as a mere 30,000 shares were traded, worth only $1,050 CAD. |