While I don't have a high comfort level in calculating the future value of warrants, I think any dilution can be a cause for concern, but they only have 16mil shares outstanding. Overall I'm not concerned about the announcement and think the additional cash and liquidity could be positive. BEL remains my largest position.
What's curious to me is the reasoning behind this and if there is anything to the suggestion this could be tied somehow to expansion in the US with the addition of the board member who is the former governor from Michigan? Interesting...
I had not looked at the Yahoo board until now, and was happy to see many intelligent posts re: this matter. Here's some snips from that are germane and reasonable in their analysis, IMO. (Note they are from several posters since the news came out.)
- Kris
Yahoo board snips:
Yet it becomes good news to investors as one reads further about the sweetheart deal that TD is willing to make with Bennett. TD would not be willing to spend that kind of money now, if they were not very sure about the payoff (as described), being there at the end of the deal. This in turn, tells every investor that TD Securities Inc. has an awful lot of faith in Bennett's ability to do great and make the payoff (as described).
Now going a little further out. Wasn't it just a few weeks ago, that every one of us (that does such things), calculated that Bennett had enough Cash on hand, plus income from their Cash Flow, to pay for the Belledune facility? If that is still true and I believe it is, then Bennett is preparing for a push in another direction and one that they must feel pretty sure about. So sure that they are willing to set up a sweetheart deal, just to make sure that they have the cash on hand.
I actually think it was a good deal, that could potentially put another $41 million Can. in cash on the balance sheet (over $2 a share). This added to their current cash will put them in a position to do many things. I even took a small position this morning. The one thing I don't like is management going back on previous statements that no new shares would have to be issued....
Stay calm. This is a no-brainer to CDN $30.00 and beyond. The folks like TD and the other eventual Institutional holders of the warrants will want their free candy from the warrants which are only fruitful at $30.00+. Mark my words...they will get it there.
Savvy management usually issues stock when it believes it's good for the company and long-term investors, i.e. when the share price is high and there's not much dilution necessary for a lot of new cash, and/or when other financing options are unavailable or unattractive, due to bad credit rating or high interest rates. Bennett sold equity at a forward P/E of around 10 (2005 estimates) at the same time interest rates are at multi-decade-lows, and thus debt is much cheaper. So either management is very savvy and knows the stock price is not going to appreciate and may even fall in the future, or they are just clueless regarding the effect of different financing options on shareholder value. Actually, i think they are "just" clueless.
I think it was Warren Buffett who once recommended buying stock in companies that can be led by idiots (as the companie's business is either so simple or its position so invincibly strong), because "sooner or later that's exactly what happens". Bennett is such a company. The stock is going to rise due to its strong standing, however the rise will be slower and lower with these type of bad deals.
My previous 1-year price target on BEL was US$40 (provided interest rates remain low). Now, i "just" expect US$35.
Now Bennett is going to issue 1.5 million shares (or there abouts) and that will help to achieve toward the same conditions. There will be more outstanding. The float will be larger, and these shares will not be turning over at every cough that Bennett makes. So for Bennett, it actually helps to stabilize their investment conditions. Our gain, as investors is going to have to come from the sweetheart deal between Bennett and TD Securities and the hope that there is some 'you scratch our back and we'll scratch your back' going on, to make the deal palatable for us investors.
At this time, I am left with the conclusion that the money derived from this deal is going to be used (in some manner) toward expansion in the United States.
If the decision to restart the Kirkland Lake project is declared, the preliminary procedures will definitly suck up so much time, that Belledune will be online, right along with St Ambroise. Then once again, when the time comes, there should be enough profit stored to build the Kirkland Lake facility. It's going to be all, a matter of timing and Danny Ponz along with the rest of Bennett's management have shown that they are quite capable of that.
From Bennett's perspective - it is good to have a few extra bucks in the bank to work with. Whether that means another plant - Kirkland Lake, US expansion, Belledunne etc. hopefully the earnings announcement/conference call will explain some of that. They have not turned over control of the company to TD, they have gained a high powered backer in my eyes. Granted Bennett can seek financing from a variety of sources - issue some debt, issue some more shares off the shelf, credit lines etc. My thought is that they had a reason to begin a relationship with TD.
From TD's perspective - They have shown a degree of confidence in Bennett. Particularly with regards to the warrants - they can only exercise those if the stock price is at $30cdn within 18months of 2/3/04. For TD to really make money on that piece of the deal - an the other piece for that matter - the stock price needs to be north of $30cdn. I like the stock price north of $30cdn. Big players like TD don't typically make deals like this unless they feel like they can make money doing it. So to me this is a vote of confidence.
Yes earnings are diluted somewhat. Yes there is a question about what happens to those shares inside TD Waterhouse - does the trading desk get to sit on them and unload at their discretion? Do the investment bankers get them to resell to corporate/pension/insurance clients? Is TD viewing this as the beginning of a long term relationship with Bennett? Does TD just like the companies prospects and feel like they can make some good money on their new position? All good questions... I still like the mechanics of Bennett's business and the prospects of another plant cranking up late in 04.
Belledune is coming online. Kirkland Lake is restarted and St Ambroise is doing what St Ambroise does best (make a lot of money for Bennett). The newly appointed Director, a US citizen, a former governor of the State of Michigan, a former Congressman and a former Ambassador. Now in my mind, they just don’t come, any more powerful nor any more influential than that. Then I start asking my self ‘Why’. Why did Bennett want this man specifically? Why would this man want to take on being part of Bennett’s Board of Directors? You soon realize that there must have been several discussions that took place before this appointment. The appointment shows that everyone was satisfied with the arrangements that were made and which are still privy to the individuals concerned (as it should be).
It all makes great sense if I look at a map and note that a Bennett facility could be built anywhere along the southern border of the State of Michigan. This would benefit Blanchard’s home state, also if a second facility were to be built toward the western end of the Upper Peninsula, that would really be benefiting his home state. Two facilities in the same state. So, that satisfies the ‘why’ of the Blanchard appointment in my mind. Also, please note how close these facilities would be to Oakville, closer than the one located in Belledune, New Brunswick.
If I accept the foregoing, regarding the facilities in Michigan, then the next question is Bennett. What could Bennett do with two such facilities and what areas would they service? The one established at the southern Michigan border would open up four states and parts of some others. Those being Michigan, Ohio, Indiana & Illinois and possibly going into some of the adjoining states. Then there is the facility to be built on the Upper Peninsula. It would open up the Upper Peninsula, Wisconsin, Minnesota, the western part of the Province of Ontario and possibly a part of the Province of Manitoba. Both of these areas are huge areas to be serviced and with a lot of business to be had.
Now to get really hypothetical; suppose Bennett finds that the Eco Logic process works and works very well or can be made to work very well with some of the Bennett innovation. It would also have to be economical enough, or be made economical enough, for Bennett’s sales force to be capable of selling the higher priced process.
The Eco Logic process uses equipment, which can be mounted on semi trailers and taken to the contaminated site. Also we should not forget that Bennett maintains their own manufacturing division, which produces their present equipment.
Just the thought of such trailerized equipment at each one of the facilities, would then allow Bennett to service much larger areas, because they could take the curing plant to the contaminated site. One would still have to get permits at each of those contaminated sites, but I would have a tendency to dump that load on the owner of the contaminated site.
All in all, these trailerized facilities could equal to another Bennett facility. Now take another look, in just one move into the State of Michigan, Bennett has been able to literally ‘double their business’, and it all starts from the appointment of Jim Blanchard to the Bennett Board of Directors.
I KNOW! IT’S ALL A DREAM! But, it sure made me smile. |
