I do appreciate the fact that you're asking for my input, but I don't know what I can add to the situation at the moment.
The share exchange ratio, based on both being fully diluted, has been stated to be 1.27 KWG shares to be issued for each SPQ share (I didn't do the math, but it's easily done: divide KWG shares (fully diluted) by SPQ shares (fully diluted). So, for the market to value each share via its KWG-equivalent, SPQ shares should be trading at a 1.27-fold premium to KWG shares (check at any point in time by dividing SPQ share price by KWG share price). That assumption, though, puts no value on the DD spinoff shares. Assign that as you will. Without knowing the record date for those, we don't even know who will get them, necessarily. Newly purchased shares might miss the boat.
Notwithstanding the description of the proposed combination of KWG and Spider as a merger, it is not technically one. The proposal would be a purchase. What it is in law will not change the transfer of value, the quid pro quo exchange. I believe, though, that it will block Cliffs from exercising their right to maintain 19.9% of the outstanding shares of KWG. (I'm still trying to find that out, for sure, so don't quote me on it.) If it is true, that this purchase of Spider by KWG is an exception to Paragraph 1 of the Cliffs shareholder option agreement of March 16 2009, then Cliffs will be diluted to about 10% of the resultant Spider-KWG entity. If that is not the case, then under Paragraph 2, Cliffs will be obligated to pour a huge whack of cash (around $20 MM, off the top of my head) into the new entity via the purchase of shares to restore the 19.9% position, or the option will be voided.
From the March 18, 2009, Management Discussion and Analysis:
"In connection with the exercise of the Option, the Company and Cliffs B.V. entered into a shareholder agreement dated March 16, 2009, pursuant to which:
1. Cliffs B.V. was granted rights of first refusal with respect to the issuance (whether by private placement, public offering or otherwise) of securities of the Company, allowing Cliffs B.V. to purchase (with enumerated exceptions) all such securities offered by the Company in respect of any issuances.
2. Cliffs B.V. was granted pre-emptive rights with respect to the issuance (whether by private placement, public offering or otherwise) of securities of the Company, allowing it to purchase from the Company (on the same terms as applicable in the particular issuance) such number of securities as is necessary to ensure that Cliffs B.V.’s percentage ownership of securities (calculated on a fully diluted basis) immediately after such issuance would be nearly as nearly equal as possible to its percentage ownership immediately before such issuance. "
Just an aside, people. I would urge you to ignore the rantings of one JD. The man does not argue from facts. He makes things up to suit his opinion. Every man is entitled to an opinion, but at least ignore those that are based on false premises.
Lar
