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"A joint venture or creation of new shares is probable" said Eric Musau, an analyst at SIB...

This might lead to significant dilution of current shareholders..

Let us also remember that Segman has a sizeable share of KK. So we can either go with him or against him. The choice is ours and so will be the results.

I will break it down to cases where the strategic investor gets 10%, 20% & 30% of kenol kobil by diluting current shareholder..

At 10% dilution
Kenol will have to add 165mn new shares bringing the EPS down to 2bob.. The shareholders will love this one because their wealth and control is maintained plus they get improvement in earnings from the Strategic investors advice..

At 20% dilution
Kenol will have to add 370mn shares bringing the EPS down to 1.75bob.. This move will be shunned by the market as it will probably lead to a fall in dividend and the risk is higher if the investor underperforms in his duties..
Although the share will still be cheap at 11.5

At 30% dilution
Kenol will have to add 650mn shares bringing EPS down to 1.5bob.. This will mean giving up a lot of control in the company to a stranger & DPS will fall to 60cents from 1bob ..
And yet even with 30% dilution the stock looks relatively CHEAP at 11.5

guru267 wrote:
Aguytrying wrote:
please break down the possible outcomes of the different scenarious on eps and share price and any other effects on the share and company.


I will break it down to cases where the strategic investor gets 10%, 20% & 30% of kenol kobil by diluting current shareholder..

At 10% dilution
Kenol will have to add 165mn new shares bringing the EPS down to 2bob.. The shareholders will love this one because their wealth and control is maintained plus they get improvement in earnings from the Strategic investors advice..

At 20% dilution
Kenol will have to add 370mn shares bringing the EPS down to 1.75bob.. This move will be shunned by the market as it will probably lead to a fall in dividend and the risk is higher if the investor underperforms in his duties..
Although the share will still be cheap at 11.5

At 30% dilution
Kenol will have to add 650mn shares bringing EPS down to 1.5bob.. This will mean giving up a lot of control in the company to a stranger & DPS will fall to 60cents from 1bob ..
And yet even with 30% dilution the stock looks relatively CHEAP at 11.5


This is well thought out.
Why cant the strategic investor buy from the market, even if it will take a long time,

or offer a bid to one or two of the top share holders that's too good to refuse.

I assume creation of new shares, that will be bought, will not increase EPS, but will increase shareholder funds and capitalization.

A strategic investor will not buy from the market.. If the investor wanted to get 20% of KK he would have to have bought every single KK share traded on the NSE since 2008.. Hardly a viable plan..

If most wazuans are talking of only selling their KK at 40bob+ I believe the top shareholders feel the same way.. That means the strategic investor would have to attach a minimum of 300% premium to the current price on his offer.. Hardly a viable plan and limits room for growth in her/his investment..

Looks like creation of shares is the only option as it offers most value to the investor..

If the strategic investor adds value then the creation of new shares will eventually lead to significant EPS growth..