MAE Transformation

MAE Holdings, a company which makes transformers for electrical appliances, saw its shares rise by 64% yesterday on news of a share placing and possible investment in a multi-media business. Announcing a pointless 10 to 1 stock split, the company omitted to mention that the directors granted themselves share options less than 3 weeks earlier.

MAE Transformation
21st September 1999 (updated 21-Oct-99)

MAE Holdings, a maker of transformers for electrical appliances, yesterday released an announcement that it was placing 30m new shares at $1.10 per share to raise $31.5m net of expenses.

The placing, conducted by Pacific Pearl Securities Ltd, was to "more than six independent private individual or institutional investors". For those who don't know, six is the magic number. Six or less, and the Stock Exchange nowadays asks the issuer to name the placees. So the standard work-around is to get the placing agent to promise that there are at least 7 placees.

That's a pretty tentative statement, but the market took the shares up 64% from $1.25 to $2.05 on the news, in volume of 920,000 shares.

Stock Split

At the same time, MAE said that it was splitting each issued share into 10 new shares, and that the board lot will increase from 2,000 shares to 20,000 shares. As you can see, that means that every old board lot is worth the same as every new board lot. Since bids and offers on the Stock Exchange are made in multiples of one board lot, it should have absolutely no effect on liquidity. The reason for the split?

What do they know that we don't? The only real effect is to put the nominal stock price into "penny" territory - based on the previous close of $1.25, a new share would be worth $0.125, or less than 2 US cents. Do people really judge stocks by their nominal share price?

Options Granted

Prior to the placing, MAE has 150m shares in issue, so the maximum 10% allowed under the option scheme is 15m shares. As of the 30-Apr-99 year end, no options had been granted.

Webb-site.com can reveal that according to a disclosure printed on 10-Sep-99 under the Securities (Disclosure of Interests) ordinance, the Board of MAE has granted 4 of its directors options over a total of 12m shares, exercisable from 3-Sep-99 (presumably the date of grant) to 9-Nov-08, at an exercise price of $1.07 per share. The first date of exercise falls just 15 days before the date of the announcement.

The options granted were granted to the 4 directors in proportion to their shareholdings in Boldic Limited, which prior to the placing owned 105.75m shares in MAE representing 70.5% of the company.

Mr. So Hin Wah (Chairman of MAE) owns 30% of Boldic, while Mr. Alan Cheung Fong Chau (Deputy Chairman) owns 30%, Mr. Ho Wing Yuk (Managing Director) owns 30% and Mr. Wong Sai Chung (Executive Director) owns the remaining 10%. So these share options went to incentivise directors who already owned 70.5% of the company.

MAE may or may not have granted options to non-directors but we would have no way of knowing since these are not discloseable. At any rate, they could not have received more than 3m options, due to the 15m (10%) limit under the scheme.

As a consequence of the subsequent share rise, the Directors are now sitting on options with an intrinsic value of $0.98 each (the difference between the market price and the exercise price), or $11.76m. What excellent timing they have!

Update 21-Oct-99

Another 3,000,000 options have been issued to the executive directors, with an exercise price of $2.10 per share (or $0.21 after the 10 for 1 split). They can be exercised from 12-Oct-99 to 9-Nov-08. The 3m shares under option are equivalent to 10% of the 30m shares issued in the recent placing. No further news on that possible "strategic investment" mentioned in last month's announcement.

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