UNICO-DESA - Is It worth a Gambit?

Good or Bad Issue? Timing is Important

Unico-Desa Plantations is offering current shareholders a distribution in specie of 1 share of ELK-Desa  Resources Bhd (ELKD) for every one Unico-Desa shares held on 19 November 2012.

To ensure your entitlement, you have to buy this share before 13 November as it exed all on 14 November.

Also there will be an offer for sale on a pro-rata basis of ELKD. 

So if you have 1,000 units then you will get a rights of another 1000 units of ELKD.

A Commodity Going Down in Price

Let's do our maths.

The current price is RM 1.28. So you have to pay RM 1,280.00 + RM 31.00 to purchase 1,000 units from the market. This works out to RM 1,311.00.

But you get 100 units of free ELKD shares in specie out of the distribution  exercise.

I would not know how much the price of Unico-Desa will go down because of this distribution of the new ELKD shares.

But we know the value of ELKD is RM 116.00

So, a possibility will be Unico-Desa shares will readjust downwards to RM 1.16

So, in real terms, there is a compensation of 100 units of ELKD for the loss of  12 sen from the price of Unico-Desa.

No gain and no loss.

So, Unico's price will re-adjust downwards  to RM 1.17 - RM 1.18 after it goes ex.

Next you buy each unit of ELKD for RM 1.16.

You do not know whether there will be a premium  with this bad market after that bad Astro listing and the current poor oil palm commodity prices.

Fruiting or Rotting Fruits?

If I read it right,there is no premium to be got.

You may even get a better price by buying its option papers or when it goes into 'dip mode' with the deluge of  ELKD shares when it lists.

Verdict: No go!