Wed | Sep 23, 2020

Blue Power stock could fall with demerger

Published:Friday | October 11, 2019 | 12:00 AMSteven Jackson - Senior Business Reporter
Blue Power chairman Dhiru Tanna

The demerging of its lumber division from its soaps could lead to a dip in the Blue Power stock price initially, company directors told shareholders in the explanatory circular released this week.

Blue Power Group directors have formally recommended spinning-off the Lumber Depot unit into a new company that would also list on the stock exchange, saying they expect the reorganisation to lead to increased profit at both companies over time.

“Your directors still consider that the spin-off and associated transactions are in the best interest of Blue Power’s stockholders, as a whole, and sincerely hope that you will all benefit materially from these transactions,” stated the circular.

Blue Power shares climbed in mid-July at the initial announcement of the planned spin-off of Lumber Depot, from $5.03 to as high as $14.40, but fell back to $7.30 on Thursday. The soap division holds the bulk of the assets and made more profit in four of the last five financial years. Blue Power Group holds $982.7 million in total assets split between the soap division, at $760.7 million, and the lumber division, at $222 million, at the end of Blue Power Group’s financial year in April 2019.

“The transaction will result in value, leaving Blue Power to be vested in its stockholders. It could possibly put some downward pressure on Blue Power stock, but stockholders would be compensated by the Lumber Depot shares that they will receive,” stated the explanatory circular released this week by Blue Power.

After the allotment, Antibes, an entity held by Blue Power chairman Dhiru Tanna, will hold 50.09 per cent of the shares in Blue Power and 50.09 per cent of shares in Lumber Depot, the circular outlined. Calls and emails to Tanna for comment were not returned up to press time.

The company did not release a timeline for its initial public offering of shares in Lumber Depot, and lead broker for the transaction, Mayberry Investments Limited declined to comment. However the process towards the offer coming to market is making progress.

The company stated in the circular that it is “now ready” to transfer 564.9 million units it holds in Lumber Depot to shareholders of Blue Power on record at August 1, on a one-for-one basis. Under the spin-off, each shareholder in Blue Power will get an equivalent number of shares in the new Lumber Depot, while lawyers representing Blue Power will hold a single share in Lumber Depot. Upon approval for listing, Lumber Depot will sell 20 per cent of its shares to the market for subscription, at a price to be determined.

Most other information in the circular was already disclosed at its extraordinary general meeting in mid-August, where shareholders voted by way of a special resolution to approve the demerger.