Disclosure: I own shares in one or more of the stocks mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Buy Plethora on the basis of Regency Pacific strength

By Gary Newman

11 November 2015 02:02

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Plethora (PLE) was a company that I was only vaguely aware of up until last week when a potential takeover bid was made for it. Up until then this AIM-listed pharmaceutical company, whose main product is a premature ejaculation treatment, had been trading at between 3p and 4 p, but then an offer landed from Hong Kong investment vehicle, Regent Pacific (also listed in Frankfurt but volume there is almost non-existent), that valued Plethora at 12.5p per share.

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Comments

wildrides

11 November 2015, 03:50

Yeah ……….. spunk it up the wall ( prematurely of course )
Gary Newman

11 November 2015, 05:54

Wildrides,
Must admit when i first saw the news i was expecting a sell-off in Hong Kong, but that never happened and so am happy to have taken some at this sort of level – even if it ultimately means having to hold until conversion into RP shares. I see that EK has also been buying here.
The safe play currently (assuming the deal went ahead) would be to be buying PLE whilst shorting RP, and then using the conversion into RP shares to settle that short – but from the information that i can see, you can’t short RP (the HK exchange has a list of cos that you are allowed to short and it isn’t on that).
Obviously nothing is ever guaranteed and we have also been seeing one or two funds selling – certainly one of which (Baker Bros) would be unlikely to want to hold RP shares given the make up of that fund and the other companies it holds within that.
wildrides

11 November 2015, 06:12

Good luck Gary …….. its all a bit complex for my tiny brain !
Gary Newman

11 November 2015, 07:09

Thanks. I think what is putting a lot off is the fact you might have to end up with RP shares in order to get anywhere near the 12.5p that the deal was valued at, at the time it was made.

Based on the deal going ahead as planned, the PLE share price equates to around HK0.04, so we’d need to see a fair drop from the current SP of HK0.1 for it to dip below that (bearing in mind that RP holders are now fully aware of the potential dilution coming to secure this asset).

It is a gamble like any of these smaller companies but sometimes when there is a big gap between the offer being made and how the market is valuing that, there is good money to be made. Had we seen a big sell off in HK after the announcement I’d likely have left it alone!