Why did MerryMart get suspended for acquiring a healthcare company, but Fruitas didn't?
While both MM and FRUIT acquired companies in the health sector, a few Barkadans wondered why MM was suspended after acquiring Carlos Superdrug (MB link here), while FRUIT was not suspended after its similar acquisition of Surehealth (MB link here).
While it seems to some like FRUIT should have been the one suspended, given all the weirdness around the purchase (company owned by CFO’s mom, no relation to primary business, etc), the actual decision to suspend or not to suspend doesn’t have anything to do with the circumstances or surrounding facts of the case.
It’s just a mechanical application of the PSE’s “Substantial Acquisition” rule. You can view the entire 134-page PDF of the rules here, but the basics are just this: if the value of the acquisition is worth more than 10% of the PSE company’s book value, the PSE will suspend the stock until the company provides “comprehensive disclosure” of the transaction and its impact on the company.
We don’t know the amount that FRUIT will pay for Surehealth, but the disclosure specified that it was less than 10% of FRUIT’s book value.
MM purchased Carlos Superdrug for more than P300 million, which is more than 16% of MM’s book value of about P1.93 billion. That’s it. That’s why MM got suspended, and FRUIT didn’t.
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The key takeaway here is that the application of this rule is mechanical, not subjective. FRUIT didn’t slip through the cracks, the exchange didn't turn a blind eye, and MM isn’t being subjected to undue hardship.
I don’t know how helpful it is to know this, but at least it takes some of the mystery away for why it might happen in some circumstances but not in others! The more we know, amirite?
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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