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Stock Commentary

Converge plans P6.5-B buy-back from American investor

Merkado Barkada
Converge plans P6.5-B buy-back from American investor
Reading the tea leaves here, it really does look like CNVRG is playing catch-up to its partner’s hasty exit. Coherent Cloud wants out, and they’re getting out now.
Merkado Barkada

Converge [CNVRG 25.80 1.90%] [link] announced on Monday that its American investor, Coherent Cloud, is planning to fully exit its position in the company through a combination of a P6.5 billion block sale to CNVRG and a private placement process to sell another block of shares worth P7.2 billion.

CNVRG indicated that Coherent Cloud has arrangements in place to sell any shares that are remaining after these two transactions are completed.

CNVRG’s board approved a share buy-back program to accommodate the P6.5 billion arrangement with Coherent Cloud, which CNVRG said it will finance through debt, and that such debt would not cause CNVRG to breach any of its debt covenants with lenders.

CNVRG also said that the buy-back will not have any impact on the company’s capex plans, which CNVRG said it will support with its “robust operational cash flow” and “existing debt facilities”, like the proceeds from its recent P10-billion bond offering.


MB BOTTOM-LINE

Reading the tea leaves here, it really does look like CNVRG is playing catch-up to its partner’s hasty exit.

Coherent Cloud wants out, and they’re getting out now. Maybe we shouldn’t be surprised at how Coherent Cloud is going about this, though.

Remember back in November when they sold a huge 420 million share chunk as a block sale, back when CNVRG was trading at around P30, which seemed to catch CNVRG and the market by surprise?

Back then, CNVRG jumped out as quickly as it could to pump the side-effect of the sale (increased public float), to make it seem more like a collaborative effort.

But now with this transaction, where Coherent Cloud is running an “accelerated book building offering” at the same time that it’s selling P6.5 billion worth back to CNVRG, it just looks like CNVRG is doing what it can to soak up as much of this supply as possible with whatever tools it has at its disposal.

Both Coherent Cloud and CNVRG are saying all the right things about CNVRG’s market position and future prospects, but the way that this has gone down sure sounds like Coherent Cloud is trying to get out as quickly as possible -- with or without CNVRG’s blessing or help.

We can’t get into the heads of the Coherent Cloud management team to see why they’re doing it this way, but the market usually takes any mass sale, especially those at a discount, as a negative sign.

That said, if Coherent Cloud needed money for its own reasons, like to cover liabilities or take advantage of a new time-bound opportunity, there really aren’t a lot of elegant ways to exit a large position like this.

Waves are made when whales swim.

The big question is whether this whale is heading toward better feeding grounds, or away from danger?

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CONVERGE ICT SOLUTIONS INC.

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