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Stock Commentary

Liberty Flour Mills IPO of subsidiary approved by SEC

Merkado Barkada
Liberty Flour Mills IPO of subsidiary approved by SEC

The SEC approved the plan of the Liberty Flour Mills [LFM 17.00 2.04%] [link] board to list its property subsidiary, LFM Properties Corp [LFMP 0.107 pre-PSE], using the “IPO by way of introduction” method.

LFM’s plan is to distribute (by property dividend) 10.35 billion LFMP shares to existing LFM shareholders, at a ratio of 69 LFMP shares for every 1 LFM share already owned. When listed, the shares will have an initial price of P0.107/share.

The dividend is available to all shareholders of record as of December 18, 2020.
 

MB BOTTOM-LINE

This one has been baking for a long time, but LFM shareholders are about to get an interesting jolt of liquidity.

There were no details released on when LFM plans to actually list the LFMP shares, but with this conditional SEC approval, LFM has reached the point where completion is in sight.

For a quick refresher, an IPO “by way of introduction” is a weird method that a company can use to list a new company that does away with the need to go through that whole “book building” process with an underwriter, with a prospectus and all that paperwork.

The parent company just airdrops enough shares of the new company to its shareholders by way of a dividend to cross the PSE’s minimum public ownership threshold, and presto: a new public company is born.

Now, all of that sounds pretty elegant and straightforward, but that’s where the civility ends and the absolute savagery begins, because the PSE has a weird rule that excludes IPOs that list using this method from its regular ceiling and floor rules.

That means, on LFMP’s first day of trading, that the stock can go as high (or as low) as the market wants.

There’s no 50% ceiling limit on gains, or no 30% floor limit on losses.

I haven’t heard a compelling reason for why the PSE excludes these listings from that rule, considering that the issuance begins its life with a value/price that has been set by a fairness opinion that could be used as the basis for calculating the regular ceiling/floor limits, but that’s just the way it is.

The last stock to list using this method was Altus Property Ventures [APVI 13.10], and that day (and the days following) were absolute madness.

The stock was (and remains) largely irrelevant, but speculators and industry insiders had a great time playing with the price for a while during the stock’s initial 15 minutes of fame.

You can read my coverage of that first crazy day here

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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.

LIBERTY FLOUR MILLS

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