Saturday, October 9, 2010

Some more thoughts on TTT/MCFAF

In my previous post on TTT/MCFAF (click on "zCurrent Holding: TTT" under Labels) I mentioned how the recently announced merger made TTT an attractive investment, so I thought I'd elaborate a little here... 

MCFAF can be thought of as the original Michael Smith investment vehicle, and through countless mergers/acquisitions/divestitures/spinoffs it's been used to generate serious wealth over the last two decades.   Before the merger I thought TTT was cheap, but I never bought it b/c I was worried about any conflicts of interest.  Afterall, with Smith controlling both companies and with both companies dependant on acquisitions to create value, I was worried he would cherry-pick the best opportunities for MFCAF.  Additionally, TTT was basically a mining royalty company that paid MFCAF a fee for administration - perhaps this fee was slightly beneficial to the shareholders of MFCAF at the expense of TTT?   Lastly, from what I've been able to gather (from 3rd party sources, so I can't verify the accuracy), Michael Smith has a large ownership stake in MFCAF and a small stake in TTT, so financially he's much more aligned with MFCAF (and when I evaluate stocks, insider alignment is one of my primary considerations). 

So, my next thought was why the merger and why now?  Afterall, over the last 5-10 years Smith has gone through considerable lengths to put build the company that was basically the sum of TTT, MFCAF, and KHDHF*.  He then spun out MFCAF and a few years later he split up TTT and KHDHF, and now he's merging TTT and MFCAF!  Wouldn't it've been easier to just spin out KHDHF in the first place?  Ultimately there's no way for me to know why Smith has made these transactions so complex, BUT that doesn't matter b/c with the TTT/MFCAF merger I'm comfortable that now I'm directly aligned with him. 

So, all that being said, I do have a conspiracy theory about what might be up Smith's sleeve.  Recently, TTT issued stock to raise cash for the express purpose of pursuing an acquisition.  My blue-sky hope is Smith found an acquisition that's so attractive he, along with his MFCAF shareholders, wants a piece of the wealth it'll generate - and what better way to do this than by merging MFCAF into TTT before the acquisition becomes public?  Also, this is consistant with a nuance of the TTT/MFCAF merger that has a lot of people scratching their heads - Smith is financially aligned with MFCAF, but on the surface the TTT/MFCAF merger appears to benefit TTT shareholders at the expense of MFCAF.  Afterall, on a conference call Smith was very confident he has the necessary MFCAF shareholder support for the TTT merger - perhaps the pending acquisition was how he got it?  Of course this is just IDLE SPECULATION on my part, we'll see what happens...

*KHDHF is a cement/industrial company that trades on the Frankfurt exchange and here in the US on the pink sheets.  This company is being spun out of TTT in 4 phases, three of which are already complete.  After TTT and MFCAF merge, I'll get 1 share of KHDHF for every 9 shares of TTT/MFCAF I own (which is why I purchased such an odd number of shares - it's divisible by 9).