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Gulf Keystone gets hostile $300 million bid from DNO - market gets it all wrong (again)

By Tom Winnifrith | Friday 29 July 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Gulf Keystone (GKP) says that it is considering a hostile bid from Norway's DNO which comprises $120 million of cash and $180 million of shares. Given that DNO will be taking on a net $100 million of debt, post the restructuring the offer is remarkably generous but not half as generous as the market implies.

The shares are now 4.4p. That values Gulf on a post restructuring basis at just under $1.25 billion. If this offer goes through the right price is c1.1p!

And given that holders of the secured bonds will a) own 66% of the equity post restructuring and b) get all their cash back if the deal goes through, then it is a slam dunk certainty that they will vote yes to such an offer and indeed encourage the management to accept.

One suspects the bondholders reckon that Christmas has arrived early. Any folks who cannot do the maths on the reconstruction and are buying in the market - rather than selling as fast as they can - are the turkeys.

If you can get borrow go short now - this is the safest one way bet in town. It is free money that the morons who are buying this stock are happy to hand over to you.

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