MEGB: Is this a real deal?!

A few days, MEGB announced that its major shareholder, Siva Kumar has entered into a put-and-call option with one Gary How Soong Khong from Hong Kong to dispose of his 29.76%-stake for RM1.10 per share. Under the agreement, Gary How has a 6-month call option to purchase the shares from Siva Kumar, while Siva Kumar has a 9-month put option to sell the shares to Gary How. For more, go here.

Since the announcement of this agreement, the share price of MEGB has rallied from a low of RM0.30 to a high of RM0.60. It even broke above its long-term downtrend line at RM0.38 as well as the horizontal resistance at RM0.55.


Chart: MEGB's weekly chart as at Mar 24, 2014 (Source: Tradesignum)

Notwithstanding the positive technical outlook, the question that speculators must ask is whether this is a serious deal. Really serious businessmen don't do deal like this. I mean, I can't imagine Lim Kok Thay or Lee Shin Cheng entering into a deal to sell or buy their companies on this basis. As speculators, we must be careful that we are dealing with actionable information. To me, the MEGB deal looks like, sounds like and smells like another Ingens deal: Something to spur a stock to run up! For my take on the earlier Ingens deal, go here & here.

Finally, even if this is a real deal, the acquisition of a stake of less than 33% will not trigger a mandatory general offer for the stock. MEGB share price will have to find its level in the market place, which until recently was around RM0.30. 

Note:
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, MEGB.