Rusal

UC Rusal plans to raise up to US$2.6 billion through an IPO in Hong Kong later this month. Rusal would thereby become the first Russian company to list in Hong Kong, a coup of sorts for the controlling figure, Oleg Deripaska.

The HK regulator, the SFC, was rendered unhappy last month by this news, and it took under consideration two possible measures:

1. Permitting only an institutional placing, i.e. no public offer tranche, and
2. Requiring that minimum transaction size for automated trading be set at a very high level to deter smaller retail investor involvement.

It opted for the latter. Rusal can only sell the IPO to investors who subscribe for at least HK$1m worth of shares. Following the listing, shares will be traded in board lots of at least 200,000 shares each.

If we entertain for a moment the theory that retail investors need to be protected, then wouldn't they have to be "protected" from the secondary market, too? Anyone who can make a bad decision to buy in an IPO context could also make a bad decision to buy the next day! With a minimum lot size defined by share rather than dollar amount, it isn't at all clear how that will shake out.

My own view of course is that investors have to be allowed to make their own decisions, and [even!] retail investors are generally better at knowing what to do with their own money than regulators are at knowing how to 'protect' them.

Indeed, from more than one perspective, the proposed limits would make things trickier for retail investors , not safer at all.

I'm told the prospectus makes a fascinating document, though I have myself yet to dig into its 1,141 pages. If any of my readers wants to study that material, here it is. Go wild.

Bronco Drilling

Allis-Chalmers Energy has entered into a contract to buy Bronco Drilling, an oil and natural gas drill rig supplier.

Bronco shareholders will get $200 million in cash and 16.85 million shares of ALY's common stock if the deal goes through as planned.

Wexford Capital, which owns close to 13% of the issued and outstanding common stock of Bronco, thinks this is too cheap. On July 29, Wexford partner Arthur Amron, wrote the board of directors of Bronco to explain his own and his colleagues' reasoning.

The history behind this letter makes it of especial interest to me. For as it happens, Wexford created Bronco, in June 2001. Four years later, it kicked its baby out of the nest, into the world, with an IPO at $17 a share.

The IPO price of 2005 was $17 a share??? As it happens, that's about how shares are valued according to the Allis-Chalmers proposal. Anybody who stocked up on equity at the IPO price and now accepts the ALY offer is accepting a nominal value change of just about nothing, and of course a real value change well in the negative numbers, since the 2008 dollar isn't the 2005 dollar.

Glass Lewis, on the other hand, recommends that shareholders vote for the proposed merger, which they think will "create a diversified international oilfield service provider, as well as generate substantial synergies. In addition, our contribution analysis suggests that the financial terms of the agreement are fair for the Company and its shareholders.”

Family Businesses

One word to successful entrepreneurs with children.

You've worked hard for much of your life, you've built a company that (I'll suppose) retails shoes. It started off as a single store, and has become a chain.

Congratulations. I admire such a life. But what now ... a dynasty? You have a child or more, and I'll suppose they're young adults. Are you grooming one or more of them to take over when you retire?

Please don't, without considering alternatives. You can end up with a fellow who has no real interest in marketing shoes, presiding over the company because he believes it's his obligation to do so. And you'll probably be looking over his/her shoulder from your Florida condo. Not an optimal situation for either of you.

When you're ready to retire, go public. Hire the right advisers and prepare an initial public offering. If properly done, and given our assumption that you have a sound underlying business to sell, you'll get plenty of money for that condo and the lifestyle to go with it, or a second career if you prefer.

What about the kid? Give him a share of the IPO proceeds, rather than the business. Let him do what he thinks best with his life and the money. There are plenty of professional managers out there who aren't related to you, and the process of going public includes finding the right ones.

Just a thought. The kids prefer the cash. Almost always.

(This will count as what is usually my Sunday entry to this blog. You'll next hear from me on Monday.)