Bright Kindle executes Deed of Exchange with Strong Built

Bright Kindle [BKR 1.26, down 9.3%; 66% avgVol] [link] said that its wholly-owned subsidiary, Brightstar Holdings and Development Inc. (BHDI), signed a Deed of Exchange to acquire 100% of the outstanding shares of Strong Built (Mining) Development Corp. (Strong Built), using P5 billion worth of newly issued shares of BHDI. Strong Built is a magnetite iron sind minder that has a mineral production sharing agreement that expires in seven years.

MB bottom-line: This has always been a weird deal. This is technically a “reverse takeover”, where Strong Built’s owners are buying BHDI using their Strong Built shares as payment. On the surface, that’s a tautological and strange move to make. From BKR’s perspective, the newly issued shares to Strong Built will almost entirely dilute BKR’s ownership of BHDI. They’ll be left with just under 3% of BHDI’s common stock once this deal is completed. From BKR’s perspective, there really isn’t much to cheer about here. But things change when you look at this from Strong Built’s perspective. By using their shares to purchase overwhelming control of BHDI, they’ve gained ownership of a shell that can be used for future fundraising efforts. Usually with subsidiaries like BHDI you’re thinking about the possibility of an IPO by way of introduction (which is basically like doing an IPO using a property dividend of shares of the subsidiary), but this case is a little different because the potential source listed company (BKR) is only a tiny shareholder of BHDI. That doesn’t necessarily make an “IPO by intro” impossible, but it makes it kind of weird since the resulting shareholding structure probably wouldn’t have a sufficient public float. Something is up with this Martin Romauldez-owned stock, though, because the price has increased more than 85% since November. Are these knowledgeable insiders buying up the stock ahead of some bigger deal, or were these buyers caught trying to predict something that didn’t come to pass? It’s hard to say, but BKR is down 20% from its peak price of P1.58 that it hit last week, so maybe this reverse takeover isn’t what those buyers quite had in mind. I feel like we don’t know enough about this yet to say, though. If anyone has any ideas, feel free to let me know! I’m curious to hear what you think is going on here, and why.

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