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Thread: KTN Stock "Spinout"... What does this actually mean?

  1. #1
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    Default KTN Stock "Spinout"... What does this actually mean?

    So I have a small whack of this silver exploration companies penny stocks, and this was announce Friday. Is this a good sign or something to make one nervous? I am interpreting it to mean we should be getting some extra new shares in a secondary company out of the deal but I do not quite understand what kind of an effect it is supposed to have. Any thoughts from those more versed than I?

    Fri, August 20, 2021, 3:47 PM
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    VANCOUVER, BC, Aug. 20, 2021 /CNW/ - Kootenay Silver Inc. ("Kootenay" or the "Company") (TSXV: KTN), is pleased to announce that its board of directors has unanimously approved a spin-out of 80% of the Company's Canadian exploration assets (the "Canadian Assets"), to its shareholders by way of a share capital reorganization effected through a statutory plan of arrangement (the "Arrangement"). The Canadian Assets are held through Kootenay's wholly-owned subsidiary, Kootenay Resources Inc. ("Spinco"). Under the Arrangement, Kootenay will distribute 80% of the common shares (each, a "Spinco Share") of Spinco to Kootenay's shareholders. Once the Arrangement becomes effective, which will be triggered by the board of Kootenay, Kootenay shareholders will ultimately own shares in two public companies: Spinco, which will focus on the development of the Canadian Assets, and Kootenay, which will continue with the exploration and development of its Mexican assets.

    Kootenay Silver Inc. Logo (CNW Group/Kootenay Silver Inc.)
    Kootenay Silver Inc. Logo (CNW Group/Kootenay Silver Inc.)
    James McDonald, Kootenay's President and CEO stated, "We believe the spin-out of the Canadian Assets will be very beneficial to shareholders. Among other benefits, it will unlock the value of the Canadian Assets by allowing it to be developed separately, by a skilled and experienced management team, and it will allow our shareholders to own shares in two companies."

    Under the Arrangement, Kootenay's current shareholders will receive Spinco Shares by way of a share exchange, pursuant to which each existing common share of Kootenay will be exchanged for one new common share of Kootenay (each, a "New Kootenay Share") and 0.04 of a Spinco Share. Under the Plan of Arrangement, outstanding options and warrants to purchase common shares of the Company will be adjusted or replaced so that upon exercise, holders will receive one New Kootenay Share and 0.04 Spinco Shares for each option or warrant exercised.

    The reorganization will be effected pursuant to the arrangement provisions of the Business Corporations Act (British Columbia), and must be approved by the Supreme Court of British Columbia and by the affirmative vote of 66 2/3% of Kootenay's shareholders at a shareholders' meeting to be held on September 15, 2021 (the "Meeting"). Upon receipt of approval from the shareholders of Kootenay and Supreme Court approval of the spin-out, Kootenay's board will determine a trigger date for Spinco to complete a financing by way of private placement, rights offering or other means, and apply for a listing on the TSX Venture Exchange (the "TSXV") or other Canadian stock exchange. The trigger date is anticipated before the end of 2021.

    Kootenay expects that the Arrangement will increase shareholder value by allowing capital markets to ascribe value to the Canadian Assets independently of the other properties held by Kootenay. The spin-out will provide new and existing shareholders more flexibility as to their specific investment strategy and risk profile. Kootenay also believes that having a separately funded early-exploration business will accelerate development of the Canadian Assets.

    Completion of the Arrangement is subject to a number of conditions, including the following:

    On August 10, the TSXV conditionally accepted the terms of the Arrangement, subject to standard conditions including court and shareholder approval.

    Upon completion of the Arrangement, it is intended that Spinco will be managed by James McDonald, as the President and Chief Executive Officer and Rajwant Kang, as the Chief Financial Officer. Spinco's board of directors will consist of James McDonald, Rajwant Kang and Kenneth Berry. Changes and additions to the management team and board will be made as needed as the Canadian Assets progress.

    Additional details of the spin-out transaction will be included in an information circular to be mailed to shareholders of Kootenay in August, 2021 in connection with the Meeting. The Arrangement is expected to close on or about September 30, 2021.

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    The hope would be that investors will value the total enterprise higher by splitting out the Mexican and Canadian assets and the spin out will lead to higher share prices.

    Maybe some people like the Canadian assets but not the Mexican assets or vice versa. Or maybe some institutions won’t invest in Mexican companies for some reason or another and by spinning out the Canadian assets they widen their pool of prospective buyers. Could also make for a cleaner resulting company if they are looking to sell it to someone.

    I don’t think it’s either a good or a bad sign, more that management thinks there is some arb to be found by breaking the company up.

    They probably aren’t wrong.
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    guessing who I might be, psychologizing me with your non existent degree.

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    Quote Originally Posted by tirebob View Post
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    So I have a small whack of this silver exploration companies penny stocks, and this was announce Friday. Is this a good sign or something to make one nervous? I am interpreting it to mean we should be getting some extra new shares in a secondary company out of the deal but I do not quite understand what kind of an effect it is supposed to have. Any thoughts from those more versed than I?
    From an investor's perspective, share capital reorganization is the takeaway. Right afterwards, you will hold two separate positions that totals to the same value as you do now.

    Good or bad it's hard to say. The market will likely value one of Spinco or Kootenay more, and you might see one side gains while the other drops. In a way, it diversified your portfolio a little if you choose to continue to hold both.
    Last edited by cdnsir; 08-23-2021 at 09:31 AM.

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    Well I am in for a few thousand shares so we will see what happens I guess!

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