So I have been looking at a company for a friend who just invested and she really wanted me to invest in it as well. After going through EERG's financial statements it seems they had a really good year with over $5,000,000 in net sales and and an EPS of 0.06. I thought that was extremely well seeing as their stock is only trading at .35ish.
But regardless on how well their stock is doing I think there is money to be made with their merger with AMZG. When the merger goes through AMZG will be absorbed by EERG, but AMZG shareholders will keep 80% of their shares and EERG will keep 20% of their shares. At first I thought that EERG shareholders were going to lose money, but by working with the numbers I think they will make money. Currently EERG trades at about 0.35 and AMZG trades at about 2.42.
80% of 2.42 is 1.936 and 20% of .35 is 0.07. Adding those two numbers up only gives us 2.006. So first off that 2.006 should increase at least back up to 2.42 (although I think it will go higher). Which means that anyone who buys EERG will make money even though their stock is being reversed 5 to 1 (which is where our 80% and 20% come in). For example, if you invested $1000 at 0.35/share you would have 2857 shares of EERG. With the reverse stock split you would have 2857/5 which is 571 shares. Multiply this by 2.42 and you have $1382. That is a gain of over 38%!
So my question is (finally) that I am wondering if my thinking here is sound? Can anyone support this? On another note, after the merger the new company plans to jump up to a senior stock exchange. Will this increase the stock as well?