Countdown To The $1.65 Tender Offer On MICT

We previously discussed the opportunity in MICT, Inc. (MICT) in our write up "MICT: Merger And Share Repurchase At $1.65" after the company announced a deal that included a tender offer to purchase up to 20% of MICT's outstanding common stock at a price of $1.65 by BNN Technology PLC. After playing the initial volatility, the stock has dropped back down to $0.66, presenting a tremendous buying opportunity as the date of commencement of the tender offer nears. We are up to 750 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks. We have over 3,400 followers on Twitter as well.

The tender offer could commence any day now as the December 20th news release stated that it would begin within 15 business days. That would make the deadline January 15th at the latest. MICT has 9.34 million shares outstanding and a float of 6.55 million. Based on the 20% target, we have estimated that BNN plans to buy up to 1.87 million shares at $1.65, or $3.1 million worth of MICT stock. The caveat "up to" meaning if it gets that amount of shares offered by shareholders, not that it plans to do a tender offer for anything between zero and 1.87 million shares. Based on the stock price, one can assume a full tender will be filled.

Some investors have pointed out that the tender offer only accounts for 20% of the shares. That may be true, but that is out of total shares outstanding, not float. A significant amount of shares will be locked up between insiders and long-term investors who will not be selling, BNN included. 1.87 million of a 6.55 million float actually represents 29% of the float. So that if you and absolutely everyone else tendered their shares, 29% of them would be accepted for $1.65 in cash. Chances are that not everyone will be tendering their shares, particularly if it rises towards the $1.65 price. So you will likely get well in excess of 30% of your shares tendered at $1.65. Now is this worth the risk of buying in at less than a dollar and hoping to sell the rest of the shares on the open market? We certainly think so.

Another risk would be believing that BNN Technology would actually be willing and able to pay $3.1 million required to fulfill the tender offer. MICT wouldn't be at less than half of the tender offer if this wasn't the case. Shares of BNN have been suspended from trading in London, but there is enough proof to show that it has plenty of cash to complete this transaction as outlined in the release, as outlined in this news release about its cash balance:

"On Wednesday, BNN said its two independent directors and adviser Ernst & Young LLP have now reviewed and confirmed the company's cash balances around the world, totalling GBP27.9 million overall. BNN has GBP14.2 million in cash in the UK, GBP6.7 million in Hong Kong, and GBP7.0 million in China."

The deal would tie up less than 10% of BNN's cash balance, well within the firm's ability to pay for the tender offer on MICT.

The December 20th release stated the following:

- The merged companies create a substantial new group, Global Fintech Holdings

- Global Fintech Holdings raised $23.5 million at $1.65 per share to finance transaction

- A tender offer to purchase up to 20% of MICT's outstanding common stock at a price of $1.65 per share shall be commenced by BNN Technology PLC

MONTVALE, N.J., Dec. 20, 2018 /PRNewswire/ -- Brookfield Interactive (Hong Kong) Ltd, ParagonEx Ltd. and MICT, Inc. (MICT) are pleased to announce the signing of a definitive acquisition agreement to pursue the strategic transactions and planned listing on NASDAQ outlined in announcements by MICT and BNN on July 2, 2018.

Summary of the Proposed Transaction

The acquisitions will create a new company, Global Fintech Holdings Ltd. (GFH), which will become the parent of these highly complementary businesses with the opportunity to achieve significant scale as a combined entity:

We believe combining these entities will create a company with a strong business-to-business (B2B) technology platform and operational expertise that will enable GFH to present a leading global multifaceted platform for trading in digital assets. The combination of these entities is expected to allow GFH to capitalize on ParagonEx's technology and Brookfield Interactive (HK)'s market relationships and technology, via a public market vehicle with access to the capital markets, to become a leading technology provider for the lottery, sports content and other gaming verticals with a strong position in the Asian markets. The strengths and competencies of GFH are expected to include:

• a premier trading platform in digital assets, offered as a Platform as a Service ("PaaS"), that is product agnostic and can be scaled into many different verticals;
• access to the Chinese market through Brookfield Interactive (HK) to monetize the lotto, sports, gaming and other markets using GFH's technology solutions; and
• potential to capitalize on its access to the financial markets to acquire revenues of smaller players at attractive and accretive acquisition multiples to address industry consolidation driven by regulatory changes.

Key Terms of the Transaction

• GFH successfully raised $23.5 million at $1.65 per share to fund the transaction (the "Financing").
• BNN Technology PLC, a 15% stockholder in MICT and majority stockholder of Brookfield Interactive (HK), will commence a tender offer to purchase up to 20% of the issued and outstanding shares of MICT's common stock, not already owned by it within 15 business days at a price of $1.65 per share, in order to increase its ownership percentage of MICT to a maximum of 35% (assuming full participation in the tender offer).
• MICT and GFH will complete a merger whereby MICT will become a wholly-owned subsidiary of GFH.
• Brookfield Interactive (HK) shareholders will transfer to GFH all of the issued and outstanding shares of Brookfield Interactive (HK), resulting in Brookfield Interactive (HK) becoming a wholly-owned subsidiary of GFH.
• ParagonEx's shareholders will transfer all of the issued and outstanding shares of ParagonEx to GFH, resulting in ParagonEx becoming a wholly-owned subsidiary of GFH.
• At or within sixty (60) days of the applicable record date, GFH will spin off MICT's interest in Micronet Ltd., a partially owned subsidiary traded on the Tel Aviv Stock Exchange under the ticker MCRNL, to its shareholders who retain shares of MICT after the tender offer.

In connection with the Acquisitions, at Closing, the parties will receive the following approximate consideration:

• Investors in the GFH Financing (assuming a $25 million raise) – 15,151,515 ordinary shares of GFH, representing approximately 8.83% of GFH
• MICT Shareholders (other than BNN's current ownership, and assuming that no shares of MICT are sold in the tender offer) – 9,048,077 ordinary shares of GFH, representing approximately, 5.27% of GFH
• Brookfield Interactive (HK) Shareholders – 58,898,810 ordinary shares of GFH, representing approximately 34.37% of GFH
• ParagonEx Shareholders – (a) $25 million in cash, (b) a senior unsecured note in the principal amount of $10 million and (c) 86,382,373 ordinary shares of GFH, representing approximately 50.36% of GFH
• ParagonEx Founders – 2,000,000 ordinary shares of GFH, representing approximately, 1.17% of GFH

All of the shares to be issued by GFH are valued at $1.65 per share, representing a GFH equity valuation of approximately $283 million.

The Business of GFH

The merger is intended to create a strong B2B technology platform with operational expertise that will enable GFH to present a leading global multifaceted platform for trading in digital assets. ParagonEx's and Brookfield Interactive (HK)'s assets and technology are highly complementary and are expected to enable GFH to monetize BNN's opportunities within China as well as expedite the growth plan of ParagonEx globally. GFH believes future growth can be driven by the combination and penetration of existing products and platforms into new and emerging markets while capitalizing on revenue acquisition opportunities in a consolidating market.

GFH's enhanced access to the financial markets, supported by a NASDAQ listing, is anticipated to facilitate the acquisition, at attractive and accretive acquisition multiples, of revenues streams of smaller companies dependent on third party software providers, as regulatory changes drive industry consolidation. These potential acquisitions offer significant opportunities for operational cost savings as a result of ParagonEx's highly scalable and robust PaaS capability.

ParagonEx and Brookfield Interactive (HK) are already developing new "play for fun" products to create new revenue streams for GFH. These online games are expected to appeal to a different, yet larger, segment of end users who are not financial traders, but who wish to enjoy playing online financial trading games.

GFH intends to establish its base of operations in Hong Kong and believes that this will enable a rapid rollout of its operations to service the South East Asia market. GFH intends to obtain all licenses necessary to conduct the business and support the operation of the group from Hong Kong.

Commenting on the proposed transaction, Darren Mercer, Chief Executive Officer of Brookfield Interactive (HK), said:

 "We are extremely excited to have agreed on a combination of these highly complementary companies. Together they provide an underlying business that can be very profitable, boasting a world class technology platform with big data analytical capability, a management team with decades of experience building highly profitable technology companies and an opportunity to monetize a number of significant commercial relationships in Asia. The blend of these companies enables the combined entity to benefit from the specialisms in which each element excels and allows us to view the future with considerable confidence. I am particularly pleased to see this echoed by the support of investors in the Financing which has raised $23.5 million."

David Lucatz, Chairman, Chief Executive Officer and President of MICT, added:

"This transaction marks a significant milestone in the evolution of MICT. The merged company will develop a much more substantial and diverse revenue stream than has been possible during our solid progress over the last 10 years. It is a game changer for us, providing the opportunity to generate significant value for our shareholders, who will be encouraged by the support for the financing at $1.65 per share.  Looking ahead, this compelling merger of our three companies positions GFH well to leverage its proprietary technology, capital raising ability and Asian experience in addressing a number of fast-growing business segments."

Simon Duggan, CEO of ParagonEx, said:

"We are delighted to take part in an exciting combination that accelerates our expansion. For more than 10 years our team has delivered linear year-on-year profits growth. This performance has been supported by strong technology in which more than $45 million has been re-invested to date. This transaction will support our new revenue acquisition program, and the deployment  of our platform in new directions, commencing with the execution of key BNN commercial relationships in China. I strongly believe that combining with MICT's capital markets experience in the US and BNN's access to Chinese consumer and business markets is an exciting opportunity to fast-track further adoption of ParagonEx's technology in the global market."

Transaction Advisors

Maxim Group LLC acted as sole financial advisor to Brookfield Interactive (HK ) and BNN Technology PLC in connection with the proposed Merger.

Herzog Fox & Neeman are acting as legal counsel to ParagonEx Ltd in connection with the transactions contemplated by the merger agreement.

CoView Capital, a Manhattan-based investment bank focused on mergers and acquisitions, rendered the Fairness Opinion to the Board of MICT.  Mintz, Levin, Cohn, Ferris, Glovsky, and Popeo, P.C. and Naschitz, Brandes, Amir & Co. are acting as legal counsel to MICT in connection with the transactions contemplated by the merger agreement. 

There is an SEC filing related to the tender offer that states the following about timing of the offer and payment:

MICT is to provide a list of shareholders to BNN for which to send the offer, so investors who want to be a part of it need to own a position before any deadlines for record holders:

Despite the volatility, we believe that MICT will rise towards $1.65 as the deadline for the tender offer and business combination nears and this pullback represents a tremendous buying opportunity. We will continue to trade the stock with continued long bias until that price is hit or the deal is somehow amended.

Disclosure: We are long MICT

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