The only investment opportunity I have been researching lately is Mega Brands (TSX: MB). I'm still not clear on the merits of the company but am paying close attention to it. I never heard of Chapter 15 bankruptcy but apparently Mega Brands is placing some of its units into chapter 15. The Globe and Mail reports the following:
Toymaker Mega Brands Inc. and nine affiliate units have filed for Chapter 15 proceedings in a Delaware court.
The filing is a precautionary measure taken by non-U.S. companies that want to pre-empt creditors from filing lawsuits or tying up U.S. assets.
The move is part of the financially troubled Montreal-based company's recapitalization plan aimed at slashing almost $300-million of debt.
Also part of the previously announced restructuring is a plan to raise about $100-million through an equity issue and $121-million in a private placement.
Mega Brands said in a press release Friday that – so far – holders representing 72 per cent of the senior secured debt have agreed to support the proposed recapitalization. A special meeting of shareholders and secured debt holders has been scheduled for next month. Two-thirds majorities from shareholders and debtholders are required for the plan to go ahead.
On top of trying to understand the company and its industry, a key question, if I were to proceed with an investment, is to figure out a reasonable valuation. As one of the blog readers, Parker Bohn, once asked (I'm paraphrasing,) 'what makes one think that their valuation estimate is more correct than the professionals working on this case?' Unlike a typical stock purchase, this situation involves share issuance at prices below the current market price. If I went and purchased the shares, it would be above the deal that Mega Brand cut with its creditors and outside investors. I need to be sure about my valuation if I'm going to be buying it above the price of those (proposed) transactions. Tags: Mega Brands (TSX: MB)