MGT Capital Investments Inc (NYSEMKT:MGT) has become one of the most talked about and controversial companies trading today. It’s all because of the involvement of incoming CEO John McAfee. McAfee is rather infamous depending on how you look at it. Some say he’s a brilliant technologist while others say he’s a deranged mad man.
To the bulls, McAfee is building a new empire with MGT centered around cybersecurity and bitcoin. To the bears, MGT is nothing more than a pump and dump designed to enrich insiders like McAfee. While we are not going to say who he is right, we’d much rather leave that up to Mr Market. In looking at MGT’s chart, we have to say the bulls look to be in control.
The latest controversy surrounding the company concerns its proxy statement. MGT is issuing 23.8 million shares to acquire D-Vasive, Inc. and 20.0 million shares to acquire Demonsaw LLC. The bears have said that there’s no value in these transactions and the dilution hurts existing shareholders. MGT has countered by saying:
Several biased investor websites and postings have attempted create the appearance that these proposed issuances were somehow never disclosed, resulting in potential confusion; this is simply not true. The negative economic impact of dilution comes from issuing shares for no or little value. However, the issuance of shares can increase the per share value of all shares if done wisely. MGT is issuing its shares for the two identified businesses, plus to incentivize the focused energy of a technology pioneer, John McAfee. In May, the board of directors of MGT determined that issuing 43.8 million shares (on an existing base of about 26 million) was a fair price for these transactions and, based on investor response, the stock market appeared to enthusiastically agree. Real world outcomes have confirmed this shared belief.
Now using a high priced stock like MGT to acquire other businesses has proven to work in the past. The key is what John McAfee can do with the acquisitions in the combined company. Only McAfee knows what can be done and what his long term plan is with the new MGT. McAfee recently said:
“There is an expression ‘the market has spoken.’ But it will be up to me and my team at MGT to create not only the value accorded to us already, but to vastly exceed this number. In my opinion, for the naysayers to promote disinformation that we have disclosed any unexpectedly new or unfavorable information in last week’s proxy, is very disingenuous to say the least. They start with the specific argument that the to-be acquired assets and John McAfee have no value. That is not an argument, it is merely their opinion, and one that has cost them money. That in turn makes them angry, spicing up their valuation opinion with personal attacks. Notwithstanding our stockholders’ desire to expose illegal shorting activity and the brokerage firms behind illegal stock lending, we plan to stay above the dirt. There’s another old market saw, ‘He who sells was isn’t his’n buys it back or goes to prison.'”
MGT Capital Investments Inc will soon become John McAfee Global Technologies, Inc. Whether you like him or not, he has put his reputation and name on the line here. It’s all up to him to make the new company a success. In looking at the market, we think there’s more money to be made playing MGT from the long side than there is on the short side. We could easily see a short squeeze pop shares of MGT to $10 or more. From there, we would take money off the table and consider going short. We think shorting MGT at current levels is a fool’s errand. We will be updating Street Register as soon as we know more.