Thursday, 27 March 2008

LMS Shareholder Rights Plan Sends Message

LMS Medical Systems, (LMZ - TSX/AMEX)

Shares outstanding: 25.8 million


Fully Diluted: 30.7 million
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The announcement from LMS Medical that its Board of Directors had approved the Shareholder Rights Plan certainly prompted questions from interested parties as to whether or not the company was concerned it was potentially the target of an unfriendly bid.

The short answer is no but this is a better safe than sorry move that still has to be approved by the shareholders at this August's Annual General Meeting.

The key message is, companies adopt these plans when it is believed they are severely undervalued!

First, what are Shareholder Rights Plans?

Shareholder rights plans outline the rights of a shareholder in a specific corporation. In LMS’ case, it is designed to give the Board of Directors the power to protect shareholder interests in the event of an unfriendly attempt to acquire the company. It can be exercised when another person or firm acquires a certain percentage of oustanding shares in what appears as a hostile takeover. When triggered it would allow current shareholders, other than the potential acquirer, the ability to purchase unissued stock from the corporation at a deep discount. A good preventative measure.

The purpose of LMS’ adoption of a Shareholder Rights Plan is to simply protect its investment of over $57 million that has gone into the development of its proprietary technology. Comparing LMS’ investment with its current market cap ($13 million) it can be argued that its market value isn’t properly reflective of its true value and would therefore be a good a target. In addition, the business is clearly gaining traction and that hasn't yet been acknowledged in the stock price.

LMS clearly states in the news release that this plan has not been developed as a result of an immediate acquisition or take over bid.

Click here for the full release…