MGO Global Inc. (MGOL)
Merger Opportunity — Due Diligence Report
Key Takeaways
- MGOL merging with Heidmar Inc. valued at $300M; MGOL shareholders projected to own $18M equity
- Current MGOL market cap ~$10M vs $18M equity value = potential 80%+ upside
- Stock crashed from $0.95 to $0.10 after dilutive offering — bottom likely found
Merger Details
Risk Warnings
- Merger terms are detrimental to MGOL shareholders holding through consummation
- Issuance ratio acts like a reverse-stock split — value may not increase post-merger
Summary
Merger Opportunity: MGOL is set to merge with Heidmar, a private company valued at $300M. MGOL shareholders are projected to own $18M. Current MGOL market cap is $10M. MGOL recently raised capital at $0.95 and since crashed to $0.10, in less than 30 days. We believe a bottom has been found at $0.10, and that there is potentially a great short term opportunity.
Merger Target: Heidmar Inc. has incredibly promising financials. According to EOY 2023 financials, revenue increased by $19,033,558 from 2022 to $49,097,436. This provided them with a net income (profitability) of $19,639,297 based on operating expenses of $29,458,139.
Interesting Institutional Movement: Following the $0.95, $6M offering, on the 23rd and 24th December 2024, three additional investment funds purchased positions in MGO Global Inc., for 921,000 shares each (or 9.99% of the float), the purchase price on the date of their investments is estimated to be $0.40.
Merger Date: We have strong reason to believe the merger will happen before February 10, 2025, but after February 6, 2025. We believe MGOL will provide updates to shareholders before these dates, bringing potentially catalyst level newsflow and short term upside appreciation.
"This is not financial advice. Please conduct your own due diligence before making any investment decisions. Affiliates of Montgolfier Stocks currently own positions in MGOL, and have not been paid or solicited by anyone to conduct research.
Abstract
This due-diligence report is a research project compiled by affiliates of Montgolfier Stocks. Our aim is to provide free and high quality, in-depth, and sourced analysis on potentially grossly undervalued stocks. We aim to be completely transparent in our activities and research, so feel free to ask any questions and pose any criticisms. We view peer review as essential.
This report serves as a hub for information on this potential play, which readers can use to inform their decision making. We strongly encourage all readers to conduct their own due-diligence before making an investment decision.
1. Introduction
This play revolves around the upcoming Business Combination Agreement between MGO Global and Heidmar Inc, with a planned consummation date for February 10th 2025, as per their prospectus.
According to an independent valuation, this merger is estimated to be worth $300,000,000 whilst the market cap of MGOL currently is around $10,000,000 (assuming all warrants have been exercised → outstanding shares of 100,000,000).
Subsequently, purchasing shares in MGO Global before more news of the merger is released has the potential to be an incredibly lucrative opportunity. Given the extreme downturn in the last week, with a 76% decline, after raising $6M at 0.95 a unit, we have reason to believe the current price at $0.10-0.12 is a bottom.
"However, we do not believe there is opportunity holding MGOL shares into the consummation of the merger. In our view, the merger agreement is detrimental to MGOL shareholders. Therefore we do not recommend this as a long-term investment, but instead a short-term play that offers high reward at currently small risk.
Additionally, we believe that the companies are colluding to execute shady, yet legal, market practices. The Warrant Exercise Proposal (dilution) was issued in connection with the merger, to raise capital for Heidmar before it "takes over". The "issuance ratio", as contained within the F-4/A released on the 29th January, has the same effect as a reverse-stock split. Consequently, the strategy behind the BCA is a typical dilution to capital-raise, followed by a reverse-stock split. For this reason, we will not be holding when the BCA consummates.
2. Business Combination Agreement
2.1 Introduction
The Business Combination Agreement between Heidmar Inc. and MGO Global is estimated to be worth $300,000,000 according to an independent valuation.
On December 19th 2024, the Company provided an update stating that the termination date for the transaction has been updated to February 10th 2025. The Heidmar CEO confirmed that the latest termination date is set for February 10th 2025.
On the 28th January 2025, Heidmar Inc. filed a F-4/A with the SEC, providing the preliminary prospectus for the BCA which will be voted on in a Special Meeting of Stockholders.
"DISCLAIMER: Montgolfier Stocks and affiliates will be closing their positions before the live date, as we believe the BCA is detrimental to MGO shareholders who are looking to hold shares in the new combined company.
2.2 How It Will Work
Taken from Heidmar's F-4/A released on the 30th January 2025:
- At the effective time of the merger, all MGO Shareholders will convert their shares into shares in the new company ($HMI).
- A new float will be issued which means that there will be an issuance ratio in the new company. You will not get 1:1 shares, this indication is outdated. A 1:1 basis has been removed as per the new agreement, as this would mean the outstanding shares of HMI would be over 1 billion.
- The issuance ratio depends on the closing price of $MGOL before the merger. This means that we will not know the issuance ratio until just before the merger closes, at which point $MGOL will file it in an 8K with the SEC.
- As per the agreement, $MGOL has been determined to have an equity value of at least $18,000,000. As the market cap right now sits at just over $10,000,000 (according to a ~$0.10 SP and a float of >100,000,000), this means it is undervalued.
- Consequently we can expect upside appreciation of at least 80%.
| If MGOL closes at | Issuance Ratio | New HMI shares per 1 MGOL |
|---|---|---|
| $0.10 | ~100:1 | 0.01 |
| $0.25 | 30:1 | 0.033 |
| $0.50 | 15:1 | 0.067 |
| $1.00 | 7.5:1 | 0.133 |
Key insight: Given that firms in this market tend to trade at a P/S of 2, and Heidmar revenue is $50,000,000, a fair market cap would be around $100,000,000. Going into the merger, assuming that the shares are converted at a close of $0.25 per share, this means that the market cap for the new company would be $240,000,000.
Consequently, the new company will be above fair value. This is why we believe it is a terrible idea holding shares into the merger, as the real profits will be made beforehand which will be lost as the share-price will fall following merger consummation.
3. Heidmar Inc.
3.1 Financial Summary
""In 2006, Morgan Stanley purchased Heidmar in a transaction valued at approximately $200m to strengthen its presence in commodities markets." — Ship Technology
Whilst Morgan Stanley has since sold half the position in 2008 and the other half in 2019 (at a loss), Heidmar has grown significantly since 2019, suggesting that the company may currently be worth more than this. This is confirmed by an independent equity valuation of $300,000,000, according to their 424B4 filing issued in January.
Additionally, Heidmar Inc. shows incredibly promising financials. According to EOY 2023 financials, revenue increased by $19,033,558 from 2022 to $49,097,436. This provided them with a net income (profitability) of $19,639,297 based on operating expenses of $29,458,139.
| Metric | EOY 2023 | EOY 2022 |
|---|---|---|
| Total Revenues | $49,097,436 | $30,063,878 |
| Operating Expenses | $29,458,139 | $13,145,409 |
| Net Income | $19,639,297 | $16,918,469 |
| Total Liabilities | $30,857,678 | $41,145,736 |
| Indicator | EOY 2023 | EOY 2022 |
|---|---|---|
| Net Profit Margin | 39.83% | 56.3% |
| Return on Equity | 119.5% | 77.6% |
| Debt-to-Equity Ratio | 1.88 | 1.89 |
The biggest red-flag in Heidmar is certainly its relatively high debt-to-equity ratio of 1.88. This implies that the company is using significantly more debt than equity. However, this is common for capital-intensive industries such as dry-bulk shipping. In addition to this, the company reduced their liabilities by $10,228,058 during 2023, implying that the company is paying off debt and that their obligations are reducing.
3.3 Heidmar Overview
Heidmar is a global, asset-light tanker pool, commercial and technical management company incorporated under the laws of the Republic of the Marshall Islands and headquartered in Greece.
Founded in 1984, Heidmar is a fast-growing tanker pool company engaged primarily in the commercial management and chartering of crude oil and refined petroleum product tankers. In 2023, tanker vessels commercially managed by Heidmar shipped 25.9 million tons of crude oil and 9.3 million tons of refined petroleum products.
As of March 31, 2024, Heidmar commercially managed 62 vessels, under both pool agreements and commercial management agreements, with an aggregate capacity of approximately 8,621,054 million dwt. These include 14 VLCCs, 7 Suezmax tankers, 3 LR2 tankers, 15 MR tankers, 5 small tankers, 10 Aframax tankers and 8 bulk carriers.
4. Institutional Activity
On the 23rd and 24th December 2024, three additional investment funds purchased positions in MGO Global Inc., for 921,000 shares each (or 9.99% of the float).
At this time, the stock traded at around 40 cents. We can estimate that these institutions purchased $1,105,200 worth of shares.
Thus, there is an important question:
"Why did these institutions open such large positions in a stock being run-down by major dilution following a $6m public offering (Dec 23, Dec 24)?
Our answer: As with all investments, parties only invest in a company if they think that they are going to generate a return-on-investment. Given that these funds invested at around 40 cents, it is evident that they expect to generate a ROI higher than this. They are confident for a reason, and we attribute it completely to their awareness of the impending reverse-merger catalyst.
Furthermore, this is the first time in the history of the company that an institutional investor has purchased shares totalling more than 5% of the outstanding shares.
5. Warrant Exercise Proposal
On the 24th January 2025 a Special Meeting of the Shareholders was convened, approving the Warrant Exercise Proposal, permitting the issuance of up to 94,725,000 shares which are underlying outstanding warrants.
These warrants carry a cash value of $0.19 and $0.3985 respectively, based on complicated reset laws. However, we believe most, and or, all of these warrants have since been exercised on an alternative cashless basis. The proceeding exercise of warrants and sale of shares underlying the warrants onto the market from January 24 - January 30 has led to its sharp decline in recent days.
Based on volume and Heidmar's Form 4/A (filed on the 29th January) and our observations of unusual trading patterns, we believe the dumping is now over.
This means that the main source of selling pressure (dumping of sales through warrant exercising) is gone, meaning that there is now far less selling pressure. This indicates that 10 cents could be a comfortable bottom for MGO Global.
Additionally, we believe that the Form 4/A filed by Heidmar on January 29th 2025, which confirms further merger details, is not known to most investors. This is because MGO Global has not filed it with the SEC. Hence, purchasing shares in MGOL now ($0.10 at the time of writing), at a ~$10M valuation (assuming all warrants have been exercised), is an incredibly unique opportunity.
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