Yesterday Blue Financial Services, the troubled pan-African micro lenders, released a further cautionary annnouncement backing up the original cautionary that was put out on 10 November 2010 and saying how negotiations are still continuing.

While there is nothing amazing in that, the directors did disclose some further information: "Shareholders are advised that the strategic options under consideration relate to either a potential recapitalisation of the company or, alternatively, a potential offer being made for the company."

It is likely that it is ABSA that is the other party in this potential deal.  ABSA was left with an unwanted 16.83% stake after the SSF fallout from cortex Securities.

ABSA would also have sufficient funds to recapitalise Blue and logical reason to also consider just buying the Group and extending its funds internally.

This scenario is going to end one of three ways:

1. Blue gets bought and its current shareholders get a nice little premium (perhaps an arbitrage opportunity),
2. Blue gets loans and struggles through (shareholders maybe one day see a profit and some capital appreciation), or
3. ABSA walks away, loses its stake, and Blue folds under lack of financing and mounting bad debts.

The most likely is probably the first ending to the scenario, but the other two could quite possibly also happen.  The fact that the share price actually dipped 3.7% by close of yesterday implies that the market disagrees with me about the first option (which would most probably be at a price higher than the current market price and, the market knowing this, would've bumped up the price)....

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