PRFM- Am I missing something here? I found this in Dan Dorfman's column at Jagnotes today. Looks like if the IPO is priced at 7-9 then PRFM stock should rise in anticipation:
How Sweet It Could Be…
As comedian Jackie Gleason used to say, How sweet it is.
A sharp trader I know, never, ever quoted in print, is saying the same thing to me about Perfumania (PRFM) 3 11/16, a retailer and wholesaler of designer and brand-name fragrances.
Though the company is losing money, the trader says he doesn't care and has taken what he describes as a sizable position in the stock.
How come?
It's a numbers game, he says, based on the company's announcement yesterday that it has filed an initial public offering of 2.5 million shares of its online business— Perfumania.com, an Internet-based subsidiary engaged in the same business as its parent.
The offered shares will represent 33% of the online business's roughly 7.5 million shares outstanding, and is priced at an initial range of between 7 and 9.
The parent has about 7.4 million shares outstanding, equivalent at its current price to a market valuation of around $30 million. Figure a mid-range price of, say, 8 for the online business and that gives it a market capitalization of $60 million, or a 100% discount to the parent's valuation.
As the trader sees it, if the subsidiary is worth $8 a share and you allow only a valuation of $2 for the parent company, or half its market value, you wind up with a value of $10 for Perfumania. And he thinks its stock will trade at or very close to that price once the spin-off is completed.
"You don't have to be a genius to figure it," he says. "You just look at the numbers and there's a substantial stock gain in the offing."
Dan Dorfman does not trade the market. His stock market investments are limited to broad-based mutual funds.
© 1999 JagNotes.com, Inc. All rights reserved.
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