This is nuts. Rumor had it that Veba was looking to sell WFR at 28, the price accordingly jumps up to the low 20s. Nothing happens, investors start getting cold feet, and the price begins a slow decline.
I've been following this Viag merger for well over a month, holding my stock thinking that the original rumor was good. Part of Viag's due diligence would be comfort that the merged entity would get fair value for WFR after the merger. I believe the Germans have been shopping WFR for some time--all that remains is getting a fair price--I'll bet 28 was a trial balloon.
WFR's latest balance sheet shows $800 million in debt. At the current market price of $14.5, this gives WFR an enterprise value of around $1.8 billion. The same balance sheet shows the current book value plus accumulated depreciation of their equipment at over $1.75 billion.
Veba is not going to sell the company for $1.8 billion, that gives no value to the on-going business. Oh, I know that there are still losses in front of us, but this is a very cyclical business and the down part of the cycle is behind us. Unless all of the other wafer manufacturers believe that this industry is finished, it makes sense to buy WFR.
Finally, Veba cannot sell WFR at any price that works for Veba alone. As the controlling shareholder, Veba must obtain a price that is fair to the minority holders. Interestingly, the presence of all that Veba debt really ties Veba's hands. They cannot lower the price in an effort to get the debt paid because this would be, in effect, self dealing. We shareholders are protected by Veba's fiduciary duty to us.
I'm buying. |
