Well, looks like I was only half right. $10-$11 was once again a good buying opportunity -- at least for the short term.
By half right, do you mean that you actually expected it to go lower?
most of the sub $11 prices in the last 12 to 18 months or so have been very short lived -- hours to maybe a few days. This one just looks different especially given Friday's large volume.
My take on the CCSI spin-out is deciderly different, but them I remain bullish on Catalytica's prospects.
I suspect management has already spoken with a few potential investment banks regarding the spin-off, and buying the few days before the announcement was based on "inside information." I think it is impossible for this kind of info not to leak, as, I suspect, too many people outside the company new it was coming. So it ran up, and the all-too-predictable sell-off occurred (is occurring). I had bought traders at $11 and sold at $14.75. Up to this point seems quite obvious to me. But what happens now is the more important question.
CCSI current ownership is Catalytica 85% and Enron 15%. I suspect they will sell a minority interest to the public, on the order of 10%, and retain 75% (with Enron still with its option to buy 5% more.) My understanding is, if they sold more than 50%, they would lose the accounting benefit (pooling of interests) from the Wyckoff acquisition, which would mean the amount Catalytica paid for Wyckoff above book value would be goodwill that would count against earnings for several quarters, and that would not be acceptable to investors.
To sell only 10% would mean that CCSI would have to be valued somewhere at or above $500 million, or no investment banker would take the time to underwrite the offering, as commissions would be too low to warrant the effort. I doubt any shares of the CCSI spin-off will go to current shareholders. Current investors will realize their benefit from the overall increased value in the parent company, which will be fairly substantial if what I suggest is true.
I suspect the post-IPO price will move quite a bit higher a couple months after the IPO as new investment bankers come out with new "strong buys." The road show should bring some new interest, and the small float won't hurt either.
If so, why doesn't the price go higher now? With only that one announcement, not many new people have become aware of the IPO and certainly have not taken the time to better understand this company's underlying businesses. If the big players allowed the price to go up now, that would put extra pressure on a higher IPO pricing, which the investment banks don't want as then their clients don't get their gratuitous first-day pop.
All just speculation, but I firmly believe the CTAL shareholder will recognize increased value when this is all over, few months from now.
Erik (IMHO) |
