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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (20881)	3/17/2005 9:39:49 PM
From: Spekulatius	of 78476

re Book value of mutual conversion thrifts: it does not appear that the stockholders from the 1st IPO own the shares that are not offered and held by the holding company. From what i learned gleaning into S1 is that the valuation should be done as if 100% of the shares were offered to the public (even if that is not the case). Fore example assume a hypothetical Mutual thrift with 50M $ in shareholder capital. If this company would issue 10M$ @10$ each, the shareholder capital would grow from 50M$+100M$ (IPO proceeds) to 150M$ or 15$/share. If the mutual thrift issues only 50% during the initial IPO the new companies shareholder capital will be 50M$+50%of 100M$=100M$ plus there will be 5M$ in the holding company. This holding company will very likely issue the shares at a later date, in any case they do not belong to the current shareholders: This is what I read from Kearny's S1: Possible Conversion of Kearny MHC to Stock Form. In the future, Kearny MHC may convert from the mutual to capital stock form in a transaction commonly known as a "second-step conversion." In a second-step conversion, members of Kearny MHC would have subscription rights to purchase common stock of Kearny Financial Corp. or its successor, and the public stockholders of Kearny Financial Corp. would be entitled to exchange their shares of common stock for an equal percentage of shares of the fully converted company. Kearny Financial Corp.'s public stockholders, therefore, would own approximately the same percentage of the resulting entity as they owned before the second-step conversion. This percentage may be adjusted to reflect any assets owned by Kearny MHC.

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