I don't like LUNN. I liked CADE and RECY and stated so at much lower levels, but upon looking at LUNN, I don't see the potential magic. Maybe I'm missing something, and I hope others (Sergio?) can help me see the value.
At this point this is what I see:
1) The combined company will have about 5 mil shares
2) The combined company would have earned .91 yr end dec 96
3) LUNN shareholders will pay 15.90 per share for the new company based on Friday's closing price of $ 1.59A for LUNN (1 new share for each 10 shares of LUNN means your paying $ 15.90/share for the new company)
4) The company which is merging with LUNN has had decreasing earnings. In fact, for the Q ended in Aril, TPG actually lost money and the newco would have lost money, too.
5) The newco would have made .24 per share this last quarter which is decent, but still down from last year (see news releases which LUNN released which has all these figures. I'll post them next). That means that unless things change at TPG, TPG could actually drag LUNN down with its decreasing performance.
6) Based on all that I've said, the newco better sell for at least $ 15.90 per share or based on Friday's close of $ 1.59A per LUNN share, you will lose money on you LUNN purchases.
7) Based on a newco selling price of $ 15.90 per share, and .91 per share earnings (to match last year), the newco will have a PE of 17.50 which is not real high and does leave room for a price increase. However, given the fact that TPG's earnings performance is decreasing, will a higher PE then 17.50 be given to the newco? I guess that is the big $$$ question.
At this time I'd say that LUNN is about fairly valued @ $ 1.59 per share, but if one was sure that TPG's performance would improve, then one could make an excellent argument for paying more for LUNN.
Any comments on my reasoning would be appreciated !
VALUESPEC |
