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Microcap & Penny Stocks : Dominion Bridge Corp. (DBCO)
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To: Chien Li who wrote (470)2/26/1998 8:19:00 PM
From: Baoho Chang  Read Replies (1) of 535
 
Hello, Chien. Here are some thoughts on the valuation of DBCO.

Since the DBCO shares are to be purchased by a 7.5% 3Y debenture with a face value of $3 per share, I believe that the current valuation of DBCO share should start with the $3 face value minus discount for the takeover uncertainty and credit spread deficiency.

Let's assume that the debenture is of junk bond grade. The current credit spread between junk bond and Treasury bond is roughly 200 BPs. The current 3Y Treasury note has a yield of 5.58%, so the 7.5 coupon rate on the ECO debenture is fairly close. In other words, there should not be any credit spread discount.

Quantifying the possibility of the deal falling through is much harder. I would speculate that a 50 cent discount is reasonable. If so, we should see DBCO share to be around $2.5 in the coming days before the deal consummates.

Just my two cents. In any case, I am glad to see some positive movements of DBCO.

Regards,
Baoho
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