Margaret,
I think your statement is wrong. If LHSPF does not move more than 10% in each direction, the price is not fixed at $5.60; that is true only if LHSPF closes at $58.50 on the day in question. What does remain fixed, if LHSPF doesn't move more than 10% in either direction, is the ratio of 0.095726 shares of LHSPF for each share of GNK, at least the way I read the deal. Here's a summary that might be more helpful:
1. If LHSPF closes at <43, the deal could be off, or restructured.
2. If LHSPF closes at $43.00 - 52.65, the ratio will be adjusted to make each GNK share effectively worth $5.04 - but you won't get cash, you'll get that much worth of LHSPF stock.
3. If LHSPF closes at $52.65 - 64.35, you'll get 0.095726 shares of LHSPF for each GNK share. The value for each share of GNK stock on that date will be the LHSPF price divided by 10.45 (the inverse of 0.095726).
4. If LHSPF closes above $64.35, the ratio will be adjusted to make each GNK share effectively worth $6.16 - but again, you'll get LHSPF shares, not cash.
Since the chance of LHSPF dropping more than 25% between now and then is extremely low, any price for GNK stock below 4 3/4 or so is a good buy, IMO. It's particularly a good buy right now, because it's selling for a 15% discount to its effective value in LHSPF stock. This discount will lessen as we get closer to the closing date, until it becomes negligible just before the closing. So, here's the next table, all assuming the deal goes through as structured (that little bit of uncertainty is part of why there's a discount in the first place0:
1. If LHSPF drops 5% from current value, it'll close at about $55, and GNK shares will be worth about $5.30 - a 15% INCREASE from where it is now.
2. If LHSPF increases 5% from current value, it'll close at about $61, and GNK shares will be worth about $5.80 - a 25% increase from where it is now.
3. If LHSPF drops 10 - 25% from current value, GNK shares will still be worth $5.04 - an 8% INCREASE from where it is now.
4. If LHSPF increases 10% or more from current value, GNK shares will be worth $6.16, a 33% increase from current value.
Therefore, it would take a greater than 25% decrease in the value of LHSPF to lose money in the next few months by buying GNK, and LHSPF would have to increase by more than 33% in the few months until closing for you to do better by buying LHSPF than by buying GNK. Neither of those is very likely, IMO, and of the two, I think the possibility than LHSPF will run up has the greater likelihood. But I wouldn't quibble about my 33% gain anyway, in that event.
Someone is welcome to correct my assumptions or my math, but as best as I can tell, this is a great investment opportunity over the short term for GNK buyers, and of course, IMO, over the long term for LHSPF shareholders. |
