No disrespect Glenn - I respect your posts and its good to see you back here. I hope you were one of the winners in the AMZN blow-up.
But with respect to SRA, given all of ASND's planned divestitures, it will be accounted for as a purchase even though it's with stock. And it is with ASND 20x 1999 P/E stock. LU could have done the same transaction using purchase accounting with 40x stock.
I too believe LU has to buy ASND for strategic reasons and unlike Tim and others, I feel the price will be between $55-65, levels which will still be accretive to LU and which will provide for a premium to ASND shareholders. Using a 35% premium implies only $53 per share, although I would bet that if LU really wants ASND, they would pay a 50% premium ($58).
Using calander 1999 estimates of $2.15 for LU, $1.70 for ASND, and $100 million of pre-tax cost savings yields pro forma 1999 eps of $2.19 for LU at a 0.8 exchange ratio. 0.75x would yield $2.20. Given the relative sizes of the companies and LU's astronomical P/E, the level of the exchange ratio barely impacts LU. Of more importance will be the synergies.
BTW Tim, 0.5x results in a 3% discount for ASND and would yield $2.29 pro forma for New Lucent. No advisor would let that transaction occur. In terms of fairness, most transactions result in mild dilution or accretion in year 1 - especially transactions where the companies have such different sizes.
Finally, LU stock will go down after the announcement no matter what - arbs will short LU and buy ASND. All takeovers introduce new risks. Transaction will be good for LU, but it will go down. Also don't look for an announcement before late October or early November. The companies (regardless of whether or not they have talked - which would spoil pooling BTW) cannot talk until Oct 1 and they must then produce a series of talks which looks like those between SRA and ASND once things got serious (see SRA merger proxy). Otherwise, SEC and IRS will question the pooling.
Good luck all. |
