Lutz, when will these guy understand that it is pieces of paper that are being traded, not cash? And once they understand that, will they ever be able to figure out the very simple arithmetic the arbs use to place prices on the resulting pieces of paper?
If company A pays a premium for the purchase of company B, then company A is worth less after the purchase than before. And if company B's value is based on company A's value it is idiotic to "value" the deal based on the price per share prior to the acquisition.
So for the benefit of these guys who love to tell us how much a deal is worth, here are the exact steps to value the stock when a merger is announced using a stock swap as the medium of exchange.
1. Multiply the merged company's # of shares out standing by the exchange ratio. For ASND this would be .825*216.9 MM, or 178.943 MM. That will equal the number of new shares the acquirer will have to issue to close the deal.
2. Add the number of shares of the acquirer (1,320,000) to the new shares to be issued from step 1. That gives 1,498,943, which will be the total number of shares o/s at the close of the deal.
3. Add the market cap of the two companies just prior to the deal announcement. That should be the market cap of the combined company, all other things being equal .
4. Divide the total market cap (from step 3) by the total number of shares at the close of the deal (from step 2), and that will give you the theoretical price per share of the acquirer (LU).
5. Multiply the acquirer's stock price (from step 4) by the exchange ratio (0.825), and that will give you the theoretical price of the shares of the acquired company (ASND).
In general (and again, all other things being equal) if the price of the acquiring company goes higher than the price determined in step 4 that means that the market is quite pleased with the deal because it sees immediate accretion of earnings and synergies. If the price falls much below that calculated in step 4 it means that it believes that the deal is dilutive.
TTFN,
CTC |
