I'm gonna try again to value this deal based upon pre-deal market valuations. I made a mistake in my first attempt, glossing over the values in USA Network. Today I studied the latest S-4 and 10-Q and looked over the 10-K, so I know some more about the company. Let me say right off that the finances at USAI are complicated, complicated, complicated and I am nowhere near an expert after just a few hours going over them. Still, here it comes:
USAI has 330 Million shares or share equivalents, times $38 per share predeal, so worth $12.5 billion. USAI is contributing all but its networks and its TV stations. USAI bought the networks for $4.1 billion a year ago today, mainly with stock. The TV stations generated about $1.1 million in revenue in the latest quarter, so for simplicity I will say they are worth $20 million dollars. The networks are worth more today (Mario Gabelli said the networks are worth $10 billion in Barron's). Let's say the part not transferred to USA/Lycos, net of debt is worth $6 Billion. So USA is transferring maybe $6.5 billion in value to USA/Lycos. $3.4 Billion of this is Ticketmaster stock holdings, which get an internet premium.
Lycos had a market value of $6.1 Billion ($127 times 48 million shares).
The part of Ticketmaster not held by USAI had a market value of $1.6 Billion.
Adding the contributed parts:
Lycos: $6.1 B
USAI $6.5 B
Tick $1.6 B
Total $14.2 B
Synergy$2 B (wild estimate, but why else merge?)
Total $16.2 B
Lycos holders get 30.3% (I'm allowing 0.3% for the out-of-the money convertible preferred)
Ticketmaster holders excluding USAI get 8.5%
USAI holders get the balance, or 61.2% or so.
Applying the %s to the $16.2 billion value gives
Lycos $16.2 times 30.3% = $4.9 B
Tmaster $16,2 times .085 = $1.4 B
USAI $16.2 times 61.2% = $9.9 B
EVEN WITH $2 Billion in synergies, Lycos holders get less than they put in, specifically $4.9 of $6.1 B, or 80% of what they put in, implying a $102 Lycos share price.
Tmaster holders get 88% of what they put in.
USAI gets 150% of what they put in, implying a $57 price.
Lycos holders cannot break even on the deal unless the synergies are not $2 billion, but about $6 Billion. Lycos holders should actually get 43% of the deal, not 30.3%, to spread the synergies in accordance with the market value of the contributions. If Lycos got 43%, with $2 billion in synergies, this would imply a stock price for Lycos of about $145.
All of this is just my calculation, still largely uninformed about the exact terms of the deal, and still not all that sure of the valuations of the parts, and probably also prone to math and logic errors, but I like the estimated range of values for Lycos of about $102 with the deal as structured to $145 with a restructured deal. |
