Chris-
March 10 calls (ticker:NMCB). My thought is that News Corp. may buy NM, and then buy the rest of Guthy-Renker, becoming the only major player in the infomercial market. Since Hershhorn (NM CEO) has a cost basis of $17 (he bought 300K shares about a year ago), I doubt he would accept less than that. And considering the valuation model I presented, $20 is still cheap.
SFE has 15% of diluted shares in warrants only. I imagine the purpose of this is to protect NM from a hostile bid. Let's say NM wants $20 per share, and Rupert Murdoch will pay no more than $16. He tries to get NM shareholders to sell out, which many might do considering the stock's swoon. Then SFE exercises their warrants, raising the shares outstanding to about 28 MM. SFE and the insiders would then own 30% of the stock, making a takeover more difficult. SFE could act as the "white knight" and rescue NM from a low bid. They might offer to buy the remaining shares for $25 or more, in order to screw a hostile bidder.
I can't see any business benefit in SFE's buying NM, aside from a rescue situation in a buyout. If SFE bought NM, I think that they would wait a bit, and find some buyer to acquire NM from SFE at greater than SFE's buyout price (>$25 in my example). That way, SFE makes a profit, NM shareholders get a fair price, and everyone's happy.
I am a SFE as well as a NM shareholder. I'm curious to see what would happen to SFE's stock if NM gets bought out. Unless they convert their warrants, SFE doesn't gain anything, I don't think. Nonetheless, I think one explanation for SFE's poor performance recently is NM's performance. If News Corp. buys NM, SFE will go up. If SFE buys NM, I haven't a clue.
As far as the options go, just a thought on risk/reward on the March 10 calls: If you buy $1,000 in these calls, and NM goes to $20, you'll probably make a $65,000 profit. If it stays below $10, you lose $1,000. I like those odds.
Good Luck (and I suggest buying the options this week)
TDW |
