The right question is to ask whether a 40% discount assigned by Mr. Market is appropriate. In this case, with concentrated ownership at DLIA with the right incentives to close that discount, I would argue that a 40% discount is way too high.
As to the options, they are always difficult to handle. At 1/99, there were approximately 3 million options struck at an average of 15.63/share. Of these, only 351,327 were currently exercisable. Thus, your inclusion of all 2.6 million options rather overstates the case. As to the shares of DLIA that TURF bought, well, as a DLIA shareholder, I own 75% (or so) of those shares. So we can't really count all of them either. Let's agree that a reasonable amount of dilution is 1 million shares. If that is right, then each share of DLIA represents .82 shares of TURF. Give me $3/ share for DLIA's core business so that the "look through" value of DLIA is $33/share, which is a 38% premium to where it is currently trading.
Is this cheap? It all depends on whether the Kahns will close the gap. I think they will. |
