In order to properly value BKS as a backdoor play, you need to break it into its two component parts, BNBN and the bricks and mortar. The bricks and mortar can be benchmarked against Borders(BGP). When you back out goodwill write offs, restructuring charges and Internet related losses for the five year period ending December 31, 1998, BKS averaged annual sales of $2,370 MM and had an average annual operating profit of $123 MM. For the comparable five year period, BGP had average annual sales of $2,016 MM and an average annual operating profit of $105 MM.
For the sake of argument, lets say that the BKS bricks and mortar are worth 20% more than the BGP bricks and mortar. As of May 7, 1999, BGP had a market cap of approximately $1,098 MM. Add 20% to that and the BKS bricks and mortar have a value of approximately $1,318, or $19.21 per share.
The most recently filed S-1 valued BNBN at $1,676 MM (Divide $300 MM by .179). BKS' share, at the IPO price, is worth approximately $688 MM. Assume that the stock triples, from an offering price of $12 to $36. The value of BKS' BNBN stock would then be $2,064 MM. Discount that by 40% for tax and liquidity considerations and you are left with a value of $1,238.4 MM, or $18.05 per BKS share.
Given the above assumptions, BKS would have a value of approximately $37.26 per share.
At $36 per share, BNBN would have a market cap of approximately $5,028 MM, which is equal to approximately 23% of the market cap of AMZN. Bear in mind that BNBN's sales, based on the first quarter results, approximate 11% of AMZN's sales.
I remain long BKS but I am starting to think that we will not be seeing my original target of 45. JMHO. Regards and good luck. |
