Napeague Letter Bulletin - 11/2/97
. THE NAPEAGUE LETTER
Sunday, November 2, 1997
Editor: Bob Davis napeague.com
TransNet (NASDAQ:TRNT) Acquisition Announced After the close on
Friday, October 31st, TransNet issued a Press Release announcing that
it has executed an Asset Purchase Agreement providing for the sale for
a maximum $20.5 million cash purchase price of substantially all of
its operating assets, subject to certain liabilities, to a wholly
owned subsidiary of GE Capital Information Technology Solutions, Inc."
The press release went on to state that "The sale is subject to the
approval of TransNet's stockholders at a stockholder meeting expected
to be held during the first quarter of calendar 1998, as well as the
occurrence of certain other conditions." GE also issued a Press
Release announcing this transaction.
Although this press release does not give any specific details, it
appears that this transaction is an asset purchase structured around
a "formula" based on TransNet's balance sheet condition at the time of
the actual Close of the deal. Under this "formula", the maximum paid
will be $20.5 million, or $3.93 per share outstanding, but it might be
less, as determined by the "formula". I am not certain whether the
reference to "certain other conditions", which appears in both GE and
TransNet's press releases, refers to this "formula" or to additional/
other terms.
This "formula" should become public within two weeks, when TransNet
files an 8-K, and definitely will be made public as part of the proxy
package, to be filed prior to the stockholders meeting. This Close
will not take place until sometime in the first half of 1998, after
TransNet holds a proxy vote and stockholders meeting, so as to gain
stockholder approval for the sale.
There are two relevant pieces of information to be gained from this
press release:
The maximum value of a TRNT share is now around $3.93 - it is unlikely
that it will ever be worth more than this, but it could be worth less,
either because the "formula" defines the purchase price to be less
than $20.5 million, or because the transaction is not completed and
the price of a share of TRNT falls back to $3.00 or below.
Although I do not know exactly how TransNet will liquidate the shell
company which will remain after the assets are sold to GE (details of
this should be in the proxy package), it clearly will be some time
before any payments are made to stockholders as a result of this
transaction.
In addition, TransNet has some real estate holdings which are not
currently being used in the business, but are carried as assets on
its balance sheet. In the past, these have been valued by the Company
itself at around $2.5 million, or around $.50 per share. However, the
Company has been trying to either sell or lease this property for some
time, without apparent success. Although it is not clear from the
press release, I suspect that this real estate will not be sold to GE,
but will remain an asset of the residual company, but I am not sure
how to include it in any valuation of the stock.
As a result, each current stockholder has a "hold vs sell" decision to
make.
If the stockholder chooses to "hold", then they will have to wait some
period of time before there is any type of "payout" to stockholders,
and they are facing the risks that the transaction is not completed,
or that the "formula"-based payout is lower than $3.93.
If they "sell", they receive the then-current market price for their
shares, and the option of reinvesting those funds elsewhere.
So it is important to develop a "valuation" for the "hold" option,
because that "valuation" defines a reasonable current selling price.
Welcome to "the wonderful world of arbitrage...."
Now, before I go any farther, because of me experience in this area, I
just laid a calculation out on a scrap of paper and derived a range of
"fair market values" for the "hold" option with my calculator. If you
want to trust me on "blind faith", and avoid an in-depth explanation,
I determined that I would be willing to sell TRNTE right now at $3.32,
excluding the valuation of the real estate. There is an in-depth
explanation of this valuation available at the Napeague web site.
I should also make it perfectly clear that I no longer own any TRNTE,
and will undoubtedly never again buy or sell it.
Now, I have no idea how the market will react to this announcement, if
it reacts at all. But, based on the preceding evaluation, if I were
still a stockholder in TRNTE, I would be prepared to sell if the price
moved above $3.32, and would certainly sell if the price moved above
$3.75.
There is quite a bit of information about TRNTE available on the
Napeague web site, and I encourage you to read the entire Analysis as
well as the Company's investor relations information and its reports
to the Securities & Exchange Commission prior to making any decision
to invest in the Company. I am not certain at this time whether I will
update this entire Analysis or just continue to add "breaking news" to
the Summary.
NOTICE
This analysis is based on publicly-available information, and is in no
way warranted by me as to accuracy or completeness. I do not guarantee
to advise you as to any change in this information. I currently am a
stockholder in this Company and may from time to time purchase or sell
this Company's securities. I otherwise have no affiliation with this
Company, and I am not compensated by it in any way whatsoever. |
