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Non-Tech : Barnes & Noble (BKS) -- Ignore unavailable to you. Want to Upgrade?

To: Daskin who wrote (1227)	5/17/1999 9:45:00 PM
From: Lane Hall-Witt	Read Replies (2) \| Respond to of 1691

Well, folks, it's time to play that most absurd of all games: "value" the IPO backdoor play. Here are some starting figures: BKS has 69,012,755 shares outstanding for a market cap of $2.29 billion. After the IPO, BKS will hold 57,500,001 shares of BNBN (41.1%) -- which means that each share of BKS will own 0.833 share of BNBN. BNBN / BKS = 57,500,001 / 69,012,755 = 0.833 The questions any potential investor has to ask are: (1) What price do you think BNBN will hit when it comes public? (2) What is the bricks and mortar business worth? If BNBN = $39.84 --> BNBN contributes $33.1875 to each share of BKS. At today's BKS share price, this would effectively value the bricks and mortar business at 0. What's a conservative valuation for the bricks and mortar business? Let's say $20. This amounts to an estimated forward P/E for B&M of about 14-15 (estimated B&M EPS is in the $1.30s, I believe). For historical perspective, it's worth noting that the BKS share price hasn't been as low as $20 since the second quarter of 1997. That year, which was of course before Web mania hit BKS, the company had diluted EPS of $0.76; BKS's estimated EPS for the current year is 71 percent higher than the actual 1997 figure. Now, to run some scenarios: (1) If BNBN = $12 --> BNBN contributes $10 to each share of BKS ==> BKS = $30 (adding $20 for the "intrinsic" B&M value). BNBN now is expected to price at $12. (2) If BNBN = $15.83 --> BNBN contributes $13.1875 to each share of BKS ==> BKS = 33.1875. This is today's closing price for BKS. (3) If BNBN = $20 --> BNBN contributes $16.66 to each share of BKS ==> BKS = $36.66. (4) If BNBN = $25 --> BNBN contributes $20.83 to each share of BKS ==> BKS = $40.83. (5) If BNBN = $30 --> BNBN contributes $24.99 to each share of BKS ==> BKS = $44.99. (6) If BNBN = $35 --> BNBN contributes $29.16 to each share of BKS ==> BKS = $49.16. (7) If BNBN = $40 --> BNBN contributes $33.32 to each share of BKS ==> BKS = $53.32. (8) If BNBN = $45 --> BNBN contributes $37.49 to each share of BKS ==> BKS = $57.49. (9) If BNBN = $50 --> BNBN contributes $41.65 to each share of BKS ==> BKS = $61.65. (10) If BNBN = $55 --> BNBN contributes $45.82 to each share of BKS ==> BKS = $65.82. (11) If BNBN = $60 --> BNBN contributes $49.98 to each share of BKS ==> BKS = $69.98. (12) If BNBN = $70 --> BNBN contributes $58.31 to each share of BKS ==> BKS = $78.31. (13) If BNBN = $80 --> BNBN contributes $66.64 to each share of BKS ==> BKS = $86.64. Important Note: The market frequently discounts the spin-off company when valuing the parent company, in order to account for tax considerations, the fact that the parent company's holdings are not perfectly liquid, and so forth. The discount typically is in the 25-40 percent range. So you should use a discount factor that you're comfortable with to adjust the calculations given above. Here are a few examples that use a 40 percent discount rate: (1) If BNBN = $12 --> BNBN contributes $6 to each share of BKS ==> BKS = $26. BNBN now is expected to price at $12. (2) If BNBN = $26.39 --> BNBN contributes $13.19 to each share of BKS ==> BKS = $33.19. This is today's closing price for BKS. (3) If BNBN = $40 --> BNBN contributes $19.99 to each share of BKS ==> BKS = $39.99. (4) If BNBN = $50 --> BNBN contributes $24.99 to each share of BKS ==> BKS = $44.99. (5) If BNBN = $60 --> BNBN contributes $29.99 to each share of BKS ==> BKS = $49.99.