With closing of the Takeover Bid on November 6th, one day later than my estimate of November 5th, the PAR deal has worked out wonderfully for anybody that bought in, even after my initial write up on September 6th.
Shareholders made out extremely well, as they cleared C$7.65 per share in cash consideration on November 6th. They also received one common share of Parex Resources (PXT.V), which was originally valued at C$3.00 when the deal was announced. Markets have recovered quite substantially since then, as PXT started trading four days after deal close at C$3.65, a full 22% above the company’s original valuation. Note that PXT, being inherently more risky and volatile than PAR’s producing assets, actually touched a high of C$4.63 since then, and most recently closed at C$3.95. That is a 32% return on the stub in the span of a little over 3 months, and highlights why arbitrageurs and value investors LOVE spin-offs.
If that was not enough, a holder of the common stock also received 1/10th of a 30 day warrant on PXT, with a strike price at C$3.00 and an expiry of December 6th, 2009. On December 4th, the last day of trading prior to the expiry date, PXT closed at C$3.98, which implies that each share received approximately C$0.098 in additional value that was only accounted for as roughly C$0.025 when the deal was struck four months prior. In essence, while the stub went up 33% in value, the warrant went up 292% in value!
In sum total, shareholders received a minimum estimated value of C$11.40, 99% of which was received by November 12th. Even after my in-depth analysis conducted on September 6th, one could have bought in at C$10.40 and received a 9.6% return, equivalent to a 53% annualized return.
After reading my two posts on PAR, what you should walk away with is how potentially lucrative hostile M&A deals can be, as well as how lucrative spin-offs can be. In addition, I have provided a rudimentary framework from which you can analyze any deals you are personally interested in. On a side note, if you wish to learn more about spin-offs, I highly recommend reading Joel Greenblatt’s book entitled “You Can Be A Stock Market Genius: Uncover The Secret Hiding Places of Stock Market Profits”. Yes, I know, it has a horrible title, however, I can personally attest to the value of the content.
In the next post, I will review the interesting developments at Cossette Communications Group (KOS). In addition, over the Christmas break and throughout 2010, I promise to start writing more material.
Sunday, December 13, 2009
Subscribe to:
Posts (Atom)
