Each share is essentially worth the combined value of the limited cash offer for 55 percent of all the shares, and the expected value of the new Sprint shares for the other 45 percent of Sprint’s shares.
Analyst Craig Moffett at Sanford C. Bernstein & Co. did all the math. In his report to clients, Moffett came up with a price tag for those new Sprint shares, “which based on the current (Sprint share) price appears to be about $3.66 per share.”
Can you post a link? Earlier, a far more substantive post (below) was made that contradicts your assertion.
Sprint-Nextel (S) this afternoon receives its second upgrade of the day following its $12.1 billion deal with Japan‘s Softbank, with Bernstein Research‘s Craig Moffett raising his rating on the shares to Market Perform from Underperform, and raising his price target to $6 from $3.
Moffett’s upgrade follows one by by Jefferies & Co. this morning, to Hold from Underperform.
Sprint shares today fell 4 cents or $5.69. Shares of partner Clearwire (CLWR) surged 37 cents, or 16%, to $2.69.
Argues Moffett, the deal leaves Sprint much better capitalized, with an $8 billion cash infusion now taking the risk of bankruptcy from “genuine” to “de minimus.”
And the deal is “substantially more attractive than the status quo for current sprint shareholders,” writes Moffett, as he does his back-of-the-envelope calculation of deal valuation:
For every 100 shares of Sprint investors own today, 55 will be redeemed for $7.30 in cash (well above market), and the remaining 45 will be in the recapitalized company. As such, Sprint’s stock price should reflect a weighted average of the two values. Simplistically using $7.30 per share as a stock price, as has been cited in some press reports, is not correct. If one believes the new Sprint is worth, say, $6 per share, the warranted stock price today would equate to $6.00 times 45% plus $7.30 times 55%, or $6.72 per share (ignoring any probability of the deal breaking, and ignoring the time value of discounting the cash component back to the present). Alternatively, one can use the same ratios to back into the implied valuation post-tender. At the current price of $5.66 (at the time of this writing), the market is embedding a price of about $3.66 for Sprint on an ongoing basis, calculated #$%$66 less ($7.30 times 0.55) divided by 0.45.
However, the deal also leaves Sprint in a more competitive environment, with heavy investment, thinks Moffett, as “will be an aggressive pricer, and capital intensity will rise substantially as SoftBank invests to fix what Son describes as the U.S.’s “oh my God” slow speeds.”