PERF needs to be at $12/share for it to be a wash on choice of consideration.
At current PERF price of $10.4, the cash/stock option is worth $6.10 (19% premium available).
PERF stock needs to drop to 5.5 to make no premium available in the PARL acquisition left in the cash/stock deal. (Under this scenario, 25% of SH that have agreed to take the all stock would only receive $2.9 per PARL share.
Note: this also does not account for the additional dilution of shares/warrants to be issued.
Seems like the options to play this are: PARL - Long. Go with cash/stock option and PERF doesn't fall below $5.5. I also wonder if PERF falls so much if they will go through with the merger. In that case PARL will receive a paltry $4m breakup and drop back down to $2.5 area. This doesn't seem like a good option. 19% upside, 50% downside. I guess upside chances are a bit better. PERF - Short. Assume stock continues to fall to where PARL current price is indicating - $5.5. PERF - Long. Assume merger falls through and it rockets. I only see merger falling through if stock price falls significantly below 10.
I will prob. not do anything here but watch. If PERF falls to 5 area I may buy some and hope merger falls through.
It is hard to see how PERF drops much from this point. There are several reasons to believe this:
1. The Nussdorfs own 6,649,476 shares. That equates to 74% of the outstanding shares. With the time and effort put into the offer, they would not want to see this fall apart. In addition, Rene Garcia owns 613,668 shares, Westend Capital owns 621,847 shares and Jacques Bogart owns 452,634 shares for a grand total of 8,337,625 shares or 93% for the four parties. Assuming no one sold, there are only 630,338 shares remaining.
2. The BV of PERF is $6.30.
3. Earnings are on the rise. Through three quarters they were ($0.45) vs. ($1.85) last year. In the fourth quarter last year, the company earned $1.43. If they were to do the same this year, they would earn $0.98 for the year. Sales are up, interest expense is down and they have reduced store count by 6%.
4. Trading volume was starting to dry up. On 12/27 it was 180K, on 12/28 it was 144K, on 12/29 it was 79K and on 12/30 it was 24K.
Total trading volume was roughly 427K or 4.8% of total shares. At the same time, the stock price dropped by roughly 47%. IMO this is overkill.
Thanks to the poster that mentioned PERF has no shares available for shorting. Makes my analysis even more useless :(
BI - I think your analysis based on trading volume compared to shares outstanding - although interesting - is misguided.
Much of the 427K shares were prob. shares traded between hands several times. It doesn't make a difference. If people are willing to sell those available shares for less than the current market price, the stock will decrease.
Great summary. PERF can't be shorted as there are no shares available to short, so take that option off the table.
I am a bystander in all this now, having happily sold my shares in two blocks early and mid last week. I am waiting, watching and evaluating. IMO, there will be better options available in time related to PERF and/or PARL if the deal does not go through. I still think it will be as you point out the 50% downside outweighs the present upside and one should not forget that PARL's bv is twice that of PERF.