This is nonsense.
Just because the hedges roll off does not mean that existing wells will stop producing.
It simply means that the company has to shut down its drilling, and it means the creditors take
over. They are as interested in value preservation as the next guy, and they will keep the existing
wells pumping. Then they will sell the wells to somebody that can pay as close to full value for them as they can get as a bankruptcy court seller.
I just noticed that Leyard's stock has been "trading halted" since the last week of July.
That's because it is listed in China, where a large number of stocks are "trading halted" by edict of the communist government there, which is seeking to protect its citizens from falling equity prices.
I would have to imagine that such a trading halt leaves alot of investors skeptical about the deal.
Personally, I don;t see any problems with it.
We should get Hart-Scott-Rodino antitrust approval within 30 days of the 8/12 announcement date, or shortly thereafter.
The next event will be PLNR scheduling a special shareholders meeting to vote on the deal.
I am guessing that the meeting could be held within a month of the notice being given, with a closing possible even before the end of October. There's no reason to think the closing would be at the end of Q4.
The PLNR statement is "during Q4."
With production growth of oil approach zero percent, the pipeline companies are continuing to put newly-finished pipelines into service. Every pipeline put into service diminishes the amount of crude that needs to move by rail. its pretty simple.
Still, the existing fleet needs to be replaced.
But, the railroads have had #$%$ earnings and will be loathe to order new ones.
Fortunately, crude cars are FAR from the entire story.
I must admit to knowing NOTHING about Leyard.
I have never heard of them before this.
Any background on their size, age, etc would be welcome.
I did see an article on my Bloomberg that they are "applying for a foreign currency loan" to complete the acquisition, which means they did not have financing guaranteed before PLNR signed onto the deal. Having a "highly probable letter" is normal course for a domestic deal. Not having one may explain some of the size of the discount.
Really? It's "tough to see?" Why?
Every day the Chinese market drops is a higher probability that the deal doesn't close, right?
Railroad stocks have been tanking because the oil and coal businesses suck and because global trade is not growing.
Rails don;t lead anything.
A reserve can be recognized ONLY if the company believes it will ultimately have a liability.
If the company believes that it will win on appeal and that it will have no liability, it cannot take a reserve.
Also, whatever they pay should be tax deductible as an expense, so the "reserve" would be a post-tax amount. And it would be reduced to its present value, since it would be paid in the future.
What were you doing in those finance departments?
"This company has made profits at much lower sales #'s."
They had much lower overhead expenses then than they do now.
I think some (many?) of the regulars around here will congratulate you on putting forth an excellent summary of what has made ATRI such a good performer for so long.
If PLNR shareholders reject the deal, PLNR makes a payment.
The discount reflects that PLNR is not a well-known company/stock.
There is also skepticism because the buyer is a Chinese company that apparently needs permission to obtain the $US needed to close the transaction.
Ultimately, they discount reflects the risk that the deal is not going to close, combined with where the PLNR stock price would go if the deal were called off.
there are a few things that could cause that:
1) China's economy implodes during the next few months
2) PLNR's 15FQ4 (September quarter) sucks the big hairy and the deal is called off.
Personally, I think those risks are low.
At $5.88 as I write this, the current share price is 11.9% below the offer price.
Typically, in risk arbitrage, there are several things that determine how large this discount is:
1) the amount of time until closing is expected, and the probability/potential for it to be delayed.
2) The overall level of interest rates, and
3) How low the stock price might drop if the deal falls through.
4) The expected probability that the deal does not close.
The last item is composed of several factors:
1) The probability/potential for anti-trust or other regulators to reject the deal
2) The probability/potential for shareholders of one side or the other to reject the deal
3) The probability that some other event will take place that prevents the deal from closing.
In this case, noting that the $8 million break-up fee is in escrow, I would make the following comments:
1) The buyer is Chinese company at a time when china's economy is in turmoil
So, given that there are 4.5 months until the end of the year (let's use 4 months in order to simplify calculations), and that the stock is now 12% below the offer price, the market seems to be saying that you can earn a 36% annualized rate of return by buying the stock here assuming the deal closes.