Approaching $64 now. As I thought, until we get a clear sign that the FTC won't impose any roadblocks for approval, it will be a deliberate climb to the ultimate closing price level.
So, LO longs, 'patience is a virtue."
In the meantime, a happy holiday season to all, and a healthy and prosperous 2015!
When the deal was first announced (seems like ages ago!) a value of $69-70/ LO share was cited. This implies a RAI share price of up to $67 (for $70 for LO). So RAI's current level at $65-66 is likely within expectations. Next quarterly result will clearly have an impact.
Positive news, but not at all surprising: RAI and BTI would have deployed significant research/intelligence on the expected menthol outcome before making the overture for LO. What we need is a clearer signal that the FTC won't muddy the waters with any delay or request for alternations to the deal as agreed to. With LO still in the $63/share range, the markets still see some risk of non-closure.
Good luck to all LO longs!
cobra's formula is correct but he understated the RAI price; at yesterday's $65.20, at closing LO would be worth $69.47. Don't forget that almost $19 of that is in the form of RAI shares which you'd then need to sell (if you want to realize the entire profit); tax implications of that are unclear.
In my opinion (NOT ADVICE!) LO price should rise and approach the merger-deal value as it becomes clear that the FTC will approve the deal in its current form. We've seen it increase to $63 from the $58-59 level in the past month or so; this trend should continue barring bad news on the merger front. So if you wanted to get out before closing you likely can and make a $3 or $3.50 profit/share.
yes -- 1Q15 is what my "projection" was for. I don't think board will do anything aggressive; that, and modest EPS is why my increase is paltry.
But let's hope that FTC clears the merger and we can get on with the share price where it should be!
Given that the Duracell deal was transacted largely via P&G shares, how will this translate into value for PG longs? Is it strictly in the share valuation given fewer shares outstanding? Insight welcome!
Based upon EPS for the 3rd qtr and 9 months to date, if 4th qtr is similar, then we're looking at $3.18 to $3.20 EPS for 12 months. At an 80% payout, which is high, the $3.20 implies $.64 for the dividend ($2.56 annualized). I'll be cautious and say $.635, which is only a 3.25% increase, but unless 4th qtr is way better than the recent past, I don't see it much beyond this level. IMO!
One aspect that has not been discussed (as far as I've seen) is the tax treatment of the deal. Assuming it closes then a buyer of LO would receive $50.50 in cash plus the .2909 share of RAI. I have not seen/read what the basis of any capital gains would be, say on the large cash element (assuming the RAI piece is held). Would it be pro-rated? Say one buys LO at $62, and the value at closing is $70, split $50.50 cash and $19.50 for the RAI partial share. The cash represents 72.1% of the value - would this be applied to the $62 LO cost to determine the basis for the gain on the cash, i.e., 72.1% of $62 or $44.73? Probably not, but if there is uncertainty as to how much profit would be eaten up by tax, this could be reason for hesitancy now. Insights welcome!!
From Business Wire 11/6/14:
The St. Joe Company (JOE) today announced a Net Loss for the third quarter of 2014 of $(0.1) million, or $(0.00) per share, compared with Net Income of $4.2 million, or $0.05 per share, for the third quarter of 2013. For the nine months ended September 30, 2014, the Company reported Net Income of $417.6 million, or $4.52 per share, compared to Net Income of $4.4 million, or $0.05 per share, for the same period last year.
Third quarter 2014 update includes:
• Total revenue for the third quarter of 2014 was $24.0 million.
• Residential real estate revenue decreased from $10.7 million in the third quarter of 2013 to $3.7 million for the third quarter of 2014 due to a decrease in finished lot availability and the timing of a sixty-two homesite sale to a homebuilder during the third quarter of 2013. During the third quarter of 2014, there were no significant commercial real estate sales as compared to $2.1 million in the third quarter of 2013.
• Resorts, leisure and leasing revenue increased $2.7 million, or 17%, during the third quarter of 2014 to $19.0 million as compared to $16.3 million in the third quarter of 2013. The increase includes $1.7 million of incremental resorts and leisure revenues primarily due to an increase in room nights rented and $1.0 million of incremental leasing revenue from leases in the Pier Park North joint venture as retail stores become occupied by tenants.
• Timber sales decreased to $1.1 million during the third quarter of 2014 as compared to $7.7 million in the third quarter of 2013 due to the AgReserves sale which closed in March 2014. Tons delivered were less than 80,000 during the third quarter as compared to 373,000 during the third quarter of 2013.
No one says you need to retain the RAI shares you would obtain in the merger. Sure, you can sell now at c. $62, or wait and then sell the RAI shares upon closing. The value, any tax considerations aside, of the RAI shares should not be less than $18.50 to $19, an advantage of a bit more than $7 for each LO share involved.
I see BTI making some move with or without the merger, though any action will be farther into the future post-meager (I'm being optimistic!) given operational action steps that will occur and a much larger capital base to deal with.
In terms of pricing, in my calculation the market is still assessing about a 27% probability of non-merger, which is down from the low 30%s a few weeks ago. RAI would prosper regardless, but uncertainty with menthol and the FDA makes this a more acute need for LO operations IMO.