rigth, common sense tells us this deal was hammered out ... out the yin yang! IMHO there is no way on this green earth LO announces they are giving up blu and also that the asset sales to BAT without a pretty darn realibale assurance that needed to happen for deal to go thru. So based on that assumption the only real risk is imo the deal getting shaped a little differently at the end. and I admit that woudl most likley not increase the value to LO shareholders although I suspect it would be a minor tweak and futher no one here seems to give ANY percent chance that this deal gets better for LO side and I dont give it a lot but not zero.
Ps the idustry DEFINES the south of this country. thousands of jobs etc. u dont mess with that-deal goes! imho
thx for the response jayjay. I also agree the risk of deal is main driver I was just trying to chip away at it somewhat. I will admit both stocks have a low low beta of about .25 so even the volitility argument comes to a small factor. nonethless I estimate teh dividend issue as accounting for about 1-2% of the premium as *both* companies lower thier cash value there is no gettign aroudn that conclusion... though one coudl argue over next 6+ months they will also be making money though I note net neg. cash flow due to most going out the door to aforementioned divs.
where are you getting the 70/30 ratio from.. its crucial but I think we are all guessing. if only there were a more scientific way to go about it. also suppose a busted deal does result in lo at 50. all elase equal moving foward woudlnt a speculator in around 60 sinply need to wait four years to get their loss back from teh dividends? 4 years is kinda long time but divs are assured unless huge change to menthol. what do you think about this last aspect? and how does that effect percieed premium. ie in wild tech deals where it's goosed teh target price huge if it doesnt go often it is giant drop . but here you have a very high saftey company paying a 4% diveidend to 'fall back on'
As an exercise, and not meant as advice or an expert opinion in any way please see your advisor, let us consider what may be making up the current risk premium and why- I'll argue- it may not be as 'high' as first blush would suggest.
I am arguing it is too simplistic to simply state there is a 12%+ risk premium therefore the deal is super risky to play long and Street must think likewise. don’t you agree that at a minimum we need to take out the dividend portion for BOTH RAI and LO from this figure. arguably it is unfair to reduce by LO's dividends because the merger terms will pay an amount that is not sensitive to the value of LO. But RAI cant be argued that way as the reduction of the value of RAI shares via divined payouts most def. affects the calculation of '.2909' per share to LO holders. LO holders get none of the dividend and so are 'hurt' (reduced merger payout value) when rai pays dividends pre merger. lets see if we can all ( all non-trolls of course) agree on the previous material. then we can consider how this exactly reduces the *percieved* 'spread' or risk premium.
additional items to think about are time value of money. also typical variance in RAI share price (and somewhat also LO variation in price as deal may not go through) and how the market may be building the risk premium to take into account the expected (statistical) variance in RAI share price over the next at least 6 months and perhaps longer. this is all complicated by the fact that the markets must consider theres a chance the deal wont go thru and thus value the shares somewhat on their own for whatever % change they assign to no merger. hence LO drops by exactly their dividend payout but arguably it should not have if say merger was 100% assured, all else being equal- agreed? For serious folks feel free to add other aspects or ideas. I think the goal should be to understand what make up the premium and is it really as high as it seems or is that chimera?
hirsct he is responding to poster 'make10' not you. the poster make10 like a bunch of other posters here are perhaps just young trolls IMO and shodul be ignored. Or perhaps they really are dumb . See my new thread Ill start in a moment that gets at more advances concepts of valution for us adults to chime in on.
many ansers are right there now in their sec reporting why dont you jsut go there and look? lastly, you appear to give no weight to the argument that regulating out the littel guys in this field is actually a boon to the big players. so you think a mom and pop can raie the millions to pass muster? think about it. QED
OMG you cant spell 'doosh' like that, not even soemeone as young and simpleminded as you. NO!
please plesae leave your folks' basement and leave adults alone. IGNORE with yoU!
bigsmityy please google this subject. it happens all the time to ex-div day opening price. . im not spending anymore tiem teaching the basics. Jayjay is of course right. this is NOT rocket sceince folks. wow.
bigmitty, on the assumption your post is not a complete joke troll let me tell you a story. It's a wonderful story about the way this works.
some public enterprise is worth say $5 million. that value is made up of cash on hand and an estimate of the value of the rest of the company which is made up of many things including expectation for the future etc.
if the company one day sez we want to distribute $1 million in a dividend then you should be indifferent to keep your shares which represent a prorate ownership of the company or getting the cash (tax issues aside for ease). the day after they pick the group of all shareholders on record and say you all get your prorata share of the $1 million dividend the company enterprise value is now $4 million. your share is worth 20% less put you have that 20% locked in cash in your checking account. See how easy this all is! Glad to help! please feel free to ask any questions!
jayjay showing his experience and knowledge in teh market. nutjob racist guy from costco board ( hated there too as stupid racist troll) showing that he is still an idiot. 'Nuff said.
ps pleae note this loser jsut created his ID-Member since: Aug 26, 2014- just for trolling purposes. IGNORE young kids like this who are losers and lets get back to the serious business of investing!
from above 'currently valued at $68.88'
which part of 'currently' - that was price on day announced- dont you get you sad bored loser TROLL. Now go back to your cheetos and boy band magazines and leave the adult world alone already.
WHAT A LOSER TROLL- get a life! I mean seriously no one is this big a failure you cant be for real!
buyout price is not $68 and this has been gone over here to the zillinth degree. so im not sure what you are 'up to ' but I must say I smell a troll. no offence ;-)
hirsct thank you for that and I agree- clearly mr market odes too as there is no free lunch and no free easy arbitrage- hence the price is dropping to reflect the dividend that to get needs to effectively be owned today asuuming all is correct.
There are many strategies avaialble when expected volitility is low. for example a Long Call Butterfly. Yes prem is low but hey thers a reason for that.. still makes you money just bulk it up perhaps. none of this is trading advice see your advisor i am by NO means an options expert.
it's always best to get it from the horse's mouth. Koz you could have simply googled or better yet go to the edgar filings to be sure. here is from LO's webpage for investor relations: 'RAI expects the transactions to close in the first half of 2015'
your post implies you believe the deal was not crafted with some form of 'guidance' from some part of 'govt.' most 'positers' believe the exact opposite.
THOUGH KEEP IN MIND THE PRESIDENT HIMSELF SMOKES AND ADMITS IT IN AN interview! though granted he admitted to marlboro reds not the green pack but ace in the hole for cig company shareholders nonetheless eh.