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Chesapeake Granite Wash Trust Message Board

seattle.stew 4 posts  |  Last Activity: Feb 24, 2014 10:52 PM Member since: Apr 12, 2009
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  • Reply to

    Ruminations

    by seattle.stew Feb 21, 2014 9:19 PM
    seattle.stew seattle.stew Feb 24, 2014 10:52 PM Flag

    By the way, depending on the buyer, and how they structure the deal, the tax NOLs could be preserved. They are worth quite a lot. I don't have a current figure, but depending on the acquirer's effective tax rate, we are talking about hundreds of millions.

  • Reply to

    Ruminations

    by seattle.stew Feb 21, 2014 9:19 PM
    seattle.stew seattle.stew Feb 24, 2014 10:50 PM Flag

    ar.sigis, I have forever thought that WMT wouldn't touch RAD because of the union presence. Perhaps they won't. But, you need to consider a few things before negating the idea entirely. First, the chain could be operated as a subsidiary or division, and probably would be, in order to preserve the tax NOL. So, while they may not be overjoyed to have a union in the house, it could be contained within Rite Aid. Second, the economics of such an acquisition might be good enough (and the result of not doing something bold bad enough), that they are willing to swallow the bitter pill. I do realize it is not the happiest combination for them.

  • Reply to

    Ruminations

    by seattle.stew Feb 21, 2014 9:19 PM
    seattle.stew seattle.stew Feb 24, 2014 10:47 PM Flag

    In the case of RAD, if there were a buyout, you might expect something near a 40% premium to the trading price at the time. It seems that 30% to 50% are typical premiums for unsolicited offers, though 50% is high for retail. On the other hand, I suspect that any offer would precipitate a competitive offer from anyone who was mulling the idea. If you want to understand the economics of the deal, simply add back interest expense to EPS and divide pro forma EPS by market cap plus outstanding debt, to get a ROI.

  • seattle.stew by seattle.stew Feb 21, 2014 9:19 PM Flag

    I've followed RAD for a long time. I rarely visit here, as it's typically full of rubbish, and I don't want to sift through all of the posts looking for a bit of useful information. I am here today, because I sense that there may be something afoot that is beyond a normal rally. Granted, recent news has been very good, particularly the MCK deal. But, the volume and trajectory of this stock is more typical of what you'd see if there were some M&A in the background.

    There are currently three possible suitors. The least likely is CVS. They have not made a large acquisition if a very long time, yet it is in their DNA. Aside from the usual reasons, what could prompt them is to beat ESRX to the punch.

    ESRX is a more likely suitor, as they would like to be able to offer a suite of services that compete head to head with CVS/Caremark. By acquiring RAD, they would pose formidable competition to CVS, because they already have the larger PBM. And, they have the financial wherewithal to remodel every RAD store that remains in a matter of 6 to 9 months.

    The third possible suitor, and perhaps the most likely, is WMT. They have a new CEO, and Walmart is currently struggling. Sales at the large format stores has been falling for several quarters because customer habits have changed. He claims that dollar stores and drugstores are stealing their small trip customer, and online is stealing the large trip customer. Read the transcript from the conference call that just occurred, because he says this. He also says that they are going to rapidly increase the rate at which they build out their small format stores. When asked about possibly buying a dollar store chain, he says they can't find the right fit, because they need to be able to include a pharmacy. Think about it.

    Of course, it is very possible that there's no M&A afoot. Rather, large institutions are piling in, as RAD is now investment grade. That could explain the volume. We will know before long. GLTA

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