ok after I did my reading on DEx/SPMD merger documents.
Some thoughts I have.
- FCF wise it is oddly cheap, like what Will mentioned. With a assumed combined market cap of 150m, FCF averages 400m p.a. but looking at the Morgan Stanley's forecast, they seem to be fairly optimistic with print volumes declining only 10-15% p.a. Judging at how rapid the while online landscape is moving, 3-5 years for the death of this combined entity is not unreasonable if they continue to not innovate. FCF imho will find it hard to hit 500m or even 400m p.a if growth rates do hit -20% p.a. and even if the write off of assets stop (which is the primary cause of losses in 2010/11).
- As a combined entity, I noticed that debt decreases sharply due to assumptions of payment and amortisation. So on top of the interest expenses, there is another significant expense that is for principal repayment. Havent dug into the debt docs to check on the covenants but stoppage/delay of interest/principal will definitely trigger default.
- The risk of liquidation ((equity value 0) is remote versus that of restructuring (equity has value)as the combined entity still has cashflow generative components despite the headwinds 9which isnt crippling atm).
- I noticed that SPMD is cheaper than Dex in terms of the exchange for the merger. But its minimal though.
My only question will be why did Kyle Bass only enter into equity only now and not earlier? I suspect he holds the debt as well which makes it even more odd to buy only now.
@ Will, theres warrants for which parts? Dex or SPMD? I cant view the instruments via Google finance or my trade platform. Are they long dated? Whats the terms of those like?
