Price Per Share (PPS) Concerns and Fundamentals of the Merged Company
I. PPS Concerns
The dilution early this week from 1.1Bn to 1.6Bn Outstanding Shares (OS), meant that there are more shares in the market than there is demand for them, thus driving the PPS down. There were two reasons for the dilution hypothesized in this board: (1) the company needs the capital for upcoming projects and to reorganize after the merger and (2) the company paid the merger-related costs with common stock.
Fact: All companies issue shares to raise capital for various purposes. What SARS Corp. did is common practice, especially in the early stages of the merged company.
II. Fundamentals of the Merged Company
As per the due diligence in earlier posts, the projected revenues of the merged company is between 36Mn and 40Mn. This of course has to be interpreted in context. Currently, SARS Corp. has not issued the financial reports of Associated Mechanical (i.e. the combined liabilities and operating expenses of the merged company are yet to be determined).
Fact: Whether the projected revenue figures are true and there is no reason at this point to believe otherwise, it is difficult to postulate about the fundamentals of the merged company when financial records are yet to be released.
Fact: The American Recovery and Reinvestment Act of 2009 ("Stimulus Package") - in addition to Energy Policy Act of 2005 and Emergency Economic Stabilization Act of 2008 - contains provisions for an HVAC tax credit. A competent management team would take advantage of this to expand its core business. One caveat is that the roll out of the spending portion of the Stimulus Package has been sluggish and may not fully take effect until mid-2010, at the earliest.
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