Got to read between the lines. First, how did AAP get the 1,000,000 shares of ABLE, in December last year they acquired these at about $7.5 MM from the departing CEO, Harrington.
As for the acquisition, AAP has sales of around $130 MM, and the purchase price was fixed (and probably could be changed) in February around $3 share, the then prevailing price of ABLE stock. Not a bad deal. The deal becomes a little more iffy through the June 10 8K. It appears that AAP has borrowed another $5 MM, which if ABLE acquires AAP, will assume that debt and make it convertible at $3/share, and a possible additional $5 MM (total of $10 MM loan to be converted) at $4/share. But, the lenders also get warrants on 2.5 MM shares of ABLE at $3.75/share. If that is not enough, the lender can loan up to an additional $14 MM, of which the first $7 MM is convertible at $6.5/share ( a floor in essence on that chunk of money) and the last $7 MM at 80% of the trailing 20 days average before the loan is made ( a semifloorless feature, but since the loan is made in toto, $6.5 is probably the floor on the second half of the $14 MM). Relative to that last $14 MM, the lender gets a warrant equal to 50% of the loan value to acquire ABLE stock at 110% of the conversion price of the $14 MM debenture.
If the deal is done according to the above, ABLE will issue an additional 10 MM shares for AAP, get $24 MM additional debt that can be converted to about 5.5 MM shares, and will give warrants on 3.5 MM shares, 2.5 MM at $3.75, and about 1 MM at $7. Ending up with a company having essentially no debt (all converted and if warrants exercised an additional $16 MM cash), and a total of 2.5+10+5.5+3.5 =21.5 MM shares. Assuming a minimal $1.5 growth in sales (since last February, just for fuel prices increases), we have at $10/share a PS ratio of 1.
I don't think that is too bad. I would assume that ABLE will develop a "floor in the $6.5 to $7.5 range and from time to times have excursions to the $10/12 area when crude has its normal mini runs.
Of course, the situation is much better for ABLE if the acquisition price of AAP is raised by some 10% to 25% and the transaction is carried out around current levels of ABLE stock in the $8 to $10 range.
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