Replies to post #439640 on Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

A complex document, I'll read it after the close, but I would mention that the market has known of this since at least June, so it should be in the "price". Is there any way to determine what is the intrinsic worth of that outfit?

[Zeev Hed]

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.