Originally Posted by
Snoopy
Basic annualised earnings of TUA are $4.916m (NPAT)
Number of shares in TUA are 27.375m
So eps = $4.916m/ 27.375m = 18.0cps
At a cash share price of $3 (The acquisition price), the net yield is: 18/300= 6%
TUA is issuing bonds to help fund the takeover, and is paying 9.5% interest on those bonds. Therefore the more shares that DPC buys that are financed by bonds (or bank borrowing for that matter), the more money DPC is losing. The maths is undeniable. For all TUA shares taken out by bank borrowings or bonds, DPC is cashflow and profit negative. Granted, none of this takes into account savings from business integration or future business growth. Over time I am sure that TUA will prove an excellent cash positive investment for DPC. But right at this moment, at the point of takeover, the more shares that DPC buys with debt, the worse the profit outlook for DPC in the short term.
This calculation does not apply if TUA shareholders are paid out in DPC shares. The point is that back on 28th July, Paul Byrnes could not possibly know what proportion of shareholders overall would take DPC shares/DPC Bonds/Cash in what combination. Byrnes has good business sense and no doubt could make an educated guess. But his forecast can't be precise, because Byrnes doesn't know the proportion of TUA shares acquired funded by debt in advance.
SNOOPY