no goodwill, page-7

"They did say they will look to improve on the previous offer of .52 shares plus 25 cents

I suspect they will offer the same .52 shares but increase the cash to 50 cents

If they do they might get SKE shareholders to agree , a 25% premium to current market is about what you need to offer to get these deals accepted at more than 75%"

firsova,

I don't believe PRG did say they would look to improve on their previous offer at all. That's what the announcement by SKE said. But it has never been confirmed by PRG.

Besides, why would PRG need to enhance the terms of the merger, when due to the relative outperformance of the PRG share price (in turn, due to an expectation beating profit result in the intervening period) , the implied acquisition price for SKE (namely $1.69 even after PRG's 3% share price fall today) is already more than 20% higher than the $1.38 implied when PRG first approached SKE some 6 months ago?

In other words, the price SKE shareholders would received has already been naturally enhanced. Why on earth would the PRG board seek to enrich SKE shareholders even further?

As for your indication of a 25% premium to current market price as being required for broad shareholder acceptance, I think you are guilty of a bit of double counting there.

The reason the share price is above 150c today - and not closer to $1.00 to $1.20 (which is where it traded before SKE management announced that it had decided to engage with PRG) - is almost exclusively because of those very discussions.

And I am almost certain that somewhere between $1.00 and $1.20 is where the SKE will immediately go back to in the event that the talks between SKE and PRG amount to nothing.

So SKE's current market value already has a takeover premium - of somewhere between 30% and 50% - baked into it. Your logic effectively calls for a premium on top of an existing premium. I think any half-smart and self-respecting board of an acquiring company would be able to see that.

So I think that the scope for any improved terms are highly unlikely, in my considered view.

In fact, the more I look at the deterioration in business environment over the past 6 months, combined with the stretched SKE balance sheet, and the prospect of earnings downgrades, the more I think SKE needs PRG quite badly.

The alternative for SKE shareholders is an almost certain cut in dividends, and a highly likely capital raising somewhere below $1.00 in order to repair the balance sheet.

So, if no deal occurs, and after the dilution effects of a capital raising, I would not be surprised to see the SKE share price ultimately trade below $1.00/share.

In fact, without being privy to the inner sanctum of the SKE board room, I am sure some of SKE's institutional shareholders would be seeing that prospect, too, which - I reckon - got them over the past few months chewing the SKE chairman's ear about engaging with PRG.

Otherwise, what brought about the sudden change of heart in the SKE board from the point of being unwilling to talk to PRG in January, but then being happy to do so in May?

As I had indicated in an earlier post, I estimated - on a probability weighted outcome (80% chance of deal proceeding, but on unchanged terms) - that $1.57 is the fair value outcome.

And every time SKE's price gets above that level, I have been reducing my holdings. I own about half as much today as I did when I commenced buying in January.