PRG-SKE Combined-Co: Some Pro Forma Numbers, page-6

"I think it will be 0.50 shares ( $1.35 value ) plus $0.50 cents cash = $1.85"

firsova,

Thanks for your post. I have one comment and one question arising from it:


COMMENT:

In terms if the scrip v. cash composition of any bid, given the respective capital structures of each company, an all-scrip bid would result in NIBD-to-EBITDA of 1.1 times for the combined entity, which is clearly eminently manageable. But a 50c cash component would result in almost $120m of cash leakage out of the merged company, resulting in NIBD-to-EBITDA in excess of 1.8x. Given the PRG board's Road-to-Damascus type experience with excessive borrowings following the GFC, I think it unlikely that NIBD-to-EBITDA anything over 1.5x would be countenanced. (Interestingly, a 25c cash component would result in NIBD-to-EBITDA of 1.44x.)


QUESTION:

At a takeover price of $1.85, that would deliver valuation enhancement of ~50% to SKE shareholders ($1.80 divided by $1.2o... $1.20 being roughly the SKE price at the time the PRG approach first became public). Presumably the PRG board would want to lock in at least that same amount of upside for PRG shareholders, otherwise SKE shareholders are simply being subsidised in value transfer from PRG shareholders).

So, how do you envisage PRG shareholders garnering valuation benefit of at least 50% from the merger?