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Guinness Peat - Value Contest
Posted by: batbeer2 (IP Logged)
Date: December 20, 2013 04:32PM
Hi TalebaliH, sorry about the slow response.... I just saw your question.
>> Could you explain why the market cap net cash is the market implied value of Coats?
All the shares cost roughly £400m. That is the price. Then I make an estimate of all future dividends. That is the value.
In this case, all future dividends can be sliced as "Cash and Coats". I lump all the liabilities (including the GPG pensions) in with Coats. In other words, my definition of "Coats" is GPG minus excess cash. This means the stub, after taking out excess cash, is still a holding. That stub does have some liabilities and precisely one operating asset. This stub could be IPOed. The old shareholders get the new shares and that is why I consider them "future dividends". I'm not saying this is what is going to happen. It is merely, a way of estimating the value of GPG.
You probably define "Coats" as the current subsidiary of GPG. If you stick to that definition, then you can come up with an estimate of intrinsic value by using this scenario:
If I had 400m and I bought all the GPG shares, I could take out 600m worth of cash within a matter of weeks. I would be called lots of bad things by a lot of people but I'd be sitting on a 200m profit.
Now if I can think of that, then so can Soros or for that matter any bidder in an auction. Again, that may not happen. It's just an estimate of the value of GPG in a fire sale.
You mention EV.... I have issues with EV. In my view, nothing good can come from the addition of debt and shares. In this case, I think you are adding pension liabilities to shares. Maybe it means something but the result of that sum is not EV as usually defined.
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