Following my early post on CAGAQ arbitrage opportunity, I got several emails / comments asking how I got to $4 per share as recovery value. I went through the math in more detail and came up w/ a minimum of $3.80 in value: here’s my updated math (if anyone comes up with some thing else or has other thoughts, please let me know).
Here’s Cagle’s most recent balance sheet, and you can find the winning bid description here (section 2.6). The relevant info is the buyer is paying $49.7m plus inventory and accounts receivable less some payables and accrued expenses (which the buyer assumes).
Using all that info, here’s what my breakdown for Cagle’s equity looks like
+ $49.7m payment
+ $41.5m for A/R and Inventory
- $8.1m for accrued expenses / post petition accounts payable
= $83.1m value of bid
+ $5.1m cash on hand (this is an asset buy, cash stays with the Cagle shell)
= $88.1m enterprise value (there are a few other miscellaneous assets at corporate level that I’m assuming are worth nothing)
- $40.7m debt
- $22.1 pre-petition accounts payable
- $2.6m uncashed checks
- $0.9m accrued bankruptcy costs till March 3
- $3m cure costs (assuming they are NOT in the balance sheet already, one reader thought they were)
- $1.3m banker fee (note: I had excluded this in my first run through, which is why I was coming up higher)
That gives me $70.6m in total liabilities. Subtracting from the EV and dividing be 4.6m shares out, we get a per share value of $3.80, which is a bit less than the number I had estimated before including the banker fees but still materially above today’s costs.
However, it’s still not hard to get a materially higher value. CAGAQ was operating profitably in February. If they maintain the same run rate profitability, they would add another $1.5m or so in profits/cash. Even if bankruptcy costs escalated a bit as they got closer to selling off, they could easily have generated another $1m or so in profits, which would boost the per share payout to just under $4
Also note that this seems to make sense- it looks like the ultimate payout has been structured so that the initial payment immediately pays down all of Cagle’s debt / liabilities, and the leftovers go to the equity in the form of the 8% note.
Again, if anyone catches any mistakes on either the bad or good side, please let me know!!!
Disclosure- long CAGAQ
Here’s Cagle’s most recent balance sheet, and you can find the winning bid description here (section 2.6). The relevant info is the buyer is paying $49.7m plus inventory and accounts receivable less some payables and accrued expenses (which the buyer assumes).
Using all that info, here’s what my breakdown for Cagle’s equity looks like
+ $49.7m payment
+ $41.5m for A/R and Inventory
- $8.1m for accrued expenses / post petition accounts payable
= $83.1m value of bid
+ $5.1m cash on hand (this is an asset buy, cash stays with the Cagle shell)
= $88.1m enterprise value (there are a few other miscellaneous assets at corporate level that I’m assuming are worth nothing)
- $40.7m debt
- $22.1 pre-petition accounts payable
- $2.6m uncashed checks
- $0.9m accrued bankruptcy costs till March 3
- $3m cure costs (assuming they are NOT in the balance sheet already, one reader thought they were)
- $1.3m banker fee (note: I had excluded this in my first run through, which is why I was coming up higher)
That gives me $70.6m in total liabilities. Subtracting from the EV and dividing be 4.6m shares out, we get a per share value of $3.80, which is a bit less than the number I had estimated before including the banker fees but still materially above today’s costs.
However, it’s still not hard to get a materially higher value. CAGAQ was operating profitably in February. If they maintain the same run rate profitability, they would add another $1.5m or so in profits/cash. Even if bankruptcy costs escalated a bit as they got closer to selling off, they could easily have generated another $1m or so in profits, which would boost the per share payout to just under $4
Also note that this seems to make sense- it looks like the ultimate payout has been structured so that the initial payment immediately pays down all of Cagle’s debt / liabilities, and the leftovers go to the equity in the form of the 8% note.
Again, if anyone catches any mistakes on either the bad or good side, please let me know!!!
Disclosure- long CAGAQ
