Flaws in the Pricewaterhouse valuation The Pricewaterhouse Valuation is flawed. The summary is on pg E-75 of the circular (pg 287 of the pdf file)
1) While they have included all 13.3 MM shares under option in the denominator for total shares outstanding of 93.4MM, they have neglected to add the $5 MM worth of cash Tuckamore would receive upon exercise of these options. This adds 5.3 cents to the value of TX, or 7% more than the offer price. Funny that they would miss such an obvious omission that would be in shareholders benefit.
2) They neglect to attribute any value to the working capital on the balance sheet – it is cash equivalent after all. If we add $166.6 MM of accounts receivable and $14.6 MM of inventory and subtract $74.5 MM of accounts payable and $3 MM of deferred revenue, this works to +$104 MM of value neglected, or $1.11 per share not included in their valuation.
3) They value Clearstream based on EBITDA of $50 MM and a 5 to 6 multiple. However, Clearstream has been growing: EBITDA was up 13%, 20.6% and 35% in F11,12 and 13 respectively. Q1 2014 revenue was up 20% over Q1 2013 If EBITDA grows 20% this year, it works to $61 MM. A multiple of 5 to 6 is too low for a growing company. On page E-81 they show prior transaction had a mean multiple of 7.1. If we apply this to $61MM, we get $433 MM for Clearstream. This is $158 MM more than the $275MM midpoint value given by Pricewaterhouse, or $1.7/share more.
However, since its growing, even a multiple of 10 as a public company is conceivable – this would value it at $610 MM, or $3.6/share more. Note how one could be forgiven for believing TX shares could well be worth $5.50/share or more – fully 7 times more than the offer. Of course management wants to buy the company and let you think you got a deal because the shares were cheaper before.
4) Pricewaterhouse subtracts $10 to $26 MM for corporate overhead in their valuation. They explain this (poorly) on Page E-30 (pg242 of the pdf). Check out item 112 – it says:
“We further understand that since fiscal year 2011, Management has charged fees equal to 5% of budget EBITDA for those companies in its investment porfolio that it wholly owns(Clearstream, Quantum, Gemma).”
Was this disclosed anywhere in Tuckamore’s filings – does anyone know? I didn’t notice it anywhere. Seems to me shareholders should be getting this 5%. Feels like we’re paying them to eat our lunch. This is easily solved by replacing management. Or perhaps simply eliminating management by rolling the function into Clearstream.