Ainsworth Lumber Co Ltd ANSBF

Value of the Rights

[repap_nb]

My Take:

Equity = 175 Million being raised (rights offering) + 332 Million currently (Current Stock price * 100 Million Shares) = 507 Million Equity  (Can do this showing Enteprise Value and reduced debt also)

507 Million / 240 Million Shares =  $2.11 per share post rights trading

Working it Backwards to calculate cost of right:

Cost of Right + (1.25 * 1.388) = 2.11 * 1.388

Cost (Value) of Right is $1.19

Cross Check: If I did not hold any stock or rights and went to the market to buy the rights so I could buy the shares I would spend $1.19 for the right then 1.25 * 1.388 to get 1.388 shares at a total cost of 1.19 + 1.74 = 2.93.    2.93/1.388 = $2.11 per share

[mohasa]

repap: Your enterprise valuation model to determine the benefit to be derived by the company was certailny of benefit to me and to others too, I am sure. But, there is always a but! To determine the EV, you use the share price at which it trades.  Having done that, you went ahead and compute the benefit that the company will derive from the capital to be raised.  You did this initially

[repap_nb]

Actually what i did not do (or appreciate then) was how much extra equity value due to the debt changes. When I did the EV then I assumed the Company valuation post = pre (just different capital structure) when in fact there is the extra benefit of less interest payments which will drive the equity up, leading to a higher EV (and stock price) On the basis of the $2.50 stock price

[mohasa]

Your response is much appreciated.  What had concerned me was that you were taking the benefit of the new capital structure twice by repeating the calculations with the current shareprice already reflecting the benefit.. This extra value (reduced interest payments) is now in the stock: This I agree with. And that is why I and others have made calculations starting from the current shareprice

[thedave2006]

greatly appreciated guys, our discussions on the rights.  tick tock for me, t-minus 43 minutes, what to do?   cheers, dave.

[Tobuyornot]

And  the remaining debt will have a lower carry rate adding to eps.  Each percent lower adds over a penny.