Ann: Portfolio Update, page-9

CD2 has 52.5munits. Today’s announcement equates to a share of A$17.8 cents per unit ofCD2, if the cash is distributed in full by the LP. The announcementsays the US$7m is “net of taxes” but this probably does NOT include any US withholding taxthat is likely to be deductible when money is distributed from the LP to CD2.That would reduce the 18c pro rata estimate.

Theamount is a lot less than my previous downside estimate below- however, I madeseveral caveats. The first was ifmanagement got a super-profit share of the proceeds beyond just their pro rata shareholdings. Today’s announcement said that that they did-but not how much. The other caveat is whetherDominion retained any of the proceeds to invest in the business, as would be expectedfollowing the damage caused to D by the Fox defamation. This- surprisingly, isnot mentioned, although that seems very likely. The other caveats are just how largewere the legal fees (100% on contingency) and the fees earned by SSC, the US PEfund through which CD2 holds the Dominion stake. We will never know these amounts.

Here iswhat I posted to HC (slightly edited) on 21 April

“Accordingto the Merger EM, LP2’s (original) commitment to SSC II was US$8.0m, whichrepresents 3.02% of SSC II’s total inwards capital commitment of US$265m. SSCII owned 76.2% of Dominion. CD2 owns 87.3% of LP2. I have assumed that SSCII still owns76.2% of Dominion andthat LP2 has not sold down any of its SSCII holding. Based on the above,SSC II would get 76.2%. Of that, LP2 should get 3.02%. Of that CD2 will get87.3% thus 2.09 % of whatever the net net settlement proceedsare.

It’shard to know what the proceeds will be after enormous legal fees includingcontingency fees, taxes, and the likely huge performance fees that the SSCgeneral partner will earn on the deal. I have assumed that theprofits are split prorata for the 76.2% shareholding- but perhaps the minoritymanagement investors in Dominion will get a super profit, in which case otherinvestors like CD2would get less. My guess is that a range of US$400m to600m will be left for (100%) investors.

Forsimplicity I have assumed that Dominion will distribute all of the net net settlement proceeds-butit may want to retain a substantial amount to rebuild its business. Using arange of US$400m to 600m, I derive a downside case of A$24 cents per CD2 unit,base case 28cpu and an upside case of about 33cpu, ifDominion retains nothing. But it may beprudent to assume that Dominion will retain at least 10 cents’ worth forreinvestment. These figures are pre any Australian/US WHT tax chargedon the money eventually distributed to CD2 unitholders, perhaps offset by aforeign tax credit for the UStax paid.

Notadvice DYOR