Anyone with simple algebra maths can figure out this is a bad...

Anyone with simple algebra maths can figure out this is a bad deal...

EBITDA = 77m

they take on 296m of debt
a company like SUL would pay 8-9% for debt maybe more
I take a conservative figure on a 296m of debt they be paying 24m of interest

I = 24m
A and D = say around 5-10m, let pick 7m ?
T = 13m

77- 24 - 7 -13 = 33m NPAT
cost them all up $630m for a business generating 33m profit a year ? 5.5% return

now they can talk about saving and synergy and their great management skill etc..

the factor is the business right now generate them 5.5% return a year

let say they double the return with their Awesomeness and super hero status that still around 10-11% return on capital
nothing to boast about...Certainly wouldn't be a business I invest in if it generate that sort of return on capital..

and if that awesomeness turn to be nothing but a fat panda
then shareholder pay deadly price.

I seen this happen many times before ..

FBU with Cranes recently
Foster with Treasury wines
Suncorp with Promina

WES with Coles and if it wasn't for WES Bunnings, Officeworks and resource sectors
carrying the burden... WES could have gone to corporate graveyard during the GFC...

What these deal do is fatten management wallet by increase group sales and group profit and management get nice freebie options

this is what shareholder get
Decline Return on Equity
Diluting their share holding
Crappy EPS and then the fall of the share price

Read a book called "How the mighty Fall" right now I see SUL
in this phase

Stage 1: Hubris Born of Success
Stage 2: Undisciplined Pursuit of More

Yet to be seen :-)
Stage 3: Denial of Risk and Peril
Stage 4: Grasping for Salvation
Stage 5: Capitulation to Irrelevance or Death