dml takeover target, page-66

Superox - your assessment of EV of $232 million looks about right.

However, you are then making a totally illogical leap to use that figure as the basis for arriving at an equity value of 47.5 cents.

The debt is a separate component of the "value" of the company.

Take as an example two factories side by side that make toothpaste - identical in every respect and each generating EBITDA of $2 million per year.

You think that 5x EBITDA is the right multiple to pay for a toothpaste factory.

Each factory is held in a separate corporate structure, each with 1,000,000 shares on issue.

Company A has $1 million of debt. The value of the equity in Company A is therefore $9 million (EV = $10 million), and so shares should trade at $9.

Company B has $9 million in debt. The value of the equity is therefore $1 million, and so shares should trade at $1.