Information required for decision, page-114

I think, based on your assertions below, that OBJ have made the right valuation according to your beliefs as you are saying based on PE that NS should be valued at between $45mill and $50mill. It is normal when making evaluation based on PE valuation (which is in effect a valuation based on profit) that you exclude building assets (which is $12mill) and inventory (which is $23mill). You also generally exclude receivables and payables. So based on the $85mill, $35mill is of the above giving it a final valuation of $50mill. Not sure what the after tax earnings were for NS but let's assume $7mill on average over the last 3 years then $50mill is assigning a PE of around 7. In my experience of selling and buying private businesses (depending on the business) PEs of between 2 and 5 is common. I think the valuation may be a little high but not exorbitantly so. The main issue really is that the OBJ share price is quite low so there's going to be quite substantial dilution if the full $50mill is raised. That it is being raised at the current share price is a positive. Normally for such a large sum you'd expect at least a 15-20% discount. $35mill of the total $85mil being raised is being paid at 12,24,36 months down the track so may not be as dilutionary if the share price can rise substantially in that time.

Nutrition Systems has been valued at $85 million and OBJ at it’s current market cap of approx. $25 million, resulting in a massive dilution for existing OBJ holders.It seems like Nutrition Systems is being valued as if it was being taken over by OBJ and and we are paying a significant take over premium.I don’t see it that way.I see that OBJ is being taken over by a combination of Nutritions Systems and other interested parties, without paying a premium.It has been suggested that we are paying a fair price for Nutrition Systems and that a public company would pay a similar price for the acquisition base on an acceptable PE of 15.I have first hand experience that this is incorrect.I sold my private company to a publicly listed company. We were a sought after target from a strategic point of view, but it took much heart ache to get them to pay based on a PE of 7. In my opinion public companies will only acquire private companies based on a PE of 5 to 8, which means to me we should be valueing Nutrition Systems at more like $45 to $50 million .