Simple maths is not always used for valuation in markets or to confirm finance
control of an entity- when and how you gain control can see big differences in valuation and prices achieved
simple maths question says -
you own 60 percent of an asset - you want to buy another 15 percent and you offer 15 million which is accepted and must be paid in cash - how much is the asset worth?
one way of working out the question
15 % is worth 15m
So 100 % is worth 100 m
you feel pretty good and you get an A on your math test
then add in the complexity of the market
You see- your equity value today is 500 m and you have 60 percent ownership of an asset
you want to buy more to lift your stake in the asset- -
Somehow you make a deal whilst the market values you onscreen at 500 m for 15 % for 15 m and it gets accepted
wtf -
either your valuation at 500 m is wrong or you ripped off the person selling you the additional 15 percent or the person selling you an additional 15 percent of the asset was stupid right!? Because if 15 percent is being sold for 15 m then 100 percent must be worth 100 m as per simple maths question
answer is no - not in markets - not always
60 percent controls the assets already
Non controlling stake has less value
Then there is the complexity of where the asset is in its lifecycle
Then there are many other reasons- why 60 percent is valued by market at 500 m and why that person buying more can get 15 percent more for just 15 m ( not 15 times 5 or 75 m being 15 percent of 500 m)
The asset may be very large in terms of measured compared to its peers- have a lower overall opex budget because of the nature of the deposit - say high grade and very low strip ratio - governments and green movements might be blindly pushing global change which requires the deposit etc etc etc
the point is in finance in markets valuations on screen and the sale of non controlling stakes often have different values and often have different values once acquired
bs- that’s not maths?!
here is an example in resent times on asx
company A makes an all cash offer for 60 percent
Of the equity in a mine to company B
and offers to also take over the debt of company b for a total of 802 m Canadian - so it lays 768 m aud in cash for the equity and takes over about 86 aud m in debt
( don’t worry about currencies as it’s actually irrelevant to the overall example)
market gets all excited and shares begin to rise in company A
the market then gets depressed when it realises that company A only took over 60 percent of the company B
What about the other 40 percent !!!!!omg it’s going to have to pay 100 s of millions of dollars to get 100 percent- it paid 854 for the first 60 percent- 768 cash for equity plus debt)
omg its going to have to pay at least 307 m ish for the 40 percent equity it doesn’t own and some debt right!!!?
guess how much the owners of the 40 percent was sold for - ?
60 m cad
802 m cad for first 60 percent equity and a little debt
and 60 m cad for the remaining 40 percent
wtf how could that be?
company had a good resource and reserve
That seems nuts
except a massive control premium was paid for the first 60 percent
the remainder ( 40 percent) was a minority stake
No one was going to buy that 40 percent- sign up for more costs and have no say - hence it was agreed that the remainder 40 percent was valued and was agreed to be sold for 60
point is valuation is not simple in markets like simple Maths-15 percent for 15 m doesn’t mean the other 60 percent is worth 60 m
anyhooooo - who was this company -Sbm
AVZ Price at posting:
16.0¢ Sentiment: Buy Disclosure: Held
