placement, page-7

Powerball,

The problem as i see it for us as PCG holders is that we're going in with a weak bargaining position and Cape know this.

For the CY2006 period, PCG earnings were 4.1cps (2.7 + 1.4), and that's the most recent yearly earnings figure we've got. Therefore, to achieve a buyout price of $1.00, PCG would have to get Cape to pay a historical NPAT of 25 times earnings, which is obviously quite a bit for a company of this nature. On forward estimates of what PCG would probably earn in FY2007, my guess is it'd be about 6cps (1.4 + about 4.5), and even then to achieve a $1.00 buyout price Cape would be paying about 17 times forward earnings. As we know, most companies are bought out using short term metrics, so on that basis i'd say Cape wouldn't be willing to pay anything more than $1.10.

The reason why you and i would be disappointed with that is because we don't care about the short-term fortunes of the company, we're concerned with what's going to be happening in 2009-2010 and beyond. I was in this stock to see it as a $3.00 stock by 2010 paying a strong dividend, but in buyouts you can't reasonably ask a company to pay a price that's based on where the stock might be in 3-4 years' time.

So at the end of the day, Cape are probably going to end up paying a price that on short-term metrics is pretty expensive, but on long-term metrics will be a bargain. They take out their main (and far superior) competitor and, for us, it's a bit of a shame but i guess that's just the way the cookie crumbles.

Cheers.