In relation to my last PHY post, I'd like to make a minor clarifaction. At the present time, PHY's 15 potential bidders have only completed *preliminary* due diligence. This basically entails signing a confidentiality agreement and having a series of individual meetings with the MD and other senior management to discuss the details of the company. (These discussions took place through Dec and must have gone extremely well-- hence the high number of potential bidders). Obviously, potential suitors wont be invited to complete full due diligence until after they have submitted bids that PHY takes to be realistic.
Because of the unusually large number of potential bidders, PHY's strategy at this stage is to encourage a bidding war. To this end, PHY management have purposely not commissioned an independant valuation of the company as they feel that this may place a premature upper limit on the potential sale price.
While analysts consider bids in the range of $4.50-$6 to be realistic, should a bidding war break out, there remains a possibility of bids above this range.
The key to PHY's valuation at this stage is 1) projecting the value of carbon credits in 2008 on the European/Canadian/Japanese market or (possibly) global market (which would include the US and Aust), and 2), projecting the number of carbon credits PHY's pipeline projects are likely to generate by 2008. (I'll explain why 2008 is so important in a later post).
The expectation over the next 8 weeks is that by the end of Jan or early Feb perhaps 8-10 of the present 15 potential bidders will submit indicative bids. The companies that PHY takes to have submitted attractive bids will then be allowed to complete full due diligence through Feb. If only one bidder emerges by the end of Feb, then the sale process will move to completion. Most likely, however, 3 or 4 potential suitors will remain by the end of Feb, which creates the climate for a bidding war through March.
IMO PHY will prove to be a profitable stock to hold over the next 8-12 weeks.
