May 9, 2011 - 15:49 ? Roger MontgomeryMQR: B2; Value.able IV...

May 9, 2011 - 15:49 ? Roger Montgomery

MQR: B2; Value.able IV 2001: $2.29; Current IV: $0.17; Ten Year IV Change: -23%p.a.

PaperlinX Share Price 2001: $4.93; Now: $0.28

On 9 September 2003, PaperlinX announced that it had purchased Buhrmann Paper for $1.1 billion. In June of that year Paperlinx?s share price was $3.77.

At the time, Ian Wightwick, Managing Director of PaperlinX said: ?It is very pleasing that the hard work put in by our team undertaking due diligence has confirmed our initial view of the quality of Buhrmann?s Paper Merchanting Division business, its people and its assets. This business has great potential, and we are confident that the acquisition will deliver strong earnings per share growth for our shareholders.?

Ten days after the announcement the share price had shot up to $4.93. My Value.able Intrinsic Value estimation suggests it fell from $2.50 to $1.82! Nine hundred million was borrowed that calendar year and $150 million of capital was raised, to fund the acquisition.

For the year prior to the acquisition, PaperlinX earned $147 million. Since then profits have generally declined every year, and in 2009 PaperlinX lost $197 million and another $29 million in 2010. The share price has fallen from $4.93 to 28 cents today. Worse, there were 447.9 million shares on issue in 2003 and now there are almost 50% more.

http://www.webe.com.au/financial/share-market/are-australian-ceos-asleep-the-wheel