yet another try to calculate beppa value

The good news is calculating all of these BBI deal variants is teaching me an enormous amount about how to value a deal pre-money and post-money. The bad news is apparently I needed the practice. :) I think I finally have numbers here that are correct to the original Street Talk article in afr.com.

First, the new investor is valuing BBI at $7B. I had originally estimated $7.124B just taking a midpoint between an estimate Melua had in a spreadsheet he shared long ago and a more pessimistic value I had created. It looks like the investor is in the same ballpark.

Subtract debt of $903M for 1/2 of DBCT (which we are selling 50% of to investor) and $771M for hybrids)

Add cash of $260M (year end 2009 report) + $300M (from 50% DBCT sale)

We end up with a capitalization of $134M.

Investor puts in $1.2B to take 90% of the company (up to $600M of that might come from a rights offer...TBD).

At a 5 to 1 conversion for hybrids, BBI share value will be 2 cents. BEPPA equivalent value is 10.4 cents.

At a 10 to 1 conversion for hybrids, BBI share value will be 1.3 cents. BEPPA equivalent value is 13 cents.

At a 20 to 1 conversion for hybrids, BBI share value will be 0.7 cents. BEPPA equivalent value is 14.9 cents.

Assuming 30% chance of Administration (BEPPA gets $0), 30% chance of 5-to-1, 30% chance of 10-to-1, and 10% chance of 20-to-1, the risk adjusted value of BEPPA is 8.5 cents. So BEPPA looks more than fully valued for the deal. Adjust the risks according to your taste. That's simple math.

Just for you bulls out there, I adjusted percentages to 20% chance of Administration, 10% chance of 5-to-1 conversion, 10% chance of 10-to-1 conversion, and 60% chance of 20-to-1 conversion, which strongly favors BEPPA. In this scenario the risk adjusted BEPPA price is 11.3 cents. Again, the current share price fully absorbs an extremely bullish view of all the likely outcomes.

Finally, I foolishly thought pre and post money share prices would differ, and by definition they do not. So there is no extra bonus there for getting a rights issue at the deal price. You would buy in if you thought BBI had better long term prospects under the deal. Some you (like Nathan) seem to be thinking BBI is dead going forward even if they get the $1.2B. I would want to see that proven with some numbers.