Break Up Value

[ChuckGeb]

You have begun using the term "break up value". By that do you mean the estimated price a strategic buyer would pay for the company to acquire the assets in place (normally higher then FMV) or the value of the sum of the parts if sold off in liquidation (normally less than FMV due to little to no value on goodwill)? Or something else?

[dan_s]

My Fair Value Estimate for each company is what I believe is a rough estimate of what I think each companies takeover price or break-up value is today. Over the years, when our portfolio companies have been taken over it has been very close to my FVE. For example, ROSE was recently acquired by Noble at a price within $1 of my FVE.

Another way to think of it is my FVE is a price at which the board of the target company must take the offer seriously.

[ChuckGeb]

What is the First Call estimate of value? Is it equivalent to your FV or is it FMV?

[dan_s]

The First Call "Price Target" for each company, which can be viewed on Yahoo Finance, is the average price target of all analysts' reports submitted to Reuters. One thing to keep in mind is that a lot of those reports are not current. On Yahoo Finance if you click on "Analyst Estimates" you can see the wide range of EPS forecasts. Each firm has their own commodity price deck and the analysts who work there must assume those prices in all of the forecast models. During periods of wild moves in oil & gas prices, that leads to very big differences between what is reported to Reuters.

The best way to use the First Call Price Targets is to track the movement, especially in the weeks right after quarterly results come out when a lot of analysts are updating their forecast models. I put them on the Sweet 16 spreadsheet which is updated on our website each weekend.