The merger, if it goes through, between Lorillard (LO) and Reynolds American (RAI) offers investors great value.
For shareholders of Lorillard, they are set to receive $68.88 in the buyout. $50.50 of it is in cash and the rest is made up of approximately .29 shares of RAI for every share of LO. In this scenario, you are essentially getting .29 shares of RAI for $18.38. That equates to a price per share of $63.37 for Reynolds, and that is still under its current share price of $64.66 as of 11/17/2014.
Also, while that is not an extreme value anymore, you are getting $68.88 in value for LO shares, which trade today at $61.98 per share. That still is about $7 upside from here, and that is about a 10% return which could happen in short order. That is in addition to the dividend that LO pays.
All in all, I recommend LO here.
Disclosure, I am long LO and RAI.
For shareholders of Lorillard, they are set to receive $68.88 in the buyout. $50.50 of it is in cash and the rest is made up of approximately .29 shares of RAI for every share of LO. In this scenario, you are essentially getting .29 shares of RAI for $18.38. That equates to a price per share of $63.37 for Reynolds, and that is still under its current share price of $64.66 as of 11/17/2014.
Also, while that is not an extreme value anymore, you are getting $68.88 in value for LO shares, which trade today at $61.98 per share. That still is about $7 upside from here, and that is about a 10% return which could happen in short order. That is in addition to the dividend that LO pays.
All in all, I recommend LO here.
Disclosure, I am long LO and RAI.
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