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NewMarket Technology (NMKT.OB) (articles) traded a whopping 10.7 million shares yesterday on news that it is in buyout/merger talks with Action Products International (OTC:APII) that will value NewMarket shares at a minimum of $.50:

NewMarket Technology, Inc., (OTC BB:NMKT.OB - News) and Action Products International, Inc., (NASDAQ:APII - News) today announced executing a non-binding letter of intent (LOI) regarding the possible acquisition of all NewMarket outstanding common stock by Action Products in exchange for APII common stock. The letter of intent includes specific consideration for the respective shareholders of each Company.

Consideration for NewMarket Shareholders

NewMarket common stock would be valued in the transaction at not less than $0.50 per share for a total transaction value to NewMarket shareholders of approximately $100 million. The $0.50 per share purchase price is a minimum and not a constraint to the actual valuation. The actual NewMarket common stock purchase price could be higher.

Before you get too excited, run the numbers. It doesn't add up. At its current market price of $.328, NewMarket has a market capitalization of $50.53M (figures per Yahoo!). At $.50, NewMarket would have a market capitalization of more than $75M. APII has a market capitalization of only $11.92M as of yesterday's close. The company emphasizes that this is an all stock deal.

Explain this to me: if 100% of APII is worth $11.92 million, how can something less than 100% (because existing APII shareholders still get a slice of the pie) be worth more than $75 million?

What is the strategic fit between a technology integrator and a maker of children's toys?

Even if there was a strategic fit, how could NewMarket trust any financials coming out of APII since its CFO just resigned?

I welcome any explanation from the company which I will reprint here.

DISCLOSURE: I am long NMKT.OB. I have no position in APII. Not a recommendation to buy or sell any security. For informational and educational purposes only.

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Source: NewMarket's Strange, Strange Merger Announcement