The price implies a McDep Ratio of 1.04 at STO stock price immediately before the deal or 1.01 at STO stock price after the deal. Because NHY stock was valued at a McDep Ratio of 0.83 before the deal, the purchase price represents an unlevered premium of 22-25% for oil properties that accounted for about 63% of the value of NHY.
After the deal closing expected in the third quarter of 2007, owners of NHY would have STO stock worth $23 at today’s stock market price and a stub representing ownership in the world’s third largest aluminum company worth $6 a share or more at today’s stock market price. The deal seems to validate McDep analysis and it gives investors an opportunity to realize a gain if they wish to maintain the same portfolio representation in NHY as before the announcement of the pending transaction.
Originally Written on December 19, 2006