The long story short: The stock stayed propped up near the $10 mark while news of a second bid emerged, and then evaporated. As the deadline for counter-bids came and went, the stock traded down to 9.13 only to see it trade up to today’s level or so of $9.34, which still is an almost 7% discount off of Swarth’s bid of $10.
Why the discount you ask? Well, I’d give two reasons:
Transaction Risk: In his research note, Jefferies analyst George Notter pointed to a lack of detail around Swarth’s debt financing plan for the transaction. “Given macro concerns on the debt/LBO environment,” he writes, “it’s possible there may be some risk to Swarth’s anticipated debt financing plan for acquiring ECI. Credit markets are shot: Read Barry Ritholtz’s recent article for a flavor of the pain and see Phil Davis’ article on why the brokers are the new homebuilders. Repricing Risk: It may be entirely possible that the deal gets repriced. If Shaul Shani’s Swarth Group is having trouble pulling the pieces together, and in “light” of the recent Light Reading article explaining that no less than 11 firms have already passed on acquiring ECIL, it’s foreseeable that the deal gets done, just at a lower price.
And, that’s the leverage I’d be using if I were Swarth.
Disclosure: The author’s fund is long ECIL as of August 8, 2007.
ECIL 1-yr chart: