JamesM1809

American Oriental Investors Unimpressed by Acquisition News

Let me quibble with the math on the acquisition.

$550 sales x 6% (more than 5%) margin (pre-tax) = $33 million pre tax profits
Less 25% tax rate = $24.75 after tax profit (no corporate debt assumed)
Less $3.6 million after tax to pay for the convertible notes = $21.2 profit to AOB
$21.2/$110 purchase price = 19% rate of return.

Of course, this is before any synergies with the distribution of AOB's products, which should be huge, and outweigh any direct value of the distribution business itself.

Finally, the ability of AOB to now add Rx products for metro hospitals and pharmacies, enables AOB to pay premium prices to buy the best Rx products now. This deal makes AOB a superior acquiror of drugs, because they have the distribution system IN PLACE to sell metro or rural.

Fabulous strategy.