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PGN Overpays For Prospector

|Includes: Pinnacle Foods (PF)

As a shareholder of PGN I'm disappointed with management's decision to pay such a high price for Prospector relative to it's own under-valued stock. Based on the numbers in Prospector's Q3 report here: www.prospectoroffshoredrilling.com/Uploa...

and PGN's presentation here:

www.paragonoffshore.com/investors-relati...

It appears that PGN is taking on total debt of $547 million and they get $85 million in 2015 EBITDA run rate for it so EV/EBITDA = 6.4. This probably translates to about .26/share in incremental EPS (the P/E on purchase price is > 23). In contrast at today's price PGN could buy ALL of its outstanding shares for $422 million and I estimate its own EV/EBITDA multiple at 3.8. If they had used the amount they borrowed on their credit line to buy back their own stock (even at today's higher price) the accretion for 2015 would be about .62/share - more than double what they'll get from this deal.

Disclosure: The author is long PGN.