Post Cereals(POST) began trading today on a when issued basis. Currently, it’s settled in around $26.50 with a range of $22.75 to $27.50. But what is it actually worth?
One share of Post stock will be distributed on February 3 to for every 2 shares owned of Ralcorp(RAH) as of January 30, so those who buy Ralcorp today are still getting the spin. The IRS has ruled that the distribution will be tax-free to shareholders.
The company will distribute approximately 27.6 million shares and keep up to 6.9 million shares for itself. These 34.5 million shares represent a market cap of $914 million at $26.50 per share. Post will be quite leveraged, as Ralcorp is burdening it with $775 million in new bonds, and pulling $900 million in cash out of the business, which Ralcorp will use to retire its own debt and buy back stock.
Last week, Ralcorp released additional financial information and projections regarding Post. The company projects that in 2012, it will generate $205 million to $225 million of what the company calls “Adjusted EBITDA” we view this as a poor measure of the company’s health given the heavy debt load it will face. In addition, this number does not include significant expenses associated with becoming a stand alone public company, and it assumes sales growth that may be unrealistic. We believe the company’s net income will be somewhere in the $20-$40 million range for the year, making it difficult to justify purchasing at the current price. If the company can actually increase share and approach the top end of our range, we might expect strong profit growth if the company can begin to pay down debt, but for now, we think this is to be avoided at the current price. Ralcorp, with its improved balance sheet, may be a better choice, but we’ll leave that discussion for a future post.
Disclosure: The author holds no position in any stock mentioned.
- Ralcorp Announces A Few More Details On Post Spinoff (stockspinoffs.com)
- Ralcorp Buys Post, 4 Years Later Spins It Off, Forgets To Admit Failure (stockspinoffs.com)
- Ralcorp Sets Dates, Ratio For Post Spin (stockspinoffs.com)
- Ralcorp Still Posting Post Spin At End Of January, Announces New Boards Of Directors (stockspinoffs.com)
- Ralcorp Outlines Post Cereals Spinoff (dealbook.nytimes.com)