Monday, May 10, 2010

Scheme of Arrangement between Jagran Prakasan & Mid - Day

Midday has sold its print business to Jagran Prakashan. The pay off is in form of Shares of Jagran prakshan. The Ratio of Shares to be issued is 2 shares of Jagran for every 7 Shares of Mid - Day. Along with that the share holder will own shares of Mid -day which will have is Radio business & License.

There is an opportunity to be made in this deal. The shares holders of Miday will get 2 shares of Jagran for every 7 shares along with shareholding in midday. The residual value of Midday after demerger of it Print business should be between 8 - 10 Rs. It is worthy to buy midday at this price for a better gain.

The valuation of the deal is as follows

CMP of Mid day             30.35        cost of 7sh   = 212.45
CMP of Jagran              111.40        cost of 2sh   = 222.80

Net pay off                                                              -10.80

Residual value of Midday   8.00         Price of 7sh = -56.00   

Total Pay off                                                            -66.80

It means if we buy Mid day today , the net payoff is Rs 66.80 if we value residual share of Miday at Rs 8/-.

If you are bullish on jagran buy Mid-day. Also there is a natural hedge in case of fall in price of Jagran.

The Caveats to this opportunity are
a) The Deal may take up to 6 months to conclude because of getting different approvals from government agencies.
b) There is a risk that price of Jagran will fall, as well as opportunity that it will go up.
c) Radio business of Midday is loss making and it requires huge capex.