Midday has sold its print business to Jagran Prakashan. The pay off is in form of Shares of Jagran prakashan. 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 Midday 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 not less than 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 37.10 cost of 7sh = 259.70
CMP of Jagran 125.00 cost of 2sh = 250.00
Net pay off for 7 residual share 9.70
Residual value of Midday 10.00 Price of 7sh = 9.70
Value of Residual value of Midday(9.70 / 7) = 1.40
Net Pay off Per Share (10 - 1.40) = 8.60 (23% appreciation)
It means if we buy Mid day today , the net payoff is Rs 8.60 per share if we value residual share of Midday at Rs 10 /-. (This is the minimum price, if look at Capex - Debt, The valuation is above Rs 18 )
Also Radio stock like RBN, ENIL have moved up because of Re - Ratings. (We can expect the same for Mid day 94.30)
If you are bullish on jagran , there is more compelling reason to 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 3 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.
If we go by valuations, It is a good bet and there is a money to be made in Demerger. Also the downside is limited because Jagran Prakashan is not expected to fall substantially, New Investor have entered in stock at 118 /-