A few minutes ago, Crane Co. (CR) announced it would purchase RF microwave company Merrimac Industries (MRM) for $52million or $16 per share in cash, a nice juicy 40% premium to the closing price of 11.44.
Crane said the deal would be slightly dilutive to earnings in 2010, but the huge depreciation charges embedded in Marrimac's numbers suggest that actual Free Cash Flow will be huge.
I estimate that Merrimac will do 2.00 per share in Free Cash Flow this year, for a Free Cash Flow Yield (FCFY) of about 12.5%. That's a nice use of cash for Crane, and the premium is a great windfall for Merrimac shareholders. I call the deal fair all around, because a company of Merrimac's tiny size and with their volatile results should not command a FCFY% much lower than this takeout price implies.