Friday, February 12, 2010

ALERT: Skillsoft shareholders about to be robbed....(SKIL)




I just bought shares of Skillsoft (SKIL) a couple minutes ago, as today's announced giveaway to LBO buyers CANNOT go through at this price.

Outrageousness like this usually happens only when management owns a third of the stock and wants a liquidity event at any price. In this case, the company's largest stockholder is Colombia Wanger Asset Management. They own 21.1million shares, or like 21% of the entire company! In no way are they doing their fiduciary duty as asset managers if they agree to this take-under.

By my calculations, Free Cash Flow per share was 94cents in 2008, making this a Free Cash Flow Yield of 9%. Free Cash Flow per share in 2009 and 2010 will not be much higher than these figures, but even a couple extra pennies gets us to nearly a 10% Free Cash Flow Yield, and that is BEFORE the acquirer strips out costs to make this yield even juicier. With the leverage involved, this deal can work at a significantly higher price.

Shareholders will demand this deal values the company higher - I estimate $12.50 or higher versus the current price of $10.80, which is why I bought shares. I would NOT buy shares in this situation if I didn't think they were a good deal in the absence of a buyout. This is one of the (slightly) riskier trades I've suggested, but I see us making 15% in under a month, with the key being more upside than downside risk...

Copyright 2010 AlphaNinja

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