Forum Archive Index - August 2001

["Peter" <pmaiden@today.com.au>]

You are right Snoopy. The $400M-$500M goodwill that has been created 
with the merger of Data Advantage and Baycorp is the intrinsic value 
of the Baycorp 'brand'

However we do need to realise that this in the past has existed as 
the difference between Baycorp's book value and it's market 
capitalisation. In other words in the pockets of Baycorp's 
shareholders.

With Data Advantage being the acquirer of Baycorp that value is now a 
real measurable thing - Data Advantage have in essence paid for it.

No doubt the potential of the Baycorp brand will drive the success of 
the new merged organisation. 

However the future returns of Baycorp Advantage will have to show the 
cost of acquiring the Baycorp brand. The shareholders (as would 
Buffett ) of the merged company will want to see a return from 
acquiring that brand.

What the investing community has to decide is how to value the new 
merged company. I feel that Data Advantage are concerned about that.

For instance will the investing community say that it is worth  about 
(say) 50 times earnings before the new goodwill expense (as at 
present)? Or is a fair value 50 times earnings after allowing for the 
new goodwill expense. 

There is a big difference between the two when this expense is going 
to be $20M odd a year.

We cannot overlook that this $400M - $500M has moved from being a 
nebulous thing that reflected the intrinsic value of something (ie 
the Baycorp brand) to something real that has been acquired.

It will be interesting to see how all this all pans out over the next 
year or so.

Cheers

Peter

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