More Hoover's acquisition articles from RCNews.  For long time listeners (first time callers) you may remember my analysis of the statements made by the first yahoo who opposed the Hoover's acquisition.  These folks are even funnier...

1. "Gear, who owns a stake in Hoover's and is the only company he issues reports on, sees the shares at $8.80 a year from now."

So, it's the only company he follows and he owns a stake in it.  I don't see any conflict of interest he might have in calculating a fair value for Hoover's, do you?

2. "In a proxy filing with the Securities and Exchange Commission on Wednesday by Hoover's, S.G. Cowen said it used a discount rate range of 18 percent to 30 percent for Hoover's. That signifies a higher relative risk that S.G. Cowen said was based on a comparison against the estimated weighted average cost of capital (WACC) of nine similar companies."...

..."Gear contends that Hoover's WACC, an expected return calculation, is about 8.2 percent and that an average among six peer companies is about 9.7 percent." (emphasis and link were added by me)

Who in today's market is earning a 18-30% return on invested capital?  Of those who are, who can guarantee it will perpetuate into the future for even a year?  What this statement is saying is that the analyst who set the acquisition price went out, looked at similiar companies, and priced Hoover's at a range even with the current market.  And the current market is in line to expect an 18-30% return if the company grows at a compounded rate of 8%!  Now the opposition is saying that's too conservative!  Well, I guess if I thought the purchase price was too high it's only natural that I think that the opposing higher price would be exorbitant as well. 

I'm guessing the first point of skew of the numbers may have to do with the fact that Cowen and Hoover's used the average WACC from 9 companies in their calculations and Gear used the average WACC from 6.  Of course I think the concept of saying that just because other companies are forecasting a certain growth that you should too is a little absurd.  If everyone's asset allocation skill we're equal we would all have the same financial results over time and we know that doesn't happen.

 

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