Been There,

You're right that the stub has value, and valuing it at it's initial cash value is reasonable.

I've been personally reluctant to give it even that much value because of earlier experience with US taxes, which have in the past imposed a tax based on treating the stub as a dividend, and basing the dividend value on the initial trading level. Often the shares don't hit our brokerage account for a couple of weeks after that, resulting in frequent overvaluation of the stub for a short period. (In one case I paid ordinary income tax rates on a official value over five times the subsequent "seasoned" value, resulting in a negative after-tax value for the stub by the time it could be sold.) So I'm wary as a taxable investor about how stubs get valued.

The second reason to be reluctant to value the stub at much is that no Contract has been announced for David Palmer, the stub has no exposure to all the acreage in the district that Dave worked so hard to acquire, and will have to bear the costs of the ROF properties at least for awhile (eventually they could be pretty valuable, but no one pays today for pie in the sky - ask the other junior exploration companies.)

But you are right, the stub needs to be included in the value, and on that basis Probe trades at a discount not a premium. Still the same logic applies to the leveraged return to shorting Goldcorp and buying Probe. With your math revisions, aggressive money gets an arbitrage profit plus any upside from a higher bid.

There is one more possibility that could develop under the right circumstances. Let's say Probe did get a higher bid from a new source, such as one of the companies with an existing Confidentiality Agreement with them. I can't believe the Goldcorp shares are going to incorporate much value for the district's exploration potential. One way to raise their own bid would be to increase the value of the stub. What would it be worth if, say, New Probe got a 40% jv interest earnout in a big block of the new property (excluding anything in areas with established gold resources)? And Goldcorp kept a 40% interest in New Probe, thereby endorsing Dave and his team?

I'm glad you forced me to think more about the stub. A revised New Probe deal might not have a high probability, but it could have a high payoff if it happens.

On your last point, a three week horizon and out: I agree wholeheartedly because if there is no new bidder and we vote it down, the liquidity will vanish and the stock will drop. Seems like risking cutting off our noses to spite our faces to stay and vote against...

NSS