I have received questions about interpreting the ratio.   Let me use yesterday's closing price.   The merger probability is derived from a two scenario test, merger closure or merger non closure (there is also a competing offer scenario in reality).    Let's use a closing DYN price of $46.20 yesterday (note I had a typo), at the exchange ratio, (not taking into account timing and dividends), this yields a merged ENE price of $12.40 ($46.20 * .2685).   ENE closed at $10.00 yesterday.   Thus if the market thought there was complete certainty of merger, the prices would converge at $12.40.

Now comes the artful part, the non merger ENE price.    I included another tab (Merger) to sensitize this.  Say we pick an ENE price with no merger of $4.00.   Looking at a deterministic probability, one can look at the distance (difference) in dollars to calculate the probability.  For instance:

ENE merged           12.40
ENE close 14-Nov   10.00
ENE no merger         4.00

Probability of merger = (1-((12.40-10.00) / (12.40 - 4.00))) or 71.4%.   

Said another way, there is a 71.4% chance of being worth $12.40 and a 28.6% chance of being worth $4.00, which yields a weighted price of $10.00  ($12.40 * 71.4%)+($4.00 * 28.6%).

I also included a $1 distressed ENE price and a $7 previously observed low end ENE price as scenarios.


Regards,


Michael