Rodobo (RDBO) recent acquisitions clever move

Rodobo International announced on February 5 the completion of the acquisition of three dairy companies in China through the mergers of Ewenkeqi Beixue Dairy Co, Ltd ("Ewenkeqi Beixue"), Hulunbeier Beixue Dairy Co., Ltd ("Hulunbeier Beixue"), and Hulunbeier Hailaer Beixue Dairy Factory ("Hulunbeier Hailaer Beixue"), hereinafter collectively referred to as "Beixue Group", into the their wholly owned subsidiary Tengshun Technology and Development Co., Ltd. ("Tengshun Tech"). After the acquisitions, Rodobo's daily processing capacity of raw milk is expected to increase by five folds, from the current 200 tons per day, to about 1,200 tons per day.

Pursuant to the Equity Transfer Agreements entered into on February 5, 2010, they paid RMB2,100,000 in cash and issued 10,600,000 shares of the Company's common stock (the "Common Stock") and 2,000,000 shares of Series A Preferred Stock in exchange for 100% of the equity interest in Beixue Group composed of Ewenkeqi Beixue, Hulunbeier Beixue and Hulunbeier Hailaer Beixue. Based on independent valuation reports issued by Beijing Haohai Tongfang Assets Appraisal Co., Ltd, dated as of February 4, 2010, Beixue Group has a total net asset value of over USD 30 million.

Today the details of the transactions are filed in a 8-K.

http://www.sec.gov/Archives/edgar/data/1177274/000107997310000456/rodobo_8ka.htm

A closer look to the figures. Assets more than doubled to $ 64.579.265. The book value increased from $ 1.32 to $ 1.83. They booked a gain on their purchases of $ 1.677.020. The gain on bargain purchase will be recorded as a separate component of revenues in the company's form 10-Q for the quarter ended March 31, 2010.
Pro forma combined earnings per share for the three months ended December 31, 2009 were $ 0.13 diluted. With all this in mind 2010 could be a very interesting year because efficiency measures could bring down expenses and lead to higher margins. In the beginning of this year I posted an article on seekingalpha were I talked about an EPS-growth of 30% and I accounted that it would leave us this year with an EPS of around $ 0.55. All these expectations were pre-acquisition.

The acquisitions have increased distribution channels and production capacity so my expectation is that EPS between $ 0.70 -$ 0.80 is a possibility. If they would be uplisted to a mayor exchange and retain a P/E of around 10 that would mean that there is still a lot of upside potential this year.

POSITION: LONG (ENTRY $ 2.40)