On Nov. 8, Lemonade (LMND 8.23%) announced that it would be acquiring Metromile (MILE) in an all-stock transaction that's expected to close in the first half of 2022. In this segment of Backstage Pass, recorded on Nov. 12, Fool contributors Toby Bordelon and Jon Quast respond to a member's question about the terms of the upcoming deal.
10 stocks we like better than Lemonade, Inc.
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
They just revealed what they believe are the ten best stocks for investors to buy right now... and Lemonade, Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of November 10, 2021
Toby Bordelon: Another quick question, [from] "Tax Guy": What are my thoughts on Lemonade's deal being in stock rather than cash? He's concerned about dilution. We talked about this in the M&A show today, Lemonade buying Metromile.
It's going to be an all-stock deal. I'm actually not that concerned about it. I think part of it is they just don't want to spend the cash, although it looks like they do have it on their balance sheet if they really wanted to, but they are trying to be more conservative as they move into more business lines.
I think they want to keep that cash because they're trying to get more into auto insurance, and they want to have that to invest in Metromile. It's going to push that out and make that auto offering more robust, as quickly as they can get that to market. Lemonade is, I look at this real quickly...
Jon Quast: I got a $4 billion market cap.
Toby Bordelon: $4 billion, thank you, Jon. $4 billion market cap. When you take out the cash on the balance sheet for Metromile, you're looking at about around $200 million in purchase price. Now, $500 million nominally, which is what the stock would equate to. It's not that bad. I think that's fine. We talking about dilution of 5% of the bottom line if you take up the cash, a little over 10% if you just include the total nominal value. I think they can do that and it's not going to be that bad.
The thing is, we discussed this in more detail, but they look like they're getting a pretty good deal. When you look at what they're buying Metromile for, it looks like it's a really good deal, and they can really make use of this technology. So I have not many concerns about that.
