Based upon these figures, I would probably anticipate somewhere around $2.50-$3.00 in future distributions. Apparently I was not the only one who was taken a bit back by the discrepancy between some simple arithmetic, and management's more advanced financial accounting...
Eric Weinstein of Chancellor Capital spent quite a bit of time on the CC questioning the various numbers. In my opinion, management did not seem too concerned about shareholder wealth (the warning signs were there earlier, I did not accurately discount this).
They do have some contingencies to deal with and it sounded like that is why management is limiting the initial distribution. Maybe not so nefarious but hard to tell. I think a little over 3 a share is probably a best case scenario. See here for a detailed valuation- http://myvalueidea.blogspot.com/
ReplyDeleteBut what did concern me was that it sounded like they aren't going to liquidate the company. So management could decide to hang on to cash to keep the company going (i.e. pay themselves). The CEO and CFO do not have large ownership stakes (under 4% each) which is very worrying in these types of situations. I can understand why they don't want to give a best case scenario for the distribution. But I am more concerned that they aren't incentivized enough to return as much as possible to shareholders. On the other hand it is hard to see not coming away with at least the current market cap so seems downside is fairly protected.
Are you are a longtime shareholder? What warning signs about management are you referring to?
Contingency reserve is normal, and is normally conservative...
ReplyDeleteThe nefarious part is the cash burn the company is incurring before it liquidates... definitely one of the worse ones i've come across...
the company did sound like they were going to liquidate, ie "return all proceeds to shareholders"... potentially they could also pull off one of those reverse merger IPO's with some chinese companies (scams) to get monetize the public listing for the benefit of current shareholders, after returning our money of course...
i should have been more wary of management after looking at value destruction over the years, and then the fact that they were selling off all the subs to management-related entities... probably for a bargain price
however, at current prices, its a pretty good buy imo
Thanks for the comment...here is the language of the CEO
ReplyDelete"
As I mentioned on last quarter's call and we've stated in various releases announcing sales transactions, the Board currently intends to return the net proceeds from these four transactions to our shareholders after satisfying existing contractual and banking obligations and establishing appropriate reserves for contingencies and **ongoing operating costs**." (My emphasis).
They have said they will return net proceeds from the sales but not actually liquidate, i.e. close down the company as a going concern. So they could decide to keep whatever they felt was needed to keep the company going and still call whatever is left net proceeds. That is why I think alignment of interests is crucial for the upside here and may be lacking. But again downside isn't huge as it is hard to see how the initial distribution will be less than 23 mill.