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Technology Stocks : PRMO - Premenos
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To: Edward Collins who wrote (143)3/28/1997 2:06:00 AM
From: Michael Burry   of 240
 
Re: PRMO's repurchase step by step

When a company has a lot of cash, it can do one of several things:
1) Re-invest in capital -- not necessary as CEO stated research and
development is not essential to the business plan
2) Increase dividend -- not applicable
3) Repurchase bonds or pay back debt -- not applicable
4) Hoard the cash
Increases shareholder value by:
1)increased earnings from investment in marketable securities
2)anticipation of attractive uses of the cash
3)increase visibility of company as the cash attracts attention;
this can lead to buyout offers, which the company may not want.
5) To reduce the chance of a buyout, the company can buy back its
own stock and not retire it but keep it. If the company retires
it, the buyback as an anti-hostile takeover tool is limited to the
anti-dilutive effects. However, if the company holds on to the stock,
it receives the 100% of the additional voting power.

IMO, PRMO is aware that it is a takeover candidate and is attempting
to shore up its 55% ownership of the stock. A 1 million share purchase
would give it a 63.9% interest while still keeping it's cash/share
over $4/share (assuming acquisitions are at prices less than $7/sh).

This action also indicates the company's belief that it does not
need the cash for either immediate or near future continuation of
operations. While the share price is telling us they are now
cash flow negative, we could have guessed they have more than enough
cash to sustain operations for quite a while.

Thus, the financial strength combined with the major voting interest
held by the corporation (assuming management would cast its shares
against a takeover) will deter takeover bids despite the cash hoard.

This is gives management time to work its plan without looking over
its shoulder. Management are big shareholders, and presumably would
want to do what is best for the stock price. Is it necessarily in the best interests of shareholders? Is management picking job security over immediate cash? Or is it giving the company's future a vote of confidence? Comments welcome.

note: I am ignoring the products and the question of who would be
a potential suitor in order to analyze these actions in a pure manner

Mike
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