This is a re-post of my earlier Congress Analysis. I think based on some of the recent questions, some of you may have missed it or are unaware of the conceptual framework I put together for the sale. I will elaborate more a little later tonight or tomorrow night.
Again, this is verbatin from my post earlier in February when the CRIC sale was first announced. If you read Congress Sale Analysis Part II, you may want to stop here.
As usual, this is only my opinion based on what I currently know. The actual results and interpretations may vary substantially based on actual data not in my possession.
The present value analysis I did in my earlier analysis is incorrect. Congress did sell for $115 million and that amount does not include any interest. The PV analysis I presented assumed the $115 million included interest. Additionally, I assumed a very low interest in my analysis because so much income was hitting the bottom line, I
figured the majority of the $115 million was in a form of deferred revenue via consulting contracts. Earlier, I raised the question of why to sell a $100 million CD (or whatever) for a PV of around $80 mill or so. Now I think I can answer all questions relating to interest, EPS, the gain on the sub and the $100 million CD.
Congress sold for $115 million, excluding interest. If you look at the books, the only assets I believe will go with the sale are the infamous CD and perhaps some equipment, etc. Looking at the books, I doubt much more went with the sale, especially as the press releases stipulated the mine, etc. stayed with GIFS. This makes sense to me as GIFS probably has about $100 million basis in Congress (the CD) and
will have about a $15 million gain on the sale of the sub. If they recognize the gain over the installment method for book purposes (not being an auditor, I'm not sure if they could, even though they should be able to do it for tax purposes), that equates to about 7.5 cents per share over the next ten years, each year. Additionally, I think a gain of around $15 million is probably reasonable, but really depends on the final sales price and basis computations.
Now we have the interest portion. At a rate of 9%, my handy HP 19-B yields an annual cash flow of $17.9 million; if about $12 million relates to the principal, that gives round $6 million in interest each year on average. This makes sense: $115,000,000 X 9% =$10 mill in the first year alone, which will be part this year and part next year. In
later years, the interest will be much lower than $10 million, approaching zero. I know many of you wanted all cash, up front and in pocket. Obviously, that would have been preferred. However, for tax purposes, as Jeff mentioned, both buyer and seller wanted to defer the payments. Anyway, an average of $6 mill a year in interest equates to
about 30 cents per share, on average, for the next ten years. Again, I am not entirely sure on how the whole thing is structured because I am not privy to all the information, but this is probably a decent guestimate.
I presume the remaining amounts to hit EPS are from the consulting contracts,probably to the tune of around 10-20 cents per share per year on ave rage. If you add up the above, I get to the EPS number the company cited in their press release. Of course, the numbers are merely estimates. The gain, interest rate and consulting contracts are all contingent upon how the final version of the deal is structured.
I'm venturing here, but this will be the litmus test audit for the company. Few believe the company has a $100 million anything. Congress may be 1/2 of GIFS, yet they are the majority of the assets and that CD is basically the $100 million question mark.
If the deal goes through and the purchasers' auditors agree with Congress' books, the long holders will be vindicated. It looks like GIFS sold the company and basically financed the $100 million CD for the purchasers. I highly doubt Congress is worth $115 million without the infamous CD. Because of the international flavor of both GIFs
and this deal, I'm glad to see international auditors do the due diligence on the purchase.
I will expand upon the above once I have the time. I have a few more tidbits to add, but figured I should re-establish the basis for my analysis.
Regards, MTM
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