<<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. >>
1. The long holders will not be vindicated. Only GIFS stock price rising will vindicate the longs. Do you think you will all feel better if GIFS comes through with some audit and the price doesn't stay up? (I'm sure it will get a bounce just because people expect it to, but can GIFS SUSTAIN any rally).
2. I can't seem to get you to agree with me about the book value vs. earnings argument (that's ok) so I will try another angle. You are basically saying that when you take away the CD that the other $15 million is for the 'company'. They could only get $15 million? Remember that GIFS has said that most all of their income comes from CRIC. For '96 15.75/share * 21 mill outstanding = $3.3 million. Let's round that off to $3 million (We'll leave $300,000 for the other subs). So CRIC generates $3 million per year AFTER TAXES and they only sold it for $15 million? They sold it for a P.E. of 5 times TRAILING earnings? The way that GIFS has been bragging about their 500% increase in earnings from '95 to '96, would it be unreasonable to think that CRIC could bring in $5 million (a paltry 67% increase) in '97? If it could bring in $5 million in '97 then why sell it for a paltry $15 million? And have to wait for it in payments to boot? It would seem like even if CRIC generated $3 million after tax (zero growth) for 5 years that would cover the $15 million, plus they would still have the company! (And the CD! Don't forget this) So in essence CRIC isn't even worth a measly $15 million because they STILL have to perform consulting services for the next 10 years! I thought that's how CRIC derived a good portion of it's revenue. Consulting services. Don't forget this fellow GIFSters. GIFS isn't gonna get the $117 million and walk away with their hand's clean. They are going to have to work for it for 10 years! Hell, if they kept the business for another 10 years at $3 million a year (NET profit) that would be $30 million! Twice the $15 million they are selling it for. And this is assuming ZERO growth!
3. All this talk about book value doesn't mean squat! Have you ever read Peter Lynch's book Beating the Street? He talks about Penn Central going bankrupt while having some enormous book value. I'm sorry I can't be more specific, but it's been a long time since I read it. At any rate he talks about book value that on the books appears to be good, but turns out to be worth a fraction of what's stated. Furthermore he cites examples of companies that had X amount of book value that wasn't nearly that much. The point he was making (and the one that I am having a hell of a time trying to make right now) was the only value of assets are what you can get for it RIGHT NOW in cold hard cash. In other words if you had to liquidate it, what could you get for it. I'll cite you a perfect example. Have any of you ever collected baseball cards? If you have you will know what I am talking about. They have a Beckett baseball card monthly price guide that lists the values of Baseball cards. It shows cards in there that list for $100 dollars. Maybe if you are lucky you can sell it for $50. This is why they call it a guide BTW. How many times have you seen something advertised in the paper as: Diamond watch - appraised at $6500. $4000/obo 555-5555. On the other hand, book value can be understated as well. People can bitch and moan about how Coke or Nike trade at high Price to Book ratios. But how much value can you place on powerful name recognition such as Coke or the Nike swoosh? It's debatable. But I can tell you that it's worth millions, possibly billions to each company. It's only a trademark, yet it's worth millions. Now do you see why book value 'aint all it's cracked up to be? The CRIC sale serves to demonstrate that some collateralized deposit on some land doesn't equate to $100 million cash in the eyes of the street. That's why GIFS had to take what they could get. Obviously they couldn't just convert this CD into cash (however it would be done) and get their $100 million. It had NOTHING to do with taxes.
4. If GIFS has $140 million in NET assets, then why do they generate such a poor return on equity? If these assets are for real, then why not liquidate them and generate $9-$10 million in interest income? Even after taxes this would be far better than the measly $3 million they earned last year.
I've got an idea. Let's take a vote:
1. GIFS sells CRIC for $75 million, pay $25 million right off the top in taxes, leaving them $50 million. This is about $2.50 a share. Then they pay a special one-time dividend of .50, leaving $40 million or $2/share in cash.
-or-
2. They complete the deal the way everybody expects.
Now we will see who the real liars on this thread are... |
