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Strategies & Market Trends : Value Investing
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To: blankmind who wrote (13631)1/8/2002 11:57:07 AM
From: jeffbas  Read Replies (3) of 78530
 
Since you have mentioned SOFN so many times, I decided to look at it. I think you will be lucky if you get $3.

1. Realistically, how much would you pay for a business currently doing less than $4M sales and losing 4 times that amount. It isn't worth much. The growth you refer to is entirely speculative, since they are spending resources far out of line with sales. Almost any business could show growth if they give the product away or throw huge resources at developing prospects.

2. The NOL's have small practical CURRENT (discounted) value, since the rules as to the speed with which they can be taken mean that they have to be taken evenly over 20+ years. Furthermore, I recall (but am not sure) that the amount that an acquirer can take is limited to no more than the purchase price for the company. The announcement that they are no longer concentrating on selling to a company that can use them up proves this point of view.

3. By the time a deal gets done, another quarter or two will have passed and a lot of severance may have to be paid. Overhead costs so out of line with sales means that there are a lot of people an acquirer won't want on whom severance will have to be paid. I would not be surprised if the company has no more than around $60M cash at closing if someone buys them soon - and maybe $50M if they get no offers and end up liquidating.

In sum, what should one pay for a business without much value plus maybe $60M cash? $1.75 is not a big enough discount for me.
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