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Strategies & Market Trends : Value Investing

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To: Bob Rudd who wrote (13662)	1/12/2002 2:47:31 PM
From: jeffbas	Read Replies (3) of 78958

Bob, as far as NOL's go, the company which generated them could use them all tomorrow if they had the earnings, although corporate minimum tax might possibly get in the way. It is exactly to step in the way of a rich acquirer doing the same thing that some complicated rules were developed. I believe that you can't deduct NOL's of more than you paid for a company. I am also certain that the gross amount can't be taken at an annual rate which exceeds some (low) tax exempt interest rate on the initial amount. Thus you are probably talking of their value being spread out over some 25 years now. I also do not know how the expiration dates of the original NOL's fit into the picture, but might cut off the ability of the acquirer to take the later ones. For example, if you have a company with $250M NOL's that sells out for $100M, if I am right they can take NOL's of perhaps $4 million over the next 25 years (perhaps cut off earlier). That saves about $1.4M taxes per year. If you pick a discount rate appropriate to investing in the crummy company that generated them, like 20-30%, you can see that in my example they would not be worth over $10 million, a far cry from the $250M NOL's to start with.

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