A good post of the current situation, However I think we need to lay the blame where it belongs with GT's management. Here's my take on what management is not admitting really happened.
In your synopsis you state that GT met or exceeded analysts earnings expectations since the meltdown and that the royalties issue is silliness.
GT's management accomplished this only by borrowing $40 million and engaging in some aggressive accounting, which delayed the proper expensing of a portion the 87.5 million in R&D (pre-paid royalties) cost currently on the books. By themselves these facts weren't that bad earlier this year and things looked like they would work out ok for management. GT had Unreal, Abe, and T/A going into the holiday season and figured the big sales would provide profits to properly expense R&D and pay down the debt. Unfortunately management didn't realize the full monetary extent of the "Garsky fiasco" and Unreal was falling behind schedule. GT's management knew the poop had hit the fan and they needed to come up with a plan to deal with part or all of the $87.5 mil. The MPRS deal was like manna from heaven. Not only would they be able to hide the losses from the Garsky fiasco in merger expense and related write offs, they'd also be able to take a charge so EPS wouldn't matter, and they'd get a full catalog of titles to boot. The only downside was they had no cash, so it had to be a stock only deal. This requirement predicated a large premium be paid so MPRS would take the deal. Management had weighed the dilution factor, and things would have been ok except for 2 events. Unreal was delayed until 98 and they vaguely alluded to expensing a yet undetermined portion of the $87.5 million in PPR's in the 3Q report. Why MPRS blew off the deal probably had more to do with egos then looking out for shareholders. There's no scenario that would have hurt both companies' shareholders more than what came to pass. Even with dilution MPRS's shareholders converted GT shares would have been worth more than $2. GT shareholders might have seen $5.25 at worst, and when you consider that GT hit that today, you realize this company has become a pyramid scheme and everyone's running for the doors.
All this said management's "not watchin the store (re."The Garsky fiasco")", and aggressive accounting is now coming home to roost. The company needs to expense a good portion the $87.5 million this quarter to satisfy "the street". Unfortunately they also must take the charge they postponed for the SingleTrac acquisition. I don't expect much help from T/A either, maybe about $4-5 million gross on Total Annihilation (83,900 units sold). (Sales figures are courtesy of PC Data, and represent approximately 70% of the domestic retail market).Re. PC Gamer site article.
Like you I too have tried to maintain my optimism with regard to GT. However, it seems like the water is up to the thwarts on this boat, and instead of bailing and patching the leaks, management is exhibiting total denial, and claiming a little water never hurt anyone (We're shareholders too, IR's response). We haven't seen a responsible press release giving shareholders guidance regarding the royalty issue or earnings expectations. When given no information people become nervous and panic. It's the CEO's job to deal with these issues and all Chaimowicz has been doing is babbling how G.o.D. will never make it. Maybe lawyers are the only winners in shareholder lawsuits, but right now considering my losses in this piece of shit stock; I'm signing on. I might never get a dime but maybe it will prompt the SEC to look into this stock's management. I've sold my position and I hope you realize this P.O.S. is headed for $3 or less in the near future. L.O.L.
Cheers
Bill |
