Mr. Pink's Picks: selected event-driven value investments Message Board

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Strategies & Market Trends : Mr. Pink's Picks: selected event-driven value investments

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To: Peter V who wrote (2849)	9/11/1998 7:20:00 AM
From: Mr. Pink	Read Replies (6) of 18998

THE TNSI BATTLE BEGINS: Last night TNSI announced a transaction involving the purchase of ATT's business for $64MM and the settlement of litigation with ATT. On the surface, the announcement appears favorable. It could add .50 cents of earnings per share or more to TNSI's bottom line in 1999 and greatly expands TNSI's business. Upon further inspection, it is clear however that the transaction is yet another attempt by TNSI to buy customers, manufacture temporary earnings and to manipulate investors. Furthermore, the humongous debt load that the company will take on could ultimately result in the bankruptcy of the company. Here are the ugly facts: TNSI paid an eye popping $64 mm and will spend at least another $5MM in capital expenditures for ATT's business. They are financing the acquisition with debt and say that they believe they will refinance the debt with a subsequent stock offering. The problem is the average life of the contracts purchased is only 18 months!! Many of the customers acquired are existing TNSI clients and deal with as many as 5 network service providers. It is very easy to switch as evidenced by the fact that TNSI is switching ATT's entire customer base onto its system within 6 months. Free cash flow from the puchased business should be less than $15mm over the life of the contracts. At that point, the customers can either easily switch providers or severely squeeze TNSI's margins. In either case, TNSI might not be able to service its HUGE DEBT LOAD which has a mere 3 year life. The possibility of doing an IPO is about nill these days so the debt might bankrupt them, just like SRCM, another favorite Mr. Pink Turd. In any event the underlying business is not growing and at most the business should command a 10--12 X multiple. Guess what TNSI paid for ATT's business--10X net income of 6MM!!! So even if you believe TNSI's assertions about its earnings prospects, at most the stock should trade for 10--12X earnings of 1.50 or $15.00--$18.00. However, Mr. Pink believes earnings are overstated as the company will incurr 40MM of GOODWILL. Even though the contracts purchased expire within 2 years, the company is spreading goodwill amortization over 20 years to cook the books and make earnings appear bigger than they are. The auditors have blessed this chicanery, but the SEC has not yet blessed the aggressive accounting technique. Mr. Pink reiterates His rating of T3/F Triple Turd with Flies with a long term price target of $5.00 per share. By the way guess who asks the first leading question on the company's conference call? The Hambrect analyst who is grovelling for a fat banking fee on a dilutive follow up stock offering. All opinions are Mr. Pink's. Do your own due diligence on this Turd Mr. Pink

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