CTC,
I wish what you're saying is true. I've seen multiple references to a one-time write-off of $225M (assuming that MMTM trades at 25% of book). The financial math is as follows - PSFT pays MMTM $300M (gives it cash) and gets shares which have a market value of $75M. This means a net loss of $225M on that transaction, which shows up as a one-time expense on the quarterly statement. PSFT then distributes those MMTM shares to the holders of PSFT stock as a dividend, which leads to an unfortunate taxable event for us shareholders. Also, by not holding any of those MMTM voting shares itself, PSFT does not have to consolidate MMTM's statements with their own.
Also, please read the documents that PSFT has - they clearly state that PSFT has the first right of refusal for all technology development done by MMTM. That is why this is no more than a financial arrangement to "pre-expense R&D" worth $300MM in one shot, make it look like an "extra-ordinary item/write-off", and not incur it over the following two years, or so.
CTC, one of the things I've admired about you over the past few years (even before you became "The Cat":), is that you've always been wary of "underhanded" financial doings. In fact, I agree with your philosophies on those points. I just see this as a way to offload R&D expenses on to a separate set of books, nothing more and nothing less. What that means is that, say the old PSFT would have had 20 cents of R&D expenses in a given quarter and the net income would have been 5 cents. They can now claim that PSFT had a net income of 25 cents and MMTM had a net loss of 20 cents (the division could be done arbitrarily each quarter, based on what PSFT management wants to show as PSFT's internal R&D expenses v/s R&D done by MMTM). You and I will have to now read two financial statements and consolidate them ourselves to see how PSFT is doing. And I think that that is a shame.
Still long, but wondering...
- Brian. |
