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Non-Tech : Bill Wexler's Dog Pound -- Ignore unavailable to you. Want to Upgrade?

To: Marconi who wrote (1721)	7/6/1999 1:52:00 PM
From: Jason Compson	Respond to of 10293

Marconi- I think you are right and would go even further. Why bother to hedge out the risk, isn't this just a great short? For example, let's look at what the earnings will be for the quarter ending June 30. If we take the portfolio (as provided in the 3/31 10K) and calculate its value based on 6/30 market values, then earnings will be a loss of $3 mm. It's hard to get too excited over that. I know that CMRC has had a nice run since 6/30 (up $45/share), but even if we include it at today's price, then earnings would be $4.6 mm. Pretty good, but why should we capitalize those earnings? They are worth what they are worth and cannot be expected to continue. After CMRC, there are only four internet companies (with a cost of $2.8 mm) that are yet to go public. Let's assume that those companies are worth 10x what WCAP paid for them and let's include CMRC at today's price, then the NAV of WCAP grows to $66 mm. But the stock is trading at a market cap in excess of $173 mm. That is just plain silly. Although I am not sure and will have to do more research, I believe that WCAP, as a 1940 Act company, must distribute over 90% of its investment income and realized capital gains. Why is this important? Well, think about how WCAP will increase its NAV. If they sell CMRC or COOL or whatever, they must either distribute the proceeds to shareholders or pay capital gains taxes. If they distribute the proceeds then there is almost no capital left for the company to invest to increase its NAV by the $100 mm necessary to justify its current stock price. If they don't distribute the gains, then they have to pay taxes, thereby cutting the government in on 1/3 of all of its existing and future gains. Distributing the gains to shareholders is the rational thing to do, except that the officers want to sell the stock at its current ridiculous valuation. The current valuation would collapse if the invested capital was reduced back to $9 mm or so following a distribution of capital gains. So that management can continue to sell (see all the Form 144's filed by insiders) shares, they may well pay the taxes and screw the shareholders. For those looking for historical precedents, I would suggest that you examine what happened to Sirrom Capital last summer. It is so similar to WCAP that it is scary.