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Non-Tech : Littlefield Corporation (LTFD) -- Ignore unavailable to you. Want to Upgrade?

To: Emec who wrote (7504)	2/20/1998 2:28:00 PM
From: T.K. Allen	Read Replies (3) \| Respond to of 10368

Here is my take on AB&G's current situation (in light of the conference call and some additional research): The bingo hall business is not as easy as it seems. "The company currently operates fourteen bingo centers, including seven centers in Texas, four in Alabama, and three in South Carolina." (source: 1996 10K). AB&G, according to the conference call, currently has 14 bingo halls. Therefore, there has been NO net growth in the bingo business this year. OK, maybe they are making more money with the current 14 than they did before the closings. It is good management to shed or reorganize non-producing parts of your business. However, it is hard to imagine making any significant strides in profitability unless a very large percentage of future bingo hall acquisitions work out a lot better than this year's results indicate. Perhaps this is one reason why it is taking so long to close any new deals. In the warrant call release of 11/13/98 (over 3 months ago now), AB&G said "We have delivered nearly a 30% return on equity over the past four quarters and we continue to see a wealth of attractive investment opportunities with potential returns in this range. Therefore, we decided to call the warrants to aggressively pursue these opportunities." Perhaps they are just moving very slowly and carefully on the bingo hall front. If so, that is commendable. However... There is much more to the management shakeup than Wilson is willing to say. To me, the most striking thing about the conference call was Wilson's inarticulateness regarding the management situation. His tone of voice, his carefully chosen words, his unwillingness to provide details on the nature of the "internal negotiations" all strongly indicate a MUCH bigger story than what has been provided. I think this is pretty obvious to all of us. I think the nature of these "internal negotiations" are the key to truly understanding AB&G's future. So, what is my theory of the nature of these "internal negotiations"? I believe Logue wanted to use the warrant money to expand the South Carolina VGM business. I believe Wilson also wants to expand the South Carolina VGM business. The difference is Logue was willing to take a big risk and spend the warrant money to do it NOW while the political uncertainty depresses acquisition prices. Wilson, on the other hand, was not willing to take that big a risk. He would prefer to wait for the political decision in South Carolina. In the meantime, Wilson explores possible bingo hall acquisitions as a fall back position in case VGMs get banned in South Carolina. Given the uncertain profitability of bingo halls (especially as compared to VGMs) demonstrated in 1997, I think Wilson is playing for time on the South Carolina situation. If SC keeps VGMs, I think AB&G will jump into that action in a big way. If SC bans VGMs, AB&G will get serious about bingo hall deals. I believe this is why we have not seen any closings on new bingo halls. The promises about "deal flows" and "letters of intent" are put out there to calm investors nerves. I have seen and heard and imagined all kinds of theories about the management mess centering on SHORT-TERM effects (the Gaines Berland pump & dump theory comes to mind). I do not believe such short-term theories are accurate, however. If they were true, I would have expected some really rosy numbers from AB&G, not things like "we are going to miss the earnings estimate" and no net expansion of bingo halls in 1997. Such admissions are evidence of an honest, LONG-term management perspective. Regarding the South Carolina political situation. I have done some additional looking into this as well. Mims (and others) state the anti-VGM forces only have 23 votes in the Senate. This has got to be a rock bottom number. The bill which would ban VGMs (and that Senator Land has threatened to filibuster) is bill #947. If you look at this bill (http://www.lpitr.state.sc.us/bills/947.htm) you will see it has 23 sponsors. This means there are 23 senators who feel strongly enough about banning VGMs that they are willing to have their names associated with a VGM ban from the very beginning. Just because you (as a SC Senator) didn't sign on as a sponsor doesn't mean you can't vote for it. Unfortunately, I cannot find any pro-VGM Senate bill to check sponsorship. This would give a good indication how many Senators are solidly in the pro-VGM camp and it disturbs me some that no Senator has stepped forward with an alternative bill for taxes and/or regulations on VGMs. The anti-VGM forces only need 6 more votes (out of the 23 Senators who did not sponsor bill #947) to break a filibuster. If I remember correctly, Gov. Beasley claims to have 26 votes. Although I don't necessarily believe Beasley, it is safe to say "this is going to be a close one, folks". TKA