Roddy Boyd, in his blog, The Financial Investigator, has a fascinating post on The Interoil Math. Interoil is an oil and gas producer that, Boyd says, "recently raised cash at exorbitant rates and appears to be internally valuing its assets way below what the market appears to think they are worth."
So, on such revelations, its stock price should be tanking, right?
Ummm ... no. The stock price rose sharply in the middle of the day Wednesday, September 15, and held level at close to $64 a share through Thursday and Friday, and resumed moving north on Monday.
"To be sure," Boyd continues, "the bull’s case is both elegant and obvious: If there is oil and natural gas is in Papua New Guinea, and in the volumes suggested on the company’s properties, shareholders are in for an instant windfall to the tune of several dozen points worth of price appreciation."
And if my car had a propeller, it would be The Spirit of St Louis.
Provable reserves as I noted last November are hard to come by.Separately: any company that found them in Papua New Guinea would still have to be willing and able to spend the money to exploit them. Yet Interoil is cash strapped -- sufficiently strapped to need to pay those card-card-like interest rates we mentioned above.
Interoil will naturally tempt short selling. Of course, if you do go down that road, you take enormous chances, even if your underlying case is strong. Such intriguing recent books as CONFIDENCE GAME, whatever else they do, make this clear. I don't recommend shorting -- indeed, I don't recommend anything at all. [Except this: for roughly 99% of investors who have an interest in the equity markets, the best course is a simple passively managed fund, tracking some broad-based index.] Still, Interoil is the sort of spectacle that makes one wish there was more shorting activity in the financial world than there is. The number of nest eggs that have to be sacrificed to prove the prophetic powers of P.T. Barnum is unnecessarily high.
Showing posts with label Roddy Boyd. Show all posts
Showing posts with label Roddy Boyd. Show all posts
Tuesday, September 21, 2010
Wednesday, June 23, 2010
Reverse Mergers
Roddy Boyd has a fascinating entry on his blog about reverse mergers in the Chinese context.
A reverse merger is a transaction in which the role of acquirer and target are the reverse, in substance, of what they are in form. In the two trans-Pacific cases that especially interest Boyd, a dormant shell of a U.S. company (which, was, nonetheless, exchange listed) formally acquired a Chinese concern. The Chinese company then in essence became the "new" operation, and inherited that public listing.
As Boyd observes, this gives the Chinese concern "a quick route to the deep and liquid U.S. capital markets without the scrutiny and expense of a traditional initial public offering process."
I suspect Boyd is being too cynical about such transactions, though, Personally, I thnk that a clever way of short-circuiting regulations is a good thing, and I'm on the side of the hot-wirers. Of course, it is good to work within the law of both of the countries involved but ... that's the point, isn't it? The reverse merger is a way of working within the law without letting it massage you into a lump.
Meanwhile, Carl Icahn ....
Icahn has recently issued a letter strongly denouncing the management of Lions Gate Entertainment. Icahn's designs on Lions Gate are not news to anyone, least of all readers of this site. Still, the tone is sharper now.
In a letter to "members of the board" dated June 11, Icahn professes himself "truly mystified by some of your actions -- and your inaction -- in the face of the abject failure of the current management team to deliver value to shareholders...."
He also cautions the board against engaging in any "inappropriate defensive acquisition or other transaction in an attempt either to thwart our [tender] offer or to dilute our position following the expiration of the offer. We will not sit idly by if you attempt to employ inappropriate defensive tactics."
A reverse merger is a transaction in which the role of acquirer and target are the reverse, in substance, of what they are in form. In the two trans-Pacific cases that especially interest Boyd, a dormant shell of a U.S. company (which, was, nonetheless, exchange listed) formally acquired a Chinese concern. The Chinese company then in essence became the "new" operation, and inherited that public listing.
As Boyd observes, this gives the Chinese concern "a quick route to the deep and liquid U.S. capital markets without the scrutiny and expense of a traditional initial public offering process."
I suspect Boyd is being too cynical about such transactions, though, Personally, I thnk that a clever way of short-circuiting regulations is a good thing, and I'm on the side of the hot-wirers. Of course, it is good to work within the law of both of the countries involved but ... that's the point, isn't it? The reverse merger is a way of working within the law without letting it massage you into a lump.
Meanwhile, Carl Icahn ....
Icahn has recently issued a letter strongly denouncing the management of Lions Gate Entertainment. Icahn's designs on Lions Gate are not news to anyone, least of all readers of this site. Still, the tone is sharper now.
In a letter to "members of the board" dated June 11, Icahn professes himself "truly mystified by some of your actions -- and your inaction -- in the face of the abject failure of the current management team to deliver value to shareholders...."
He also cautions the board against engaging in any "inappropriate defensive acquisition or other transaction in an attempt either to thwart our [tender] offer or to dilute our position following the expiration of the offer. We will not sit idly by if you attempt to employ inappropriate defensive tactics."
Monday, February 8, 2010
An Overstocked cookie jar
There seems to be a trend developing here. Three months ago, Overstock's stock price was still close to $16. By early December it was at $15. By early January, about $13.50. Now, though, it has fallen below $11.50.
There is a lot of news behind that fall, and I've discussed some of it in this blog, as when the company filed an unreviewed 10Q in November entering into a public debate with Grant Thornton about its books in the process.
Things have gotten worse over the winter. Roddy Boyd wrote a fine article for the online magazine SLATE that proved that diamonds aren't necessarily every girl's best friend.
And this past week? Overstock has acknowledged that its accounting can not be relied upon. Part of the mis-counting to which they've admitted involves those "fulfillment partners" we've discussed here before. I'll quote their dry language verbatim: "Operational errors in the amounts that the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts the Company paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect invoices from the vendor. Once discovered, the Company applied “gain contingency” accounting for the recovery of such amounts, which it has now determined was an inappropriate accounting treatment. Correction of these errors is expected to shift approximately $1.7 million of income recognized in fiscal year 2009 back to fiscal year 2008."
Which means ... what? It means that the company inappropriately shifted to 2009 income they should have attributed to 2008, and now has been gently persuaded to shift it back. This admission is intended to "address all outstanding issues raised in the comment letter dated November 3, 2009 that the Company received from the Division of Corporation Finance of the Securities and Exchange Commission." It also confirms the long-standing charge by Sam Antar and others that Overstock set up a cookie jar reserve to inflate future profits (or, more strictly, to minimize future losses and make it appear that the company is on a path-to-profit eventually).
Antar (who would want me to remind you at this time that he is a convicted felon himself in connection with the old "Crazy Eddie" scam) explained what was wrong with Overstock's booking many times, such as here, and has now done a warranted victory lap here.
There is a lot of news behind that fall, and I've discussed some of it in this blog, as when the company filed an unreviewed 10Q in November entering into a public debate with Grant Thornton about its books in the process.
Things have gotten worse over the winter. Roddy Boyd wrote a fine article for the online magazine SLATE that proved that diamonds aren't necessarily every girl's best friend.
And this past week? Overstock has acknowledged that its accounting can not be relied upon. Part of the mis-counting to which they've admitted involves those "fulfillment partners" we've discussed here before. I'll quote their dry language verbatim: "Operational errors in the amounts that the Company pays its drop ship fulfillment partners and an amount due from a vendor that went undiscovered for a period of time. Specifically, these errors related to (1) amounts the Company paid to partners or deducted from partner payments related to return processing services and product costs and (2) amounts the Company paid to a freight vendor based on incorrect invoices from the vendor. Once discovered, the Company applied “gain contingency” accounting for the recovery of such amounts, which it has now determined was an inappropriate accounting treatment. Correction of these errors is expected to shift approximately $1.7 million of income recognized in fiscal year 2009 back to fiscal year 2008."
Which means ... what? It means that the company inappropriately shifted to 2009 income they should have attributed to 2008, and now has been gently persuaded to shift it back. This admission is intended to "address all outstanding issues raised in the comment letter dated November 3, 2009 that the Company received from the Division of Corporation Finance of the Securities and Exchange Commission." It also confirms the long-standing charge by Sam Antar and others that Overstock set up a cookie jar reserve to inflate future profits (or, more strictly, to minimize future losses and make it appear that the company is on a path-to-profit eventually).
Antar (who would want me to remind you at this time that he is a convicted felon himself in connection with the old "Crazy Eddie" scam) explained what was wrong with Overstock's booking many times, such as here, and has now done a warranted victory lap here.
Subscribe to:
Posts (Atom)
