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PENN OCTANE CP Message Board

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  • davew6115 davew6115 Dec 8, 2003 4:05 PM Flag

    Management Raping Shareholders

    The company is currently going through a transition to a Master Limited
    Partnership, which will allow it to distribute earnings in a more tax
    efficient manner. I believe the future will become clearer once the
    transaction is completed. Let's not give the company a bad rap (right now) and wait until all the pecans have fallen off the tree.
    Dave W

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    • Yes I am quite aware that the company is forming an MLP. The MLP will be spun off of the c-corp, the c-corp will then own 50% of the GP(General Partner). For those that don't know about MLP's, the GP is far more valuable than the limited partner shares(units). By the nature of MLP's, the GP can't be within the same entity, thus the spin-off rather than a straight transition. The GP becomes very very very valuable as the distributions grow at the MLP level. this happens because the GP is entitled to a dispraportionately larger share of the distributable cash as it increases. In other words, in the first tier, they get 2% of all of the MLP's cash. After the distribution increases past a certain point, the GP then gets 15% of all cash past that point, then after passing the next target, they receive 25% and finally after the last target they split all cash 50-50. So in essence, they have to fund 2% of all acquisitions but are entitled to after some time, roughly(weighted) about 25% of all the MLP's cash. So, yes they are screwing the shareholders over.

      • 1 Reply to rrb1981
      • I might add that management is most likely buying the 50% interest(or should I say stealing it) at a very lowball price. While I haven't seen a verification on the price other than what was posted, having seen past dealings they have done, well, lets say they aren't the most trustworthy. However, I might add that, given the ineptitude of current management, it is unlikely that they will be able to grow the MLP in order to raise the distribution. From what I've seen of their dismal track record, they couldn't manage their way out of a wet papersack!

        That being said, MLP's are tax exempt on the corporate level (and tax advantaged on the holder side) so they should at least "increase" earnings, or rather distributable cash due to being in a more efficient tax entity.