Just think about this logically for a second. If EBIX's earnings and financials were all fraudulent, then why would Raina own millions of shares individually and through his foundation and never sell any shares. Why would Raina structure the merger so that post merger he would be able to acquire much more equity in the company whose financials were all predicated on fraud? If EBIX, the company, is a fraud, then why would Raina invest virtually everything he has in it and then seek to acquire even more of the company post merger? The only fraud here is the one that Raina and Board tried to perpetrate on shareholders when they tried to take this company private and shove a low sales price down the rest of the shareholders throat so that they could gain more equity in the company and profit from the company's bright financial future while excluding the other shareholders from doing so. This is what all the class actions against Raina and the Board allege and why now the Georgia Attorney General is investigating the Raina and the Board personally. Goldman backed out of the merger when the Attorney General of Georgia announced his criminal investigation because it did not want to get dragged into that mess and potentially be charged as a co-conspirator with Raina and face potential serious criminal and regulatory problems as a result. All the accounting and company fraud allegations are very old news which date back to articles published every few months for the last several years by just two people who have heavily shorted the stock and which have been proven false repeatedly and which Goldman after doing extensive DD obviously also found to be false when it agreed to the merger and pay $20 per share.
My two cents:
In all probability, Raina may have done some minor infractions, but not an outright fraud.
1) He was never a promotional CEO's appearing on cover of mags.
2) He never gave earnings estimates, never tried to goose up the stock for last 10 years
3) He changed auditors several times (not a red flag, Madoff never changed his auditor.) A person committing big frauds wont change auditors so often to avoid being caught
4) No cheating CEO in right mind would approach GS for a buy out. This is like a career criminal marrying Sheriff's daughter.
5) In big fraud ops, cash doesn't leave the co, here EBIX acquired several co's for cash
Now lets look into the $ involved in these suits.
a) Peak lawsuit is for pennies
b) For 09-12, for 5 years, total income before taxes = 280MM, taxes paid = 21.4 MM (as per 10-K). But remember they have tax loss carry forwards, india tax free zones, singapore IP etc.
Google for "top 30 tech companies in the Fortune 500 paid an effective tax rate of 16 percent".
Even if they had to pay 16% taxes, the amount due is $44.8, considering for what is already paid, they owe IRS $23MM. Some of the taxes is deferred taxes (due to differences in FASB and IRS rules).
For a sum of 23MM, shorts have taken out 750MM of market cap. Fantastic
just reread the sunil shah article on seeking alpha - also helps to level set and not get too spooked by the silence and short interest.
Ebix must have retail and "trader" shorts at this level of short interest, not just smart money..and these are not people who have spent time analyzing a company. They are just assuming the other shorts know something and are piggy backing. They drive the cost of borrow up for others, and create a scary dynamic for a short squeeze.
The first 20-30% of short interest that has been anchored for a while gave me pause, but the recent run-up is not from sophisticated investors....imho
Sentiment: Strong Buy
You make some very good points Stuart. Surely, Raina would never agree to the merger in the first place if he knew that his company was a fraud because the fraud would be quickly discovered by Goldman.
And he personally would pay an enormous financial price not only through the loss in value once the fraud is discovered in the millions of shares he and his foundation own pre-merger, but the millions they would acquire post merger at the cost of $20 per share. Raina is a lot of things, but one thing he is not is stupid and is very deliberate and calculating in all of his moves. There is no way he would ever acquire substantially more equity in EBIX post merger if the company was a "card house".
bought in at 11 and rebought at 8.56 - your analysis is the same as mine. Sure is hard to watch the pps go down like htis. Big loss right now for me ($4k). On the fence about selling. Sitting here with my thumb up my butt....lol!
Goldman backed out of the deal because they were funding the deal. Banking regulations would not permit them to proceed after the Attorney General's letter of preliminary investigation even thou the Attorney General has nothing more than stockholder lawsuits to examine. Goldman has the best tax lawyers and accounts available in this country and they found nothing or very little wrong with Ebix accounting. However, Mr Yu and others think that they are better at finding deceptive accounting practices without even having access to Ebix's books. It's a shame that anyone believes anything that a short says since the majority of them are psychopaths who have no scruples. However, I must say that Mr Raina and the board have done self serving acts that benefit only themselves at the expense of other shareholders.
This answers another important question. If banking regulations would not permit Goldman to fund the deal once the Georgia Attorney General issued its investigation letter, then that it is not only why the backed out of the deal but is also why no break up fee could be charged. No break up fee can be charged if the law prevents the merger from closing.
I sold all of my shares when they announced the merger. I no longer trust RR has the best interest of shareholders in mind - he could just take the company private at a cheap price any time for all we know.
My current quick money play is actually NRCIA and NRCIB. There's an arbitrage opportunity because the company issues two classes of their former common stock, NRCI. Both classes get 50% of the total net income of the company, so they should have nearly equal market caps (class B shares do have higher voting power, so there should be a slight premium for them). Right now Class A's market cap is at about 370M and class B's market cap is at about 120M. So they have to equalize at some point. I've shorted class A's, and bought class B's, and expect to make a quick profit over the next few months while the market realizes what's going on with this low-liquidity arbitrage situation.
Very well said. IMO, the business model is not only sound, but brilliant. I wish I could say the same for the way that RR, mgmt, and the board have handled the past 3 years of short attacks. Although I still hold a ton of Ebix (and bought 3,000 additional shares today), I have honestly lost a lot of respect for RR and Company largely based on their self-serving attempt to take the company private while screwing long-term shareholders. The dribble posted by the shorts on this board speaks to their lack of scruples and dignity, but the Ebix response has been equally poor. When repeatedly attacked, at some point, you have to vigorously defend yourself. Ebix has not done this to Mr. Market's satisfaction, which is reflected in the pummelled share price. On one hand, I am glad that Goldman backed out, so I can hopefully benefit from long-term ownership of a company with a brilliant and much-needed business model. OTOH, the past two days has been painful to watch.
That even makes more sense. I did not know that banking regulations would not allow Goldman to proceed once the Georgia Attorney General issued the investigation letter and thought that they backed out just because they did not want to get dragged into all of this. Now, it appears that they had no choice once the Georgia Attorney General decided to investigate Raina and the Board.