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AMCOL International Corporation Message Board

  • desgus desgus May 26, 2000 1:47 AM Flag

    Nematode and all others, can you

    explain where post-sale savings will be and why
    you think the residual businesses will earn 59 cents
    net? If you have just annulaized one 1/4, I don't
    think that is going to be a very accurate
    prediction.

    I looked at the proxy and noted that, for 1999, the
    residuals (meaning the remaining businesses) had almost 60%
    of the revenue, about 50% of the gross profit and
    only about 20% of the net profit (and that, only if
    you added back in the extraordinary charge). The
    residuals' net profit after the addback (and without
    subtracting additional taxes) seems to come to 22 cents for
    1999. 1999 was a good year for the construction
    industry and 2000 is likely to get worse, so how will they
    more than double net EPS of the residuals?

    I
    may be missing something because I have just started
    looking at this situation following a mention of it by
    Nematode on the RGO board. Please correct anything that I
    have incorrect.

    If the Board of Directors
    actually decides to pay off half of the debt and
    distribute $14 to $14.50 per share (as planned), AND the
    residuals only earn 22 cents net, I can't see how you can
    expect a $4.50 post distribution share price, given the
    unglamourous industry, the affect of the likely slowdown in
    construction and the economy and the crummy market. I think
    that $2.50 (or even less) might be more realistic,
    unless I've overlooked lots of savings or some hidden
    opportunities.

    So tell me where I am wrong, please.

    I will
    tell you that the company needs to get some new
    financial advisors because the are giving away about 30% of
    the sale proceeds (over 200 million but I guess you
    all know that...did anyone bring this up at the
    recent shareholders meeting?)to Uncle Sam. If AMCOL
    would have just spun off shares of the sub. to
    shareholders, they would have paid NO taxes and shareholders
    would have just paid tax at capital gains rate on only
    a portion of the proceeds! I have a suspicion that
    Management did it this way so they could fund all the golden
    parachutes, debt reduction, and so forth. But they could have
    done that by just maintaining enough treasury shares
    of the spin-off entity and slightly reducing the
    number of shares given to shareholders. By selling those
    retained treasury shares to BASF, they would get the cash
    needed for corporate purposes and shareholders would
    have collected about $19.00 per share instead of
    $14.25!

    Again, if anyone knows why I am wrong
    about this, let me know. I'd really rather think the
    Management was clever and wanted to maximize shareholder
    value rather than stupid or sneakily lining their own
    pockets at shareholders expense.

    TIA

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    • are you using on this board as well? desgus does
      this to manipulate the conversation around to his own
      viewpoint.

      He will create several identities and use them to
      create the impression that there is general agreement on
      his own personal agenda.

      Watch for two posters
      that agree a lot and always post at nearly the same
      time.

    • Tax effect is covered in proxy under section
      entitled "Certain Federal Tax Consequences". It is also
      interesting that proxy says price was negotiated upward in
      light of inefficient tax consequences of transaction to
      ACO and its shareholders, an issue previously
      addressed on this board. Hope this helps.

    • tax effect. If I purchased stock today, would I
      have to pay taxes on distribution or is it just
      capital give back. If I am taxed at let's say 28% doesn't
      that mean the stub actually has a greater value than
      the $2-3 we have been saying since an investor would
      also have to consider tax. Anybody understand my
      question?

    • companies that are public and at all complable to the "stub" that would help us Stock Market value of the earnings?

    • I do know the stub businesses have had a positive
      trend recently but 1st Q was quite a pick
      up.

      Overhead should be reduced because with half the sales you
      need less human resources, accounting etc people, plus
      Mr. Hughes salary is going away with his retirement
      and there is no mention of a replacement. It probably
      wont be reduced by half right away.

      My guess as
      to why they paid the taxes is poor advice from their
      advisors.

    • 1Q 2000 is a fluke?

      Or why isn't it a
      flike?

      And how will general overhead be reduced by the sale?
      Won't the general overall management expenses just have
      to be covered from less overall gross
      revenue?

      So why do you think management paid the
      taxes?

      TIA

    • My estimate of 59 cents annual earnings (post
      202) for the stub business was based on 1Q 2000
      results not 1999. Results for the stub businesses
      improved significantly in the first quarter of 2000, from
      1999, making this deal look better, especially since
      Chemdal earnings were off. I agree with everything said
      about paying Uncle Sam instead of the
      stockholders...didn't have to happen. I plan to buy at anything under
      $3.

    • envelope method, if I remember correctly (because
      I discarded the envelope or did it in my
      head).

      Like this:
      Take the amount to be paid out in taxes,
      divide by the number of outstanding shares and add that
      to the $14 to $14.50 supposedly being paid out. Does
      than come to about $19? Whatever it comes to, it would
      be the amount they could have distributed if they
      had spun off the shares so that BASF could buy them
      directly from the shareholders.

      Now, I am not an
      accountant or a tax-lawyer and if is possible that the IRS
      would figure this for a sham and disallow it. On the
      other hand, I do not think that Congress when they
      passed the law, intended for there to be double taxation
      in this case. It is similar to what is called a
      partial carve out-IPO followed by a spin off of the
      remaining shares done buy companies like MMWW. The IRS gave
      them permission to do it that way, with the shares
      distributed to shareholders to be a return of capital and
      therefore, taxfree.

      Hope this helps.
      BTW, I am
      not yet a shareholder. I am trying to decide what the
      residual is worth or whether somebody else may be
      interested in buying what's left. What is you reading on
      this?

    • Is this what you mean & --- roughly --- how you
      came up with possible $19 had ACO spun off the SAP
      business? I rounded off here & there.

      gross
      proceeds (paid by BASF for all Chemdal) & presumed fair
      market value of all Chemdal for spinoff
      purposes:
      656,500,000

      44,300,000 sap debt
      7,500,000 legal, etc
      3,600,000
      empl bonus
      208,400,000 fed inc tax
      1,300,000
      filing/printing
      1,300,000 prepayment penalty

      266,400,000 total
      deductions by sale method
      390,100,000 net BASF sale
      proceeds

      Spinoff method
      656,500,000 fair market value of all
      spinoff shrs
      58,000,000 cash needed from sale of
      treasury shares sold to BASF
      598,500,000 net value to
      non-BASF shareholders if Chemdal
      spunoff.

      $530,000,000
      $ 58,000,000 BASF treasury share
      proceeds
      $472,000,000 net Chemdal value of non-BASF
      shares

      27,860,000 total subsidiary shares @ $19/share
      3,000,000
      treasury shares sold to BASF
      24,860,000 shares
      distributed to non-BASF shareholders

      Thanks, OneG

      • 1 Reply to OneOfTheGoodOnes
      • I didn't do anything as comprehensive as
        you.

        I just divided the tax bite by the number of shares
        and added that amount to the projected net proceeds
        after expenses.

        Because I assumed that
        Management would still want to use some of the proceeds for
        the stated corporate purposes, I just assumed that
        they could authorize treasury shares along with the
        shares to be created to distribute to the shareholders.
        It didn't matter to me at the time how many they
        needed to create, just that they could easily do it no
        matter what the number required based on the overall
        BASF payment.

        You seem to have it more
        elegantly than I did.

        So the question is why did
        they give all that extra money to the tax man?
        Approximately 30% of the gross seems a lot unless there was no
        alternative, or only worse alternatives.

        Anyone know
        why?

    • Your analysis is right on the mark including the
      idiotic management situation that exists here. Instead of
      building this company they have chosen to plunder it. Why
      not, it's much easier to do that and take what you can
      (did you see their "deal" bonuses) then to build
      shareholder value. A sad situation of greed and stupidity.

      • 1 Reply to Cyberwoodie
      • Firstly, I certainly could be wrong. please bear
        in mind that is also true of everone else co let's
        approach this with the facts rather than the
        suspicions.

        1) ACO is selling Chemdal, the unit that puts the
        bentonite in the baby diapers & so on.

        2) The
        construction/environmental unit contributed only 16% to sales(possibly it
        was net profit, I'm not sure) in 1999. This per IR
        today.

        3) The UK portion of the cat litter
        operation(American Colloid & Volclay). The balance is still owned &
        operated by ACO.

        4) The trucking business, very
        small, is still ACO owned & operated.

        5) Nanocor
        is what ACO is banking on and its opinions &
        knowledge of the potential of Nanocor tells it the
        potential reward outweighs the risk . Nanocor has produced
        little in sales or profit, in dollars & as a percentage
        of ACO's total sales & profit. This is because of
        the technolgy & division & small & in infancy. Toyota
        has ben working on this technology for 10 years
        according to the trade magazines ACO sent me. Toyota's
        would not have done that without very strong conviction
        in the technology's potential. Nanocor is unproven
        technology & difficult, if not impossible, for the
        investment communioty to assess. This explains the present
        cost of the stub, about $2.50 per share. Nanocor has
        contracts with at least Eastman Chemical (symbol: EMN) &
        Bayer. Some of the 16 patents pendfing 6 to 12 months
        ago have been approved, they now hold at least 15.
        The packaging industry is huge. Food, can't live
        without it.

        7) deal bonuses are a fact of life.
        They happen with every company. Since we cannot stop
        it, there's no benefit except emotional release for
        us to complain about it. Conspiracy theories are
        just that. No one has offered any hard evidence, i.e.,
        fact to support the claims that ACO management is
        colluding to enrich themselves at our expense. That they
        benefit does not imply bad motive nor is it reasonable to
        infer it does. The proof of the wisdom of a decision
        invariably comes after the decision. As with every
        investment we have to wait for the results, be they
        quarterly, annually or otherwise.
        OneG