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FreightCar America Inc. Message Board

  • transportation_consultant transportation_consultant May 28, 2008 4:47 PM Flag

    My Thoughts on a Possible Reason for The Move PART 2



    What concerns me at this time is the
    large cash on hand position. Unfunded pension liabilities are insignificant in the long haul based on earnings power, and interest being earned on the cash on hand. At a simple 5% return on the $190,000,000+ cash on hand the annual pension liability pretty much takes care of itself. Accordingly the cash on hand can actually be a powerful tool for use by the management to leverage a transaction with an investment banker. An example for you to consider, taken from the real estate industry may help put this in perspective. Real estate buyers can walk into situations in which they borrow 100% of the funds needed to make a purchase of real estate based on built in equity (foreclosure or distress sales), loan to value, and other factors. Here's how equity/loan to value could come into play in the RAIL situation. With a current market cap of $467.4M based on Fridays close at $39.43, I will assign a conservative premium of 25% for the purposes of analyzing a takeout scenario. So that gives us a takeout price of $49.28 per share or $584.25M. In a hypothetical situation where management walks into an investment banker and says we need to borrow $584.25M for the purchase of RAIL, but in turn we will place the current $197M cash on hand (cash figure was extracted from Dec. 31, 2007 financial statement) on deposit with your institution. The net "loan to value" on that deal is under 68% when factoring in the value of the pledged assets. The bankers analyze the unfunded pension liabilities, present cash flow, factor in the no-brainer of an uptrend in the rail car production cycle, as well as 100's of other details, and their computer model spits out an approval. In favor of management being able to pull this off is the fact that they are more that "qualified", based on them being the ones engineering the train currently. Also the investment bankers have $100's of billions to put to work into deals, with Coal, Rail, Tranport, and Agricultural stories presently being the easiest to sell to the loan committees and powers that be at these institutions.

    I have mixed emotions right now. I would love to see RAIL sold at a fair price, but I do not want to see this company sold at a bargain price. I hope that management reads this board because I want them to be on notice that there will be a proxy fight if they ever decide to come at this too low. Recent figures show that shares Held by Insiders total 10.46% and shares Held by Institutions total 79.40%. All we need to do is simply get the word out to all shareholders if such a time ever comes and I seem to think that logical reasoning would win the support of the overwhelming majority. The big question is who could present the most logical reasoning. Perhaps one day we will find out.

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    • A more likely reason for this stock being up -- and the reason why it's not trading in the 20s now -- is probably speculation about RAIL landing some business internationally (e.g., in Brazil).

      • 1 Reply to impossibledistances
      • How's this. The stock is up because there are more buyers than sellers and they are willing to pay more $ to accumulate more shares. That is the bottom line. The reaons they are willing to pay more I'm sure are varied and a combination of many things. Included would be all of the reasons in the posts below. Note also that it has been on some "breakout" lists too. It has been on the NASDAQ "unusual volume UP" list at least twice that I know of. This has been a nice move, no matter the reason. It is really at a crucial point now. It will cosolidate at these levels. It close above the Nov highs and that is a great sign....

14.38+0.34(+2.42%)Sep 30 4:00 PMEDT