All estimates have been reduced substantially because of the VEGAS mistake. Now that is behind us, they have the chance to continue what they started and revisit the income growth rates of the psat. We also have the potential to see big book value increases if we see any kind of real estate market recovery. In the TWIN CITIES market where I am located, we are already looking back at the bottom. We have BRAND name recognition, substantial bariers to entry and the balance sheet needed to cotinue to grow. I will be adding more on the 900 share noise dive, if it happens again and I get lucky enough to get it. lol
Needless to say.....I held too long after the Kmart/Sears deal, hahaha. Took a class in grad school on acquisitions.....I think the rule of thumb is that most acquisition end up being a bad idea. Especially the larger they are....the worst the end result. It usually comes down to bad integration. Another rule of thumb is, acquisitions funded by stock entirely tend to be significantly worst then cash or large chunk cash acquisitions. I guess this is partly because cash acquisitions also tend to be smaller and more manageable. Of course, this isn't to say all acquisitions are bad.....
Which I think we see with Ricks, too. The acquisitions since Vegas when stock was not an option have been pretty good.....but they were also smaller and more manageable. Though I am sure a lot of lessons from Vegas helped out, too.
Bob Evans was hurt by the lack of a cash cushion. True, that isn't as dangerous as what I thought, but still an issue. The fundamental issue is that when you need cash.....it becomes hard to find. There is a saying, "A banker lends you his umbrella when it’s sunny and wants it back when it rains."
The other issue is that, due to corporate tax rates.....it is usually wise for companies to use debt to fund growth because cash can go towards interest payments instead of being taxed (100% towards interest or 65% towards profit). There was a company that I think was called American Home Products.....they had low debt levels. One day, they decided to take on a significant amount of debt and payout the proceeds from the debt into a one time special dividend to shareholders (something like 60% of the stock price). Under the higher leverage, the market value of the company rose because instead of paying so much to taxes, it was paying down a higher proportion of debt then it could of retained in earnings if it let the money go to the bottom line.
It sounds like Bob Evans didn't have the best capital structure to maximize shareholder value. Unfortunately, high corporate taxes mean taking a conservative approach ends up costing more in the long run.
I didn't explain properly (which is why you never see me take a stab at public earnings guesses...other than maybe something generic like, "I think earnings will be up"...or if I'm very confident, I might qualify my generic statement with "I think earnings will be WAY up")
it's not that they were using short term borrowing to pay for long term debt......the were using their long term assets to counter long term liabilities, but they were also using short term assets (ie: cash) to pay down long term liabilties as well
but that practice made the current ratio look out of whack, as if they barely had enough short term money to cover short term obligations
as a result, if someone was lazy and just looked at the ratios (or used some stock screening tool to do that function for them) they would have missed a company was actually employing quite a conservative policy....
then, as I say, if for some reason some short term cash crisis should occur they could simply abandon that policy temporarily till they put the fire out because in reality, they had plenty of short term assets, they were just applying it in a different area
hope I explained it better that time
at any rate, I bailed about the time of the mimi's purchase, as like the sears/kmart deal I was wondering sometimes who actually purchased who and having been through a buyout at the company I was then working for and witnessing first hand the "culture clash" of new company vs old, I went ahead and harvested my shares from the farm......looks like had I held, I would have made more money, provided I hadn't held TOO long, of course.....ah, hindsight!
Im buying houses for $30-$50k and they are not around like were were 10 months ago, not even close. When you can rent them for $1000 after puting $10k in them, then that was oversold. Take it for what it is.
Ricks will probally be bought by a horny Japanese some night.
One told me one night, that married is nothing less than legalized prostitution when we were sitting around the camp fire. He was serious. lol
>>>>> We also have the potential to see big book value increases if we see any kind of real estate market recovery.
robt schiller seems to think any recovery may be another decade from here
he points to a lot of paralles with japan, who's prices are still about what they were back in 1999
plus (a good point he makes) with the new batch of potential first time buyers being saddled with student loan debt and lack of jobs with decent pay, these guys are 5-10 years behind where their parents were economically at the same age.....his point being, who are the aging boomers going to sell their houses to?.....the kids won't qualify to buy them for 5-10 years yet
my own observation in looking for qualified buyers to enter the market, with most (all?) lenders extending the period needed after a bankruptcy or foreclosure (the later of, in the case of both) to 3 years plus credit re-established and the sheer number of these guys, I don't see any real number of qualified buyers re-entering the housing market till at least 2015, and not a meaninful number of them till 2018.....just a back of envelope calculation, and I was trying to be optimistic while figuring
with a gubmint estimate of about 14 million homes already foreclosed but not yet marketed, plus another gubmint figure of over 10 million homes with upside down financing....plus new homes which "might" come in around 1/2 million, there is much higher supply for years to come than absorption rate
while I do appreciate optimism, it's just not backed up by the numbers in the housing arena
btw, I loved minneapolis when I was there, but it's been a while....worked with some great people there when I was with miles homes (they were headquartered in plymouth)
There's currently more vacant homes in my area than there was 2-3 years ago. Some so cheap the real estate brokers won't waste the gas to even show them. They just tell you to go look at them, door's unlocked.
btw, I'd have to defer official comment to one of the guys with accounting background, but I believe real estate is carried on the books at acquisition cost....never understood why exactly, as in my own reasoning, it would stand to reason that if the value of the RE increased, then book value should also....maybe someone can help explain this one?