"It is quite possible AR reduced significantly on STB side and became cash in Q4 so as to get to the 55m number. I am suggesting using the Working cap (which includes cash) and Q4 cash burn for separate entities would avoid the issue."
They might have generated some cash on the STB side but they haven't sold that business to ENTR yet! The working capital that will be transferring will be determined when the deal closes, and my understanding per the asset purchase agreement is that it basically will be including non cash working capital assets and liabilities(AR, AP etc.) but not the cash balance.
Okay got what you are saying...My reading of the asset purchase agreement with the stalking horse is that cash is basically not included in working capital that will transfer (although TRID will have to provide what the document calls "required cash" for certain employee payments of a few million). I could be wrong in my interpretation...that document is really legalese. But I think it is also likely just from a high level perspective that ENTR can't be paying 55 million and getting 40 back in cash.
As to liabilities that is unclear. The APA sounds like basically all WC liabilities related to STB will transfer (accruals and payables) aside from some specific wage and benefit accruals that are carved out. I have heard that in a court hearing TRID estimated that $15 million in WC liabilities would transfer in the STB sale.
I don't think we can derive the balance sheet as of 1/1/12 by taking the Q3 numbers and applying the estimated cash burn. They had 55 million in cash as of 1/4/12 per their court testimony, which you would not get to if you did that. How they got the 55 million I am not exactly sure (sale lease back and RDA deal are part of it, probably got some extended payment terms) but that is what they said in court. Unless you are assuming that all of that cash will go to ENTR as part of working capital in the STB sale? That seems to be what you implied above, but I just don't understand how that could be. Per the APA there is some required cash for severance and paid time off that TRID will have to pay (should be around 5 million), but beyond that my reading of the agreement is that cash will not be included in working capital. And at a high level it doesn't jive that ENTR would pay 55 million for the business and get 40 million back in cash.
I think there is still a pretty decent margin of safety here even without ascribing value to the IP, but I agree they need to get the sales done quickly and stop the cash burn.
Could you expand on that? Are you saying you heard they are paying $40 million to Entropic for them to buy the STB business? So net net Entropic is bidding $15 million (55-40) for the STB business? Not sure I understand that.