$600 million of goodwill and intangibles on a shareholders equity of $2.8 billion going south as fast as operating losses. Half the goodwill is for management contracts bought for $400 million in a related party transaction in 2018 written down to $288 million. The IRS is in line for $250 million. The India relationship involves $170 million in guarantees and a service tax matter fr $20 million. The captive insurance company swims in $70 million of red and an interest rate cap cost $40 million to exit. The good news is the buyback is suspended. The interesting news is that insiders are selling with abandon.
Goodwill and intangibles have been the subject of smart folks observing management doing dumb things for generations. The premise is that management has paid more than it should have for a value today but gets to keep that overpayment as an asset on its balance sheet of, say, $400 million for management contracts from the executive chairman's brothers at twelve times expected 2021 earnings in 2018. The 8k remains awaited three years later.
Management is not punished for being a bad buyer using other people's money if it is able to sell that goodwill to a greater fool or have to reduce future real earnings by amortizing, reducing, the goodwill over time.
Thinking about it a little harder from the non-vaccinated cheap seats at Yankee stadium goodwill is not an asset that can provide for future revenue but a liability that inevitably will be written down or sold at less than it cost to buy. So flip the inflation of assets and shareholders equity and goodwill hunting can be a path to insolvency for the next big short. Simply $600 million of goodwill of $2.8 billion in shareholders equity flipped to a liability of $600 million swings the new and real math to 2.8-.6-.6 or $1.4 billion as the crow flies.
Giving the doubt benefit and at two times book value for intrepid management and board guidance then a reasonable price for the business model could be $3 billion in a market that is $8 bid billion for shares of insiders running through the carousel of SEC filings.
And that is before the $250 million in US tax claims that management believes it will win
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