It's clearly going to be a Joint Venture 7-Apr-11 10:09 pm
The problem here IMO is to reconcile what seems irreconcilable. Clearly, the stock is being beat up by pros. Why, got to mean that the stock has value. But then you look at the BK and asset sale and its really hard to see any value in keeping the common alive. But there is a way.....
First, the NOL's belong to Bankrupt entity. They are of marginal use to Dish since Dish would have to acquire the common which means a change in ownership. Under the tax code that means that Dish only gets to use a small fraction of the NOL's as they are computed by multplying a prevailing interest rate against the value of the company. With no assets, BBI isn't worth sh*t, the NOL's arn't either.
However, I pulled the BK petition today and it is very interesting. The 630M in Sr. debt is listed as "Secured" debt on the petition. Now the cash paid to BBI is far below the liquidation value of the company IMO. Moreover almost all of it went to the DIP financier who has top priority, then to the studios and other trade creditors. Almost none went to the Sr. notes. So, why didn't the Sr. owners pitch a fit when the proposal was being mooted. I sure would have gone ape sh*t to get less in a reorg. than in a liquidation -- almost nothing in fact. That is especially true in Icahn's case; he was running the BK show (the deal was done at his apartment I believe) and he owns a third of the secured debt. Why was he so compliant?
I believe that the secured debt is going to be refi'd by Dish to make Icahn happy enough not to demand liquidation. As Richard Gleaves points out, that is a win win for Icahn and Dish. Icahn's son gets a delivery vehicle for Epix, Carl gets an income stream from the notes which will go way back up allowing him to turn a nice what, 5-800M profit down the road and a company he has to share only with Charlie Ergen who can run the damn thing. Dish gets to play with the big boys for not much cash up front. It's perfect. Moreover, the Sr. debt isn't canceled so there is no huge tax bill to blockbuster. That means that BBI income will be close to tax free for several years at least. And, because the debt has been refi'd, BBI is clean of that liability; it is profitable out of the box.
But what about the common? Why would anyone care about it if the NOL's are unusable by the acquiring company? The only thing I can think of is that BBI becomes a joint venture between Icahn and DISH. So, here Icahn and DISH have to own most or nearly all the stock. They form Newco. with the old company's stock which has been bought super cheap; they then use the NOL's and everything is hunky dory. The only difference between this and an LBO is that the equity pre-exists and preserves the NOL's.
This also explains why Icahn bought up Jr. debt through Scotty Bloaqworth. For very little money - 1 cent on the dollar he takes them out as objectors to the plan. Although its subordinated debt, a well organized and hostile creditor's committee could have ruined the deal; so, it was insurance. At a cost of $20M Icahn insured his purchase; that's about the same rate as option insurance.
If I am right, hold, hold hold because you will be worth a lot of money quite soon.
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