Quantify Unknowns before SellingI am not rushing for the exits for several reasons, all of which can be calculated. No emotion.
1) Liquidation value for the company is around $1. That is if I assume zero recovey from Kramer during binding arbitration. Liquidation value is based on Sept/2009 financial statements and guessing the recovery from the insurance company. When I get 4Q/2009 financials in another 3 weeks, I can refine that. Then I will learn how much of the receivable from the insurance company was ultimately collected. So if they put everyone in receivership and liquidate, the stock price is unlikely to go much lower. And that ignores tax shields from goodwill written off.
2) I assume putting one of the centers in receivership does not extinguish our claim against Kramer in arbitration. Some folks on this board thought the claim is for no more than $8 million, the amount in escrow. I'm not so sure. I think our claim could be as high as $50 million, which is why Kramer is not rushing to settle. The higher number would be based on what the EBITDA would have been on IPO if we had an in-network agreement instead of operating out-of-network. Take the annual reduction in EBITDA and apply the earnings multiple they used in the prospectus on IPO. But we don't know what has been claimed. Our directors have never disclosed it and Brad has not bothered to tell us either.
3) Even if we shut down the Palladium partnership, we can still shrink our management expenses and operate Kirby at a profit based on its current revenue. But the CFO will have to take a pay cut from his $500 thousand salary. Remember, Kramer launched the two centers in 2005 and built them to $40 million in sales by the IPO in early 2007. Two years from now, we could do the same if we had to re-start. Our current management is at least as talented as Dr Kramer, yes?
4) Palladium is likely in a cumulative loss position, since it operated for 6 months in 2008 without collecting on the receivables. So on wind-up, there is not much to distribute to the limited partners. Those would be Kramer (18% holding) and two other doctor-partners (6% each?) based on 2008 AIF data. And of course to Brad (0.5%).
5) Arbitration likely requires disclosure of certain confidential performance information. Hopefully they use non-disclosure agreements. It is likely that Brad's volume and forecast data is correct, but how would the Arbitrator view this when making his/her decision if it is a leak? (The company does not disclose to shareholders the case volumes in individual centers.)
So I say, before you sell, take a breath. Will you know more in 3 weeks when they publish financial statements? What will change between now and then?