an email and response i got/gave
I have read your article about yellow media and supermedia on the seekingalpha website and i have some questions to you regarding that
please:
1.these companies generate a FCF of 400$ million (dex one) and more and that is after the payment of debt so theoretically the managementor the majority of shareholders can chose to pay some the FCF as a dividend for example a 100$ million dividend which is even more than the market caps of these companies, am i right? or there is other things that are not taken into consideration in this theory?
Companies have debt obligations coming due. Those take priority to the shareholders and since the bondholders of all of these companies are freaking the heck out, they cannot default on their obligations without getting into trouble (restructuring becomes more likely in these conditions).
2.i understand your point that the market puts such a low valuation for those companies despite the profitiability and the cash flow, the is beacause of the problems of the balance sheet but could it be that also the expectations that the profitability and cash flow will decrease further and even significantly and that is why it is given such alow valluation and not just because of the debt and the balance sheet of the company?as well can you explain to me the strength of the profitability and cash flow of the company going forward, i mean what is the posiablitiy of a significant decrease in the companies cash flow generation which might be the main significant asset of those companies?
All of the assets are more or less intangible. It is my belief that these companies have decreasing revenues, but not exponential decreasing revenues. I think that the rate of decline is easing, I could be wrong. I think that these companies provide value to their advertisers and that the arpa’s as well as advertiser count will eventually level out.
3.taken yellow media as an example tell me about its capital or share structure, for example is their apossiability for someone from outside to take a significant amount of the shares of the company, for example 30% or even more, i am asking because it seems that this company has alot of diffirent share classes and complex capital structure, as well for the other companies that are mentioned in your article, is their a possibility to become a significant shareholder holding 30% and even more of the companies shares?
What is wrong if someone takes a 30% position in any of these companies? That would single handedly drive the price up. Right now there are no buyers of any class… nobody cares. How does someone acquiring a significant stake impact me negatively? Granted, I buy more shares every now and then and I would have to pay more for my shares, but other than that I don’t see an activist shareholder being a bad thing. I’d love to see someone take a large stake. Right now it is believed that all equity stakes are worthless.