Posted on 04/05/2002 4:59:57 AM PST by an amused spectator
NEW YORK — As if investors needed more bad news, the greatest corporate confession of all time is about to begin.
Dozens of once-hyper-acquisitive companies are expected to admit publicly in coming days that they gambled and lost billions on big deals executed at the height of the bull market.
The final price tag could exceed $1 trillion.
"We are going to get confirmation that hundreds of billions of dollars in shareholder capital has been wasted or destroyed," says David Tice, manager of the Prudent Bear fund, which makes bets that certain stocks will fall.
"Wall Street will say don't worry about it, but shareholders should think again."
Most of the pain is expected to be unveiled with first-quarter earnings as companies are forced to take massive charges under new accounting for goodwill, the premium a buyer pays to acquire a target's assets.
Under the rules, companies are required to write down their goodwill immediately to reflect any permanent declines in value.
Under the old rules, they could write down goodwill gradually, over as many as 40 years.
Already, entertainment titan AOL Time Warner has said it would take a record $54 billion goodwill write-down as a reflection of "overall market declines" since its merger was announced two years ago.
Other major media companies have announced they will follow suit, including Clear Channel, with a $15 billion to $25 billion write-down, and Vivendi Universal, with a $12.3 billion to $13.2 billion write-down.
Struggling telecommunications companies have also warned shareholders about coming massive goodwill write-downs, including Qwest, with $20 billion to $30 billion, and WorldCom, $15 billion to $20 billion.
Some analysts estimate that before it's over, Corporate America could see more than $1 trillion in net worth evaporate. That could have a further chilling effect on a stock market and investors that badly need cheering up.
While companies and Wall Street analysts generally stress that goodwill write-downs are one-time, non-cash charges that have no impact on underlying operations or cash flow, many accounting experts argue they are significant — an admission that the investments companies once made are no longer worth as much. Moreover, a company with atrophied assets and a ballooning debt-to-asset ratio may find it harder to borrow.
Believing their own growth stories and enjoying high stock valuations that gave them pricey stock to swap for acquisitions, many companies engaged in an orgy of dealmaking.
Many of the prices paid now look excessive.
"The serial acquisitions many companies made are not going to generate the revenues they anticipated. That suggests management made some bad deals," says Lehman Bros. accounting expert Robert Willens.
It's beginning to look like it.
Looks like stoopid was running the economy at that time. dot.com fantasyland. Fantasy? Kind of like the liberals opinion that Klintoon was a great president.
A more accurate assessment would be that much of this "value" never really existed.
When someone invests $1,000 and within a year the stock goes to to $20,000 and then loses all its value, it is invariably reported as a loss of $20,000, as though $20,000 of value ever really existed. The actual "loss," of course is $1,000, plus a reasonable one year return on investment.
This is the type of loss many of the Enron employees suffered, and is is different only in degree from a Vegas gambler who starts with $500, is momentarily up to $50000 and then loses it all.
One company exchanges some overpriced paper (stock) for another company's over priced paper. The economy slows down, the market goes down and the value of the paper goes down. At this point everyone is about even since the market value of both companies would have gone down had they not merged.
The best part is that the acquiring company is now required to take a large non-cash tax deduction. Uncle Sam's IRS takes it in the ear.
Imagine. You do a non-cash paper swap and get a real cash break with reduced tax payments.
What a country!
You do remember Alter's column about "The Big Dog" a week or two ago, wherein Jonathan declares his undying love for all things Bill, and informs us in no uncertain terms that his blue dress got burned immediately after the love encounter?
Isn't Vivendi the parent company to the publisher(s) who gave Bill 'n Hill the multi-million dollar book deals? Also, I recall Vivendi being involved with the TV stations who used "moral message" situations in TV shows to side-step the Public Service Message requirement. (At some point during the Clinton era, it was mandated that all stations had to broadcast Public Service messages -- anti-drug, anti-smoking, etc. The stations involved claimed they did not have to run the Public Service Announcements because their dramas depicted situations delivering the same message -- a charcter says, "Dope is bad for you" qualified as the Public Service Announcement.)
Or maybe I've been reading too much FR before the coffee is ready . . .
They will never print the truth about clinton. Never.
He was picked for us by the checked pants Republicans who believed he should've been President because it was his turn. He in turn felt he deserved it, therefore it was in the bag.
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