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[sharechat] FFS Debt value - flaw in valuations

From:	"Oliver Shapleski" <oliver.shapleski@vuw.ac.nz>
Date:	Wed, 24 May 2000 12:28:58 +1200

Thought some people might need the flaw pointed out to them - hence the problems with NTA. FFS has debt - true. This debt is a negative on the balance sheet to the full extent of the debt. Possibly $700m, I don't know (I reiterate my point made a few months back - which letter stock actually "owns" the debt is in many circumstances unclear).

If a profitable company bought FFS, the value of the debt isn't necessarily -$700m. It depends entirely on the applicable tax laws, but if the transaction is structured to allow Loss Carry Forward and the tax rate is 33%, then the value of the debt increases by 700m*0.33 i.e. roughly $230m.

People need to consider tax implications a bit mote thoroughly. Few investment analysts have any idea - they don't understand any of the law - leading to many different valuations and some of these are very misleading, usually with too much downside.

Oliver

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Re: [sharechat] FFS Debt value - flaw in valuations tennyson@caverock.net.nz

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