Mr Richard Li and PCCW - Episode 3

engine was running while the driver was yakking away over his coffee

What is the deal?
Mr Richard Li and China Network Communications Group intend to take PCCW private by buying any remaining shares they do not own at HK$4.20 a share. Total purchase consideration - HK$14.9 billion.

PCCW, Hong Kong's biggest phone carrier, will pay a cash dividend of about HK$16.9 - 17.4 billion to Mr Li's Pacific Century Regional Development (PCRD) and China Network within 20 days after the purchase date.

That is about HK$2.7 billion more to be received by Mr Li's and China Network against the buyout price tag.

Couple of hitches

• The intended dividend payout is 13 times more than 2007's.
• 2007's dividend payout is about 74% of 2007's profit.
• PCCW's net debt as at June 2008 - HK$23.2 billion.
• So how does PCCW intend to find the money to pay the intended dividend? PCCW intends to borrow at a relatively high interest from 20 banks to pay it.

Sharholding structure of PCCW before the buyout:-

• Mr Richard Li (in his own name) - 28.3%
• PCRD Singapore - 22.5%
• China Network - 20%

Shareholding structure of PCCW after the intended buyout:-

• Mr Richard Li and PCRD - 66%
• China Network - 34%

So what would be the impact to PCRD's minority shareholders?

Background info
In 2006, Mr Richard Li tried to take PCCW out of PCRD by proposing buyers in the form of companies and parties deemed related to Mr Li Senior and a ex-Citibanker Mr Francis Leung. http://investingwithedgar.blogspot.com/2006/11/richard-li-his-dad-and-pccw.html

EVA and Keppel Corp

Quiet - my 4.30pm picnic lunch on Friday last

What is EVA?
Economic value-added (EVA) is after-tax operating profit minus the dollar cost of capital employed. It is measured in dollar figures, and not a percentage rate of return.

EVA = after-tax operating profit - [weighted average cost of capital X total capital employed]

EVA is positive as long as the residual income is positive. EVA is used to avoid situation where an investment that is profitable for the Group is given a miss by the responsible division, whose performance is measured on ROI.

Keppel Corporation is a key user of EVA. I quote the paragraph from their latest financial report.

"We have been reporting positive EVA since 2004, achieving a record $604 million in 2007.

This positive EVA was due mainly to the improvement in Net Operating Profit After Tax (NOPAT), an efficient capital structure, stringent investment criteria and strong cashflow.

The improvement in EVA by $181 million was attributed largely to higher NOPAT partially offset by higher Capital Charge. NOPAT increased by $216 million due to an increase in after-tax profit of $172 million. Capital Charge increased by $35 million due to a higher Weighted Average Cost of Capital (WACC) partially offset by lower EVA Capital. WACC increased from 6.5% to 6.99% attributed largely to a higher unlevered beta. Average EVA Capital decreased by $132 million from $9.08 billion to $8.95 billion.

In all, total EVA growth was $405 million over the last two years."

Retiree sues UOB

my regular mutton fix

Plaintiff - Customer - Mr Go - age 69 - lost $350,000 over 2 transactions worth $2.75mio. Said to be an ex-property developer and experienced investor in equity.

As reported in ST yesterday, Mr Go sue on the basis of misrepresentation, negligence and breach of duty under the Financial Advisers Act on Nov 3.

Defendent 1 - UOB Bank
Defendent 2 - Mr Yeo Beng Hee - age 28 - so called Relationship Manager

While the Court has yet to decide on who is right or wrong, the rosy world of high finance for this young 28-year old is now in nightmare.. But will he survive to continue in his banking career?

Should the banks be more stringent in the quality and experience of people they put in the frontline advising clients on matters worth a lot of monies?? Quantum of funds they themselves may not even have and thus had no personal experience handling.

While I know everyone got to start somewhere, I will still say quality and experience level of people at the frontline must prevail. It should not be based just on passing a few exams and they happily go around Boat Quay telling people they are BANKERS. Sigh!!

Who is vulnerable?

part of Shenton Way's history

We are hearing that the banks and other financial institutions are doing the right thing by compensating the vulnerable group ie. defined as illiterate, elderly people.

A bank said they are prepared to do that as their investigation has shown that their sales staff have failed to live up to their "high" standard of selling and marketing financial products. Such well crafted marketing communication punch line indeed AS it suggests that the sellers have "high" standards but some may have failed to deliver according to standards.

When a plane crashed, the investigators would look at how the pilots were trained and pre-qualified for the job.

Couple of questions in my mind:-

1. How do the banks/FIs approve a product before being "sold" to their respective custoner base? I notice some FIs are deeplyly involved with these ill-fated products but other FIs are not involved at all.
2. What are the profiles of their sales staff? How are they remunerated? Are they qualified to advise?
   
3. Are these sales staff personally liable?
4. Do the FIs really think the elderly and illiterates are the vulnerable groups and thus the compensation? Or the FIs are most vulnerable to additional liability given their "miselling" to these "vulnerable" groups?

So who is actually vulnerable here?

Old Wheelock admits mistake...

Wheelock Properties CEO Mr David Lawrence apologised to his shareholders at AGM for having bought a 10% stake in SC Global in June 2007 at $6 per share.

SC Global has since done a two-for-one stock split and the counter closed at 39cts yesterday. Based on my back-of-envelope calculation, this represents a 87% decline in total investment value of $112mio.

This admission of judgement error affirms my view back in 2007 that it was a wrong move by Old Wheelock to have invested. But it was certaintly an excellent piece of business done by Young Simon Cheong to have cashed out at that time.

http://investingwithedgar.blogspot.com/2007/10/merrill-lynch-recommends-sc-global.html

While Old Wheelock said he had made mistake in the past cycle, let us see how he can recover from this one.

A saving grace for Mr Lawrence is that he has done more good than bad for Wheelock. He should be commended for having the guts to admit error.

To bet on S-Reits now?

looking for value

REIT - Real Estate Investment Trust has been one of the best business models I have seen in recent time. Use other people's monies to buy your assets (acquired at lower prices) and then subsequently put yourself as managers of the REIT. Thus ensuring long term income streams for yourself in addition to capital gains and unlocking liquidity in non current assets.

Uma Shankari, in this weekend Business Times, said Singapore Reits (S-Reits) are gaining favour as prices fall and yields climb on the following grounds:-

1. the share prices have dropped significantly (Edgar says - but so have other blue blue chips)
2. a source of stable, visible and recurrent income (Edgar says - We need to check rental collection and rental rates would hold at current level. The fundamental determinants to dividend payouts. I am of the opinion that current rental levels are not sustainable.)
3. tolerating cost of debts to be between 4% to 4.5% (Edgar says - assuming the liquidity is available in the first place. I am more comfortable with this.)

Bottomline - Wait for rental rates to adjust first.

My notes - Singapore Reits' distribution yield has ranged between 4-9plus%. Average - 6.03%. Price/NAV has ranged from 0.6 to 1.2plus times. Average - 0.97x.

HSBC's 2% deal

HSBC Singapore has gotten many people to queue up at their various branches by only offering 2%. Again the promotion was so overwhelming, HSBC has to prematurely end it today.

Whereas back in July, SCB paid more at 2.28%. To read about SCB's offer click http://investingwithedgar.blogspot.com/2008/07/scb-was-it-shrewd-piece-of-business.html

With economic activities at a slow pace, why is HSBC willing to pay beyond the market rate for a big chunk of 12-month money at this time? Could they not borrow from the interbank market? Why? Why?

P/S - UOB Bank offers its preference shares at 5.05%. Are there long queues for the shares too?

Shares as payment

Sentosa being changed

On Aug 13 and 14 in the Business Times, Jamie Lee reported that PrimePartners, a Catalist sponsor, received 7.56 millions Healthway shares for helping Healthway get listed on Catalist.

The question here is whether it is all right for Catalist sponsor to receive the shares as compensation. I wish to present the pros and cons for your decision.

Yeo Lian Sim of Singapore Exchange said it is ok for the following reasons:-
a) Catalist sponsors are of so high a standard and with so good track record that they have an independence of mind not to be tainted and tempted by the 7.56 millions.
b) It is ok for the sponsored company to pay in kind so as to allow them to conserve cash to fund their business.

PrimePartners said sponsors receiving shares is not an uncommon practice. It is practiced in London's Alternative Investment Market.

The Cons:-
a) What would or could happened to the minority shareholders when the sponsor decide to sell the 7.56 millions shares in one shot? (concern of overhang or sudden deluge of shares)
b) There could be an overriding desire to put up a "good" show to ensure the shares get a good price by over emphasing the positives and relatively quiet on the negatives. (lack of independence and professionalism)

My final question here
If it is all right for Catalist sponsors to receive shares as payment, will SGX approve other professionals like lawyers, accountants, auditors etc (who are also involved in the process) to get compensated in the same way?

2 months ago

About two months ago, I received a sms from an ex-colleague, who had been quiet for quite some time, with an invitation to meet up for a meal.

I accepted the invitation. During the dinner, we ended up talking about investment. I got a feeling after the whole thing that she could be sizing me up for an introduction to her boyfriend working in the investment line.

She mentioned about this investment talk that she has attended where the instructor was teaching about how to make money through some investment technique that he has become aware of.

Edgar's response then - Did you ask the guy why he is sharing with a whole bunch of people in class after class the secret to making money?

She said then she has just invested some Singapore/Malaysia funds.

Edgar's response then - I am looking to build up a sizable war chest (by opening credit lines) to buy when the market crashes.

She said she would be very interested to take on the position of marketing for investment houses.

Edgar's response then - Why?

The lean years could be here and we must know that money may no longer be easy to come by.

Why the rental spike over the last 3 years?

I am duly enlightened about the escalating rental situation in Singapore over the last 3 years when I came across this gem article written by Mr Colin Tan, head of research at Chesterton International in yesterday's TODAY.

The number of rental contracts peaked at 29,694 in 2005. The average for 2006 and 2007 is 25,173. There is thus a contraction of 15%.

The average cost of rentals rose by 15% in 2006 and 43% in 2007.

So what is the cause for this phenomenon?
Mr Tan concluded from his research that the rental spike is caused by the sharp contraction in supply due to en-blocing.

It is definitely not due to increased demands from executives coming to town working on the IR projects nor due to thousands of foreign students pursuing their education here.

SCB, was it a shrewd piece of business?

On the July 2, 2008, Standard Chartered Bank stopped an intended 3-week campaign after 2 days given the more than overwhelming response.

What was the campaign about?
SCB advertised on Friday last, to officially launched its campaign from June 27 to July 20, to attract deposits for amounts of $50,000 and above for a 18-month tenure by offering 2.28%.

Ms. Janice Poon, general manager, wealth management, Standard Chartered Bank said they have underestimated the response.

The development has led me to ask a few questions.

1. Was SCB too generous in offering such a "high" interest rate in the current "uninteresting" market environment?
2. Or did SCB know something we don't ie. the cost of money would be higher very soon?
3. Or is SCB in need of the money for a deal urgently?

So will time tell, please?

Dayen Chairman sells shares...

take care of that tree during F1

Mr John Lee, Executive Chairman of water treatment company Dayen Environmental, has to sell its own company shares to meet margin call when Dayen's shares dropped by more than 30% in one day.

This has led me to ask a few questions:-

1. Are people in management of public listed companies in Singapore in such precarious financial position? Or are they just the minority?


2. There is a conflict of interest when a senior official of a public listed company geared up and purchased shares of the company he/she is working in. I noticed that purchases of shares of such nature has to be declared. It would be good to summarise such info on the nature of their respective shareholdings for investors to review.

NTUC Income rules out option...

water in my room

... for policyholders to stay in old bonus scheme.

I have been waiting for enlightenment on this issue since Mr Tan Kin Lian, the ex-CEO met with the other Mr Tan, the current CEO of NTUC Income.

What I read so far in the papers are just assurances from various bigwigs from NTUC Income and NTUC that policyholders' interest will be taken into consideration. Can you provide some details on how our interests will be taken of?


I have been wondering whether NTUC Income has the right to amend the bonus features from the legal standpoint? Can you please cite the clauses in the insurance contracts that I have signed giving NTUC Income such flexibilities?


Mr Tan Kin Lian, if you could, please share some info on the meeting.

Season for CFOs to resign?

I was flipping through the papers today and can't help noticing a few CFOs resigning and one even got fired making the headlines.

ASA Group dismisses CFO after 2 months citing "incompetence" and "uncooperativeness".

Apple-brand reseller Afor's CFO resigns.

Penguin International names new finance and administration director.

Jade Tech's CFO tendered resignation on 24 April 2008.

NTUC Income Annual Bonus Update for 2008

When I first saw the title to the document I had just received, I thought it was trying to tell me NTUC Income is going to pay more bonus for my various policies.

Guess what I read.

They are telling me that they are increasing the Special Bonuses and decreasing the Annual Bonus, leaving the TOTAL bonuses unchanged or increased MARGINALLY.

My immediate reaction is why the change then.

Why would a Cooperative spend thousands of dollars on mailing thousands of pages to hundreds of thousands of policyholders telling them nothing much change except the allocation?

The change in allocation is supposed to give them "greater investment freedom.. to invest in higher yielding assets that COULD lead to higher returns in the long run." I am old enough to know that higher return could also mean lower return.

Can insurance company unilaterally change the terms of a contract that have been in force for years? Or is it part of the contract?

Can I say NO to the change until I am sure that the change is actually beneficial to me.

What is the difference between Annual bonuses and Special bonuses?

While Annual bonuses are added yearly to the policy, Special bonuses are paid only upon death/maturity/surrender.

Limited upside of Singapore properties' prices

I was kidding with my students when I told them that White House in US is going for a song. Given the drastic contraction in housing demands, housing starts, housing prices, no. of foreclosures currently occuring in US, you may now be able to afford to buy the White House.

We were reminiscing on the Financial Crisis back in the late 1990s. I remembered a "party" I attended in KL then. A big boss of several listed companies in Malaysia was bragging away of the possibility of buying up assets in Thailand on the cheap given the collapsing baht.

A few months later, Malaysia's ringgit too went down the tube. Now in 2008, I hope the sub-prime tsunamis will be over soon.

Coming back to the title of this article - We opine that there is limited upside to Singapore property's price. Why?

Under asset allocation theory, hot monies will go to places where it can find value. Relatively speaking, the current US property market presents more opportunities. So does this explain why a middle east fund decides to drop the options (and thus dropped millions of dollars) to buy properties in Singapore?

Council of the Elders

after a glass of wine and cigar with the Council

Hi friends,

I wish to introduce you to Edgar's "Council of the Elders".

This is a group of people whom I interact regularly for discussion on issues affecting our lives.

This group has been part of my life for more than 2 decades. Their opinions and recommendations are backed by their experience in diverse industries.


In future to come, I will share with you bits and bites of the wisdom I acquire through my interaction with them.

Buyer of last resort has arrived...

While Monetary Authority of Singapore is the lender of last resort to banks and financial institutions in Singapore, Housing Development Board (HDB) has just introduced itself as "buyer of last resort" when it unveiled "income for life" scheme for the elderly.

What is the Scheme?

Under the scheme, HDB will buy back the tail-end of a flat lease at market valuation. The money from the sale of the lease will be credited to the new CPF Life annuity account in the name of seller. HDB has estimated that it would be enough to pay about $500 per monthly for the rest of the seller's life.

Who can qualify for the scheme?

You are 62 years old and above.

You own a two- or three-room HDB flats with little or no loan outstanding.

About 25,000 flats fit the above criteria.

Any promotion now?

Yes, you get additional $10,000 above valuation. $5,000 of which will be paid to you in cash with the rest of the monies going to the annuity account.

What are the beauties of the scheme?

1. For the low income households, you now have another option in addition to other options such as rental or selling it in the open market.


2. For the government, the scheme solves its cashflow needs ie. not having to do lump sum payouts on buy backs. Some may argue that this view maybe wrong when the government actually has to debit its bank account and credit the annuity account. But more importantly, the government can still say its citizens are largely looking after themselves.


3. The seller, at 62 and above, will not have to deal with the temptation of dealing with a big chunk of monies but instead have the peace of mind of receiving regular payouts for life.

Through this scheme, the government may have solved the conundrum of living asset-rich but cash-poor.

Quoted out of context twice?

my thursday's dinner

On Tuesday this week, MayBank Singapore slashed its three-year fixed home loan rates from 3.58% for all three years to 1.68% for the first year, 2.68% for the second and 3.38% for the third year. The new first-year interest rate is about 40% lower than similar packages being offered in the market.

Guess what was the headline on Friday's BT...

"Maybank's home loan promotion creates a buzz
Other banks won't get into price war, says OCBC's chief executive."

A couple of questions come to my mind when I saw that.
Has the editing process misquoted Mr Conner ie. quoted out of context?
For otherwise, can he speak on behalf of other banks? I am sure he was not trying to suggest that there is some sort of collective agreement with other banks not to cut rates.

Another incident of Mr Conner being quoted out of context was highlighted on Saturday's BT.

The letter by OCBC PR entitled "OCBC chief was speaking in jest" attempts to clarify Mr Conner's response when asked by a journalist at OCBC Bank's 2007 final results briefing what Mr Conner thought of DBS's incoming chief executive Richard Stanley.

Mr Conner responded in jest and said, 'You mean since I trained him?', drawing laughter from the audience. The quote in the article had implied that Mr Conner said 'I trained him' in a definitive manner.

Moral of the story - Beware of the danger of being quoted out of context when one speaks as a public figure.

Damn if you don't do,...

On the 13 Feb 2008, I read from BT that a group of shareholders has sued Yahoo! Inc asking a judge to force the owner of the world's second-biggest Internet search engine company to fully consider takeover offers after it rejected a US$44.6 billion bid by Microsoft Corp.

So what if Yahoo! Board had accepted the offer, would any other shareholders had sued them for having accepted a too low an offer without thoroughly considering alternative means of enhancing shareholders' value?

Amazing SIA

my sanctuary

The headline in BT today said "SIA posts $590m Q3 net profit". Well this is about the same as corresponding quarterly profit last year. So no big deal right?

It is BIG deal as I read further down the report.

Striping out the one-time gains from disposals of SIA Building and its stake in Singapore Aircraft Leasing Enterprise in its last year's reported profit of $1.46 billion for the corresponding 3 quarters, net profit attributable to shareholders is 46.8% or $485 million HIGHER for the 3 quarters to date!!!!

The fantastic results have been achieved against the background of high fuel prices and the continued strengthening of SGD.

Aggresive management of its fuels costs through hedging and fuel surchages applied on its 4.96 million passengers, has kept its escalation to only 8% in the 3rd quarter.

Passenger yield grew by 12.7% vs a 7.7% rise in unit cost. I wonder whether the higher yield is due to efficiency improvement or ticket price increase.

Passenger load factor is now at 81.3% vs a breakeven level of 67.7%.

My sincere appreciation of your effort and the brain work involved in achieving the results.

P/S - Dear SIA, can you waive the fuel surcharge please? :)

The big picture impacts on Singapore companies

looking for light in gloomy days

Ms Teh Hooi Ling, in this weekend's BT, attempted to answer 2 huge questions as follows:-

• What kind of impact do macroeconomic factors have on companies?


• What are the companies which will suffer the most in an unexpected downturn?

This is the list of characteristics she has highlighted.

• Companies with high levels of debt ie. financial leverage.


• Companies with high fixed costs in relation to total costs in running the business ie. operating leverage.


• Companies with loooonng cash conversion cycle and consequence of credit crunch by their suppliers.


• For external characteristics, inflation and foreign exchange movements would impact negatively.

She atttempted to back up her Econs 101 presentation with data analysis of winners and losers during market upheavals in 1987, 1997 and 2007.

But as the circumstances of excesses were different for different upheavals, the market responses were thus different. She had observed the public listed companies. How about private business entities? Thus inconclusive.

Panacea?
She ended her article with strategies that were generally adopted and proven effective by 750 Finnish companies during the recession in 1989-93.
In the medium term, companies should:-

• continue to invest in new product development


• continue your effort to acquire new customers.

Edgar's closing remarks
Ms Teh attempted to address 2 huge questions very very briefly in an article. It may serve as a quick read and be adopted for many out there.

Her study of Singapore companies' experience in the last 3 upheavals could be developed further and acts as standalone materials. It does not seem to fit in flow of arguments that she has presented in the preceding portion.

In the long run, similar for companies and for individual like you and I, we should generally maintain a healthy lifestyle for higher probability of longetivity.

Benjamin Yeo prophecies ...

a failed bbq in december rain

Who is Mr Benjamin Yeo?
He is the Executive Director and Head of UBS Wealth Management Research. Today he spoke to about 40-50 people at today's ICPAS/ACCA Executive Lunch Series.


Here are some quotes from Mr Yeo that I managed to reap.

• The initial phase of making easy money from the stock market is over. Going forth, look for valuation.
  
• Consumption in US has never experienced negative growth. [I wonder why. Is it due to natural population growth? Or is it due to immigration numbers into US?]
  
• Countries with high export as a percentage of GDP are Malaysia, Singapore and Thailand. As such, any slowdown in consumption in US will have a significant impact on these countries.
  
• Korea, Taiwan and Thailand have the lowest average market PE for the Asian equity markets. Based on data in Dec 2007.
  
• In the equity sphere, emerging market - overvalued. Among other asset classes, real estate and commodities are overvalued with corporate bonds, undervalued.
  
• Singapore, despite a year of bad export figures in 2007, still managed to post such strong growth figure.

In conclusion

1. look for market with significant domestic demand


2. look for healthcare and infrastructural themes in your investment


3. flight to quality will continue ie. go for large capitalisation stocks


4. more writeoffs could be expected in the coming months - which would give us a more difficult first half of 2008.

Enbloc muse - Interest on 5% deposit

Background

In a property transaction, the buyer would place a deposit of 5-10% of the purchase price to the seller. The money is held in trust by the seller's lawyer pending completion of the sale & purchase.

The interest earned on the sum of monies has been kept by the seller's lawyer. [Do they have the legal right to that interest?]

Situation

In this situation that I became aware of, the seller's lawyer has "kindly" agreed to share the interest income on a 50-50 basis with a few hundred sellers of an enbloc property.

Upon the completion of sale and after a few reminders, cheques for the interest income were sent to the sellers. One of the sellers asked for a statement from the lawyer to detail how the amount was derived.

The lawyer said no statement would be issued as the payment was purely made out of goodwill and with no legal obligation.

This seller persisted for the statement as a contract was crystallised [in its opinion] when the lawyer made the offer to share the interest earned on 50-50 basis.

The seller then raised the matter to the Law Society for "help" to secure the statement from its members. The Society said they are not in a position to intervene in a private contract. The seller subsequently changed its position to request the Society to review the conduct of the members in this transaction.

While the seller was in the midst of preparing the paperwork to activate the independent tribunal to review the complaint, the lawyer responded through the Society with the required statement.

Moral of the Story

• Who is legally entitled to the interest earned?


• Is there such a thing as paying out of goodwill for the above situation?


• The interest earned can be "shared". In an enbloc sale, the interest earned could be significant given the size of the transaction and possible long delay due to legal challenges from majority sellers, minority sellers etc etc etc...

"Whose arm did they use?"

When I was told that a Singapore listed company is acquiring another company for $525mio at a valuation of 25x earnings. The price was arrived at on an arm's length, willing-buyer-willing-seller basis. My immediate response was, "Whose arm did they use?"

SNF Corporation, the electronics distributor, has proposed a reverse takeover deal which will see the business of Healthway Medical Services Pte Ltd (HMS) being injected into the listed entity.

SNF will issue 2.6 billion shares in exchange for the ownership to the clinics (doctors and nurses included?) and their future profits.

At 25x PE, I am pretty sure we can buy into blue chips with proven and sustainable income streams. I would be interested in the justifications for the acquisition.

No guarantee in life.

Recently in an investment briefing by a company going for an IPO, we were told in an “unofficial” way that the buying company can’t really rely on profit guarantees issued by ex-shareholders of the company that was acquired, especially if the target companies were from third world countries.

Take for example.
When Company A (who is going for IPO) buys Company B in China for a price tag of $50 million (with questionable assets with minimal book value) that come with a profit guarantee of $10 million a year for two years (when the real price could be $30 million).

Investors to an IPO also cannot be sure whether profit guarantees will result in actual profits or are merely used to make a purchase look good by playing the “PE game” and allow the buyer to have a decent-looking income statement for a few years while having purchased poorly performing assets.

What is the “PE game”? If Company A were to go for IPO at a PE of 8, the $10mio profit guarantee would translate to an additional $80mio in its valuation.

What could Company A do if the acquired entity did not achieve the guaranteed profit? In BT dated Nov 13, 2007, R Sivanithy asked what remedies investors have when guarantees fail to materialise.

They could try going after the sellers after 2 years’ of operating the business and possibly spend another few more years of being entangled in Courts with legal procedures. Assuming the buyers were to be finally successful in the Courts (after incurring heavy legal fees), the sellers may have disappeared completely or the sellers may have conveniently lost the ability to pay for the profit guarantee.

So we, the poor shareholders, end up with an emptied pocket.