FTE Networks Inc (fka FTNW)

[Ed Ajootian]

The sellers only received $17M in cash. The rest of their consideration received was either notes ($50M), or FTE shares (27M). It would thus seem that the sellers must think this combined enterprise is going to succeed, or they never would have agreed to sell a company grossing nearly $400M a year for just $17M in cash plus other securities that depend on the success of the company to be of any value.

We don't have financial info on the target yet but we have some clues. It appears that Benchmark Builders had no significant debt. That can indirectly be gleaned from a purview of the Credit Agreement that FTE entered into in connection with the acquisition. For a company that size to have essentially zero debt indicates that they must have been pretty successful.

One reason that the stock did not move up as much as some here had expected is that FTE had to issue a massive amount of stock in order to get this deal done. In addition to the 27M shares they issued to the Sellers, they had to issue something like another 15M shares to their lender in order to get another $11M on their line of credit (which they needed for the closing). So total shares out are now something on the order of 150M fully diluted.

It seems kinda nutty that they had to issue 15M shares of a stock currently trading at ~ $.80 to get someone to lend them $11M but that's how I'm reading the 8K. If someone reads it differently I'm all ears.