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Nelson, one to look at for your collection is IRDM. I'm nibbling on it at 5.50 and below.
Management and the stock are in the penalty box for consistently missing quarterly estimates in 2013.
Perhaps the numbers have been lowered to a more reasonable level of expectations. Trades at 7.7x eps for TTM; FY14 eps of 0.90 shows strong growth over the current FY.
OT: The VIE structure of Chinese equities are a ticking time bomb. The situation outlined in this TRIT 8K filing highlights the considerable risks to a US investor who owns this type of stock:
http://www.sec.gov/Archives/edgar/data/1460801/000114420413066848/v362822_8k.htm
The situation with the company "chops" sounds very similar to what happened at CAST. The VIE works....until it doesn't.
Another comment on the subject:
http://www.chinaaccountingblog.com/weblog/fu-shows-vie-risk.html
http://www.chinaaccountingblog.com/weblog/are-vies-a-going-concern.html
Caveat emptor.
Thanks R59. That was my thinking too. I don't know how else to think about the rule since it clearly states that a disallowed loss is simply deferred not lost forever.
Quote:
"If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold."
As I no longer hold the stock, and never repurchased it, the loss should still be allowed.
I'll have to get this confirmed by a tax accountant, but I figured someone here has run afoul of it before.
OTC, the wash sale rule is triggered by any purchase of the same security within 30 days before or after it is sold.
From the IRS:
http://www.irs.gov/publications/p550/ch04.html#en_US_2012_publink100010601
Wash Sales
You cannot deduct losses from sales or trades of stock or securities in a wash sale unless the loss was incurred in the ordinary course of your business as a dealer in stock or securities.
A wash sale occurs when you sell or trade stock or securities at a loss and within 30 days before or after the sale you:
Buy substantially identical stock or securities,
Acquire substantially identical stock or securities in a fully taxable trade,
Acquire a contract or option to buy substantially identical stock or securities, or
Acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA.
If you sell stock and your spouse or a corporation you control buys substantially identical stock, you also have a wash sale.
If your loss was disallowed because of the wash sale rules, add the disallowed loss to the cost of the new stock or securities (except in (4) above). The result is your basis in the new stock or securities. This adjustment postpones the loss deduction until the disposition of the new stock or securities. Your holding period for the new stock or securities includes the holding period of the stock or securities sold.
Hi Nelson, yes this is coming from the broker's capital gain worksheet that they report to the IRS.
The transactions in question all occurred in the first quarter of 2013.
I can see how the sales in December would really complicate matters, but that isn't the issue in this case.
OT: Wash Sale Rules
Tax time again....ugh.
I'm sure some of you have come across this before, so perhaps you can help me understand why a capital loss is disallowed in the following situation:
I bought stock A on three separate occasions, averaging down each time. I accumulated 650 shares total. I sold the entire position in one day with a loss on each of the three blocks of shares. However, because the last purchase of 200 shares was within the 30 day window prior to the sale date, I have lost approx 30% of the capital loss due to a triggering of the wash sale rule.
At the end of the transaction I own zero shares of stock A. Is the disallowed capital loss permanent? If so, why? I was under the assumption that any disallowed losses via wash sales are added back to the cost basis of any shares that have been repurchased during the wash sale window. That assumes that you own shares at the END of all these transactions. What happens if you liquidated the entire position but your last set of purchases triggered the disallowed loss? Are you unable to use that disallowed loss in the calendar year you took it in? What could be done to "recapture" it?
Thanks!
Here is another one to add to your REIT list. Its a hotel REIT, with the symbol INN. (Price: 8.60; Current Yld: 5.23%
Trades at <9x 2014 adjusted FFO/sh. Book value is 9.70, so the stock currently trades at 89% of book.
Recent insider purchases:
http://finance.yahoo.com/q/it?s=INN+Insider+Transactions
I added some today at 8.60 and will continue to nibble looking for the stock to trade back up close to book value in the next 9-12 mos. Combined with the dividend, that could provide a 18-20% return.
The company did a pretty hefty secondary earlier this year which has weighed on qtrly FFO/sh comps. Should be through the worst of it by the end of the current quarter.
Hweb, on DRAD did management give any forecast of where they expect GM to be in the next year or so?
I hear you about the balance sheet cash, but if you want to use it in that way in determining EV, then the better divider is adjusted EBITDA....that's how an acquirer of the company would primarily view its relative cheapness.
YTD, I calculated DRAD's adjusted EBITDA (excluding changes in working capital and backing out the one time gains) as still negative. In Q3, they finally showed some positive EBITDA of roughly 1MM. Annualizing that would give you an EV/EBITDA ratio of approx 10x. Thats not too bad, but its not as cheap as you might think for having all that cash on its books.
I wish you all the best with it. If they can show more sustained top line growth I may get a bit more excited.
DRAD has only shown top line growth in its most recent quarter. I guess I'm just a bit skeptical that a 20x forward PE is warranted here. Using relative valuations is a quick way to get your head handed to you. If DRAD was able to grow their revs consistently at 15%+ then I'd be a little bit more likely to give them a higher valuation....but that is just my two cents.
I agree that the insider purchases are a positive, but I can't get too bullish on the small amount of purchases in the 4s. How does this constitute buying like crazy at 4.25?
Nov 13, 2013 CLIMACO JOHN M
Director
1,369 Direct Purchase at $4.37 per share. 5,982
Nov 12, 2013 CLIMACO JOHN M
Director
5,000 Direct Purchase at $4.28 per share. 21,400
Nov 11, 2013 CLIMACO JOHN M
Director
3,000 Direct Purchase at $4.23 per share. 12,690
================
The REAL significant buyer was Eberwein, who bought a ton of stock in the mid 2s. That, in hindsight, was a great time to buy the stock. Now, I think we are still in the "prove it" mode. The company did not give much details in terms of forecast.
Their bottom line was positively impacted by significant cuts in R&D, and to some degree GMs. I get that they don't need to spend much more in research, but cutting expenses to the bone will only help once.
Just to play devil's advocate on DRAD, why is it worth much more than 10-12x adjusted eps of 0.24 (0.06 in last quarter annualized).
I'd like to see more growth in the top line on a consistent basis before giving it much more than that modest forward valuation.
I guess the company will continue to buy back stock if it gets down into the mid 2s again. They can certain pay the 0.05/sh/qtr out of cash on hand.
Perhaps they will look to an accretive acquisition to boost both top line and eps?
The dividend is certainly attractive, but once its paid out, the stock is/was vulnerable in the short run. Perhaps that correction has largely run its course, but I don't believe it to be that undervalued based upon its current operations.
Hweb, I was checking this one out yesterday. You are correct that the company doesn't quantify what its NOL/valuation allowance is, so its hard to know what the GAAP tax rate will be for the company going forward.
In Q3, they had a pre-tax loss on a GAAP basis, so it was able to record a tax benefit. However, YTD through 9 mos, they reported a GAAP pretax inc of 3.7MM and recorded a GAAP tax expense of 1.6MM (44% rate).
I believe these tax expenses are non-cash, but you can see the difficulty inherent in coming up with a better estimate of adjusted fd earnings per share going forward.
The company should be recording the off balance sheet "valuation allowance" as a deferred tax asset, assuming they can meet the standard test of greater than 50% chance they will use most, if not all of the remaining NOL/allowance. That would result in a big non-cash benefit on the income statement, and then they would be recording tax payments going forward.
Also of note: there were a ton of shares issued as part of two secondary placements within the last 6-12 mos. The shares have been approved by the SEC, so can now be sold freely. This is probably weighing on the stock.
<snip>
11. Equity Transactions
Private Placements
In January 2013, the Company sold 4,000,000 shares of its common stock in a private placement at a price of $1.00 per share. Proceeds from the sale totaled $4,000,000.
In August 2013, the Company sold 5,000,000 shares of its common stock in a public offering at a price of $2.00 per share. Proceeds from the sale totaled $9,900,000, net investment banking fees.
The move down on UVE was more puzzling to me. I think this latest move up is simply correcting an overly pessimistic outlook for the company based upon past management's errors. The trial CC, moving investment management out of former CEOs control, hiring an IR firm, and moving to NYSE are all positive signs.
As R59 points out, even an 8x trailing valuation on eps will get this well into the 12s.
I'm not selling yet, although I'll be tempted to start scaling out if we get over 11 soon.
There is a lot of skepticism about the sustainability of their business model. The core of its model (and Conduit) is that they get less savvy computer users to download "stuff" that automatically loads a search toolbar on to their web browser. When users use the search feature of the toolbar and click on websites, the company gets paid for that referral.
The toolbar can often be difficult to remove, prompting many online complaints.
Google, Yahoo and other search providers have been taking steps toward stopping the practice but Perion, Conduit and others have been changing to adapt. Are they totally clean and honest about the toolbar loading? And shouldn't toolbar search revenues eventually drop off as people realize they don't have to get it installed?
Of note, AVG decided to move completely away from this toolbar based model and go to subscription payers for its decent anti-virus software. At least they have a good product! You can see the impact on AVG's growth as it transitions to this new model over the next year with analysts revising estimates downward.
In sum, PERI is cheap but I can understand why. Oh, and the company doesn't believe in buying back its own shares (stated on one of the last CCs). With a reverse merger approaching and millions of Conduit shares to be unlocked in the next year or so, there may some tough times still ahead for the stock. Of course, this could still move up 20-30% off these levels, but I think this stock is best for swing trading and not as a long term investment.
Get ready...looks like Al Little (aka Jon Carnes)is readying a few more short attack reports on US listed Chinese stocks he claims are frauds.
http://labemp.files.wordpress.com/2013/11/al-prepares-to-expose-more-chinese-frauds.pdf
I'm pretty surprised at how strong the outlook for the next quarter was for PERI, esp given the strong headwinds from changes in Google's toolbar policies cited by several other companies. It seems my caution was unwarranted.
I'm sure there are a lot of shorts leaning the wrong way right now....could be a pretty good day for PERI, barring anything unusual in the CC.
I still need to better understand their future business model with Conduit. Currently, PERI is very reliant on the search engines, whose frequent policy changes can often wreak havoc on forecasts.
IACI and AVG have encountered some declines in current (and expected) revenues from the changes in Google's policies, as per their most recent quarterly earnings reports. Any near term catalyst for PERI has been effectively taken away, and so I'm not wild about holding this one into earnings. I've been selling over the past couple of days in the mid/high 10s as it seems that the near term outlook for PERI is less favorable than had been assumed.
It will be interesting to see the impact on Conduit's revenues and earnings as well, as that merger will ultimately be the LT driver of the stock.
I've been buying CPSS just about every day this week. Its a lender to subprime consumers looking to buy new and used cars. I think its especially ready for a bounce right now near its 50 and 100 DMA.
Had a strong Q3, and appears to be on a path to earning 1.00+ next year, so forward PE is around 6 - 6.5x. Fully taxed. Lowering their cost of capital, which is coming down as high interest debt rolls off or is paid back.
Here's the transcript from the last CC:
http://seekingalpha.com/article/1755192-consumer-portfolio-services-management-discusses-q3-2013-results-earnings-call-transcript
Here is the Q3 report:
http://finance.yahoo.com/news/cps-announces-third-quarter-2013-201500993.html
I'm hoping it continues to fall back down into the low 6s, as I think this is a slam dunk to hit the 8s within the next 6 mos.
The downsides:
Recent insider sales have probably put a lid on the stock, but most of the volume is coming from one big holder that is reducing their stake for risk reasons (and the fact that they've made a killing on the stock.) Levine Lichtmann holds debt as well as shares. They've been a frequent seller over the past year, but are getting closer to the end and may be close to letting what they have simply ride.
One comp that is out there is NICK. NICK reported a very blah quarter, and still trades at 10x eps. I don't see why CPSS can't get the same valuation from the market.
....and now Longbow has filed an amended 13G stating that they no longer own any NQ shares.
Wow!
No, I'm not interested right now. I did read the MW report and it is pretty damning.
There are some things in there that remind me of some of the worst frauds we've seen in this space: RINO, CCME, CHBT, Universal Travel, etc. Ghost addresses, undisclosed related party interests, sloppy auditing, difficult to pin down market share claims, etc.
I don't know who to believe, and I think this will be a battleground stock for some time.
Great for day-trading though! Just not my cup of tea.
Wow, Muddy Waters is back in a big way....out with a negative report on NQ:
http://www.muddywatersresearch.com/research/nq/initiating-coverage-nq/
Another solid report from MHH. Hweb, did you get a chance to listen to the CC this AM?
R59, Was CMFO on that list? What were the returns for this list last year and the year before that?
I think its fair to say that high returns usually come with high risk. You could gain 50% - 100% but you could also lose 50% - 90% as well, either from a sudden collapse in trading momentum or the company choosing to go dark, as in the case of CMFO.
As long as anyone who buys this toxic stuff understands that, and uses methods to limit exposure to any one company and also uses stop losses to get out if the trading picture weakens then fine.....but its certainly not the type of strategy I'd pursue.
I wish you the best of luck and hope you don't get burned when the current buying enthusiasm fades for these deeply troubled stocks. It sounds like you've limited your exposure to about 2% of your portfolio, which seems like a prudent amount.
Yet another example today (good timing!) as to why you cannot invest in the China microcap space even if you don't suspect fraud. Even short term trading is just too risky when any day the company can choose to stop filing and go dark.
http://finance.yahoo.com/news/china-marine-food-group-limited-201500257.html
Within the next few years, my prediction is that there will be no small or microcap Chinese stocks still trading here, esp anything not trading on NYSE or Nasdaq.
Worthy, the low valuations of China stocks are well deserved. There are NO investor protections should these companies decide they want to delist and go dark. That is a risk with low volume nanocaps too with closely held ownership structures....but it seems like every year there are a number of Chinese companies that choose this option. Do you really want to roll the dice and hope your low PE Chinese equity doesn't get frustrated and leave the US markets for good? What incentives do they have for remaining here?
Besides, what do you actually own when you buy stock in a Chinese company? If its a VIE, it is an offshore structure that even the Chinese government has never completely recognized as legit....with convoluted workarounds of Chinese laws against foreign ownership of assets. There are numerous accounting concerns with lack of oversight by the PCAOB and often shoddy work done by even Big 4 firms in this area who have missed many frauds in the past.
Lastly, in a normal circumstance, there would be a wave of M&A activity in this sector if firms or individuals outside China could actually own the assets of these stocks....but they can't. So in a typical buyout scenario, you are left at the mercy of the largest Chinese shareholders who will either offer its minority US shareholders pennies on the dollar or find another way to screw you and take it dark. Of course, you may be able to find a greater fool who will take it off your hands at a higher price than you bought. If so, congratulations.
However, the old adage seems to hold here: Fool me once, shame on you. Fool me twice....
Yup, I agree with you on the mindset....but I don't think you'll see a forced rate cut. Perhaps a low single digit increase (2 - 3%).
UVE had to get that dispute/fine settled with the regulator and move forward. Now it needs to prove that they don't try to screw their customers as a business practice OR keep its shareholders in the dark. The jury is still out on that and the stock price reflects a LOT of pessimism.
Did some quick research on the "force-placed" or "lender-placed" insurance sector and it has come under intense fire from regulators around the county because of the extremely high premiums AND sloppy/aggressive tactics taken against property owners that get forced into having this type of insurance. It is usually required when a homeowner has let his current insurance policy lapse in accordance with the terms of the mortgage.....and then the abuses start.
In my reading of their filings, I do not believe this is an area that UVE competes in at all.
There is a lot that UVE needs to answer for, but not this. The premiums that American Security was getting ($3577 per policy - from the quoted article) are far in excess of what UVE gets ($1588/policy if you annualize Q2). I'm surprised that the rate cut wasn't even more for American Security based upon the comparisons.
Did they reserve "anything"? Yes, as per their normal accounting practice, but clearly not the full amounts. We have no way of knowing the average claim size here and how it could affect the financials going forward.
262 claims represents 0.0005 of all outstanding policies-in force of 540k. I'd say its a relatively minor issue, but its the optics that have got to be paid attention to and cleaned up. The company's been making strides in that area, and with the stock already down 21% from its 52 week high of 8.59, I'd say its probably been priced in.
Florida regulators announce settlement with UVE:
Press Release
Office of Insurance Regulation Announces Settlement in which Universal Property & Casualty Insurance Company Agrees to Change its Business Practices and Pay Administrative Fine
Monday, October 07, 2013
Contact Info:
Amy Bogner
850 413-2515
Amy.Bogner@floir.com ?
TALLAHASSEE, Fla. – Florida Insurance Commissioner Kevin McCarty announced today that Universal Property & Casualty Insurance Company has agreed to implement corrective action, including changes to its claims and underwriting practices that were the subject of a Prior Order the Office issued on May 30, 2013. In a Consent Order dated October 4, 2013, Universal agreed to drop its challenge to the May Order, adopt operational changes substantially similar to those contained in the prior Order, and pay an administrative fine to the Office of Insurance Regulation (Office) totaling $1.26 million. The fine was the same as required by the May Order.
One of the issues involved in the case was the allegation that the company, in some instances, wrote policies without full underwriting, and then only did complete underwriting after a claim was filed. The “post-claim underwriting” resulted in some policyholders having unpaid claims or having coverage cancelled without sufficient notice.
The company agreed in the Consent Order to perform full underwriting within the first 90 days after the effective date of a new policy. It has also agreed to review the 262 claims it previously denied based on allegations of misrepresentation. Florida law allows insurance companies to rescind a policy for fraud or misrepresentation, but the law contains specific requirements which the company has now agreed to apply.
UPCIC is the second largest property insurer in Florida and one of the most active writers with more than $765 million in annual written premium and over 542,000 policyholders. The company represents an estimated 8.9% of the total Florida property insurance market and has been licensed to transact insurance business in the state of Florida since 1997.
About the Florida Office of Insurance Regulation
The Florida Office of Insurance Regulation has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and the monitoring of industry markets. For more information about the Office, please visit www.floir.com or follow us on Twitter @FLOIR_comm.
================
Comment: UVE has already reserved for this fine as per its most recent 10Q disclosures. If this is what it takes for them to start practicing proper business practices, then this will ultimately be a good thing for everyone, including FL homeowners and UVE shareholders.
It does look pretty bad that they have treated their customers this way.....and they may continue to slowly bleed away their current policies in force. The stock is cheap because of past management practices, so they will have prove to investors and potential customers that they've turned a corner.
IRDM carries a ton of debt on its balance sheet. I don't think its correct to use terms like "PE ex-cash" in this context.
They are also paying interest expense on their undrawn credit line. If you included their entire credit line, it would be $1.8B. They've drawn down approx $850MM. A lot of the cash they have is required by their bankers and MUST be kept in cash as per terms of the credit facility.
I agree it looks cheap on a forward earnings basis, but this company has disappointed in the recent past. That earnings history is ugly vs analyst expectations.
Good SA article on why PERI is pretty undervalued compared to its competitors:
http://seekingalpha.com/article/1702262-perion-a-misunderstood-and-unappreciated-merger?source=email_rt_article_readmore&app=1
PERI is slowly but surely clawing back its losses from the day in which its merger with Conduit Connect was announced. Even though the deal won't officially close until January 2014, PERI still seems undervalued to me based on its legacy business and deserves to trade higher than it is currently.
Thanks for the info. To be fair, Benchmark is also an investor in Conduit and they may be seeking to sell some shares once the deal is approved by PERI shareholders and their lock-up agreement is over.
The company won't be revealing its thoughts on FY14 until after the merger is closed, although they will be presenting results for Conduit in the next two quarterly CCs for PERI.
On a GAAP basis, the recent revenue numbers for Conduit look bad because of the changes in Google's toolbar policies. However, with the new contract in place, the non-GAAP (but arguably more relevant) comps are showing decent growth. I think that is what investors will eventually focus on because they will be the appropriate standard of evaluation of organic growth going forward.
On the PERI call....they report that Client Connect has substantial organic growth in revenues over the past 12 mos:
LTM (end 06/30/2013): +48%
NOTE: Combined pf organic revenue growth: 58% (LTM)
Client Connect has better margins, so p.f. net income would have grown 25% y/y in the last 12 mos, vs the original 17% y/y as reported by PERI.
Stock deal is accretive to trailing eps, and there appears to be substantial cost savings that can still be realized once the deal is consummated.
I'm not sure why the stock has sold off so much, unless these sellers were looking for Perion to be taken private at a more immediate premium... Lock-ups are in place for the new shareholders, but details of that have not been more fully disclosed.
UVE did not have the same catastrophic losses because the bulk of their insured properties are in Southern Florida. UIHC was impacted by storms in MA and Central FL, where UVE does not insure.
You've been implying that they (UVE) are super aggressive and not taking appropriate charges based upon a common history of catastrophic losses. However, you are comparing apples to oranges with regards to those extraordinary losses because the two companies do NOT have the same footprint of properties. I maintain that it is better to compare the two companies based upon the adjusted, normalized LEA.
UIHC did a dilutive share offering that has now been worked off in the comps. That has also impacted their share price. UVE on the other hand has been aggressively buying back its shares and cleaning up its investment portfolio and pays a very respectable 4.6% yield. UVE has no analyst coverage and does not hold CCs. That and a historical disdain of management by investors (which is justified IMHO) has held back much of the enthusiasm of the past two quarters of results.
skillz, I compared the net loss and LEA ratios of two similar insurers in Florida: UIHC and UVE.
For YTD results in 2013 (first 6 mos), these ratios were very similar.
UIHC: 41.2% (expense as a % of net earned premiums)
UVE: 39.1%
Yes, UVE's ratio is slightly lower than UIHC, but I don't think this is the major concern that you have made it out to be regarding the quality of UVE's earnings. From my perspective, UVE and UIHC have set aside a similar percentage of their net premiums for future payouts to customers.
Also, I would point out that UVE has reduced their share count by approx 14% y/y and they are benefiting from favorable trends in claims and their ability to raise premiums. I'm more concerned about what happens next year when they go before the insurance commissioner and try to get another premium hike....
Wade, I agree with you on UVE. I don't understand the selling either but if I had to guess, I think its oversold based on seasonal concerns that haven't materialized yet, perhaps some problems over corporate governance (i.e. management compensation, insider selling of stock back to company) and fear over state regulators.
I like that they have bought back a ton of shares, and increased their quarterly dividend (which is going to be distributed soon). I think it can get an 8x trailing PE multiple (adjusted for one-times) and the market has yet to fully price in how much earnings could be once all of the share repurchases have been factored in.
They should have an easy comp coming up, and assuming they get to the end of next month with no hurricanes, I'd expect a decent run into their earnings report.
I think its a decent buy in the low 7s and I've been a buyer of the stock today at its 100 day MA.
Saw that SKBI 10Q and kicking myself I didn't throw something at it for a daytrade.
After seeing what VLOV pulled (filing a decent quarter then going dark) I don't trust these Chinese r/m companies. Would not want to hold it overnight.
At least SKBI holds CCs, something VLOV never did.
I am a bit surprised that the stock is up as much as it is today with that lowered guidance for the current quarter. Also, it appears that in FY15 the company will have to start paying taxes, estimated to be around 23-25%. A longer term concern perhaps, but one to keep in mind when valuing the stock on PE.
I think NQ is being valued on adjusted earnings, which exclude non-cash expenses like DA, and stock comp. Also, some recent developments and news are helping the stock. Didn't hurt that in its last CC, the company's co-CEO said that the company had been approached (and rebuffed) a potential acquirer; also said very firmly that it was committed to raising NQs profile in investment community and that it was very undervalued.
A relatively large short interest hasnt hurt either.
Anybody else following the parabolic rise of NQ? Up another 9% today alone....! I first mentioned this one a while ago....but sold the last of my shares today over 15. Still could argue its cheap, but the huge momentum is getting me very nervous.
Too bad that PERI isn't as closely linked to mobile/antivirus protection as NQ is. Maybe some traders will rotate into PERI, as its as cheap now under 12 as NQ was under 8.
Re: PERI. Whether the talks have slowed or not is immaterial to me. I would still argue that the company is quite undervalued on its own merits and will have sales and earnings growth catalysts to bring buyers back in. Its one of the cheapest stocks I own using adjusted forward earnings.
Basically, if management is correct in its expectations for this year, the stock should trade up closer to 10x those numbers. That would put the stock in the 16s within the next 3-6 mos.
Of course, they may have concluded this complicated reverse merger deal well before then. I would actually wish for a cash buyout, because its simpler and doesn't leave the specter of future sellers hanging over the stock. (i.e. owners of the privately held Israeli acquirer with newly liquid stock.)