My thoughts on the use of Preferred Shares for acquisitions...
The simple fact that the TCB's, Harbour Townhomes and Best Jets of the world take Preferred Shares as compensation tell me that these companies must really know things about PBLS that we don't know about, and ARE IMPRESSED with what they see. Unfortunately, we're all kind of in the dark. Sure, we all hate it and deserve more information. But the Harbor Townhomes and Best Jets of the world keep selling their assets to PBLS, the little penny stock without a lot of transparency, a gagged T/A and unaudited financials. Tells me that PBLS must be able to deliver some REALLY compelling evidence during negotiations to get them to take consideration in preferred shares that PBLS says are worth up to $10 a piece. I mean, would you sell your business to a non-transparent penny stock currently trading at a $.018 pps? I sure as heck wouldn't unless they REALLY sold me on something tangible.
The claim by some is that these businesses are desperate to get out. They are debt heavy and so PBLS buys them "on the cheap," but they are essentially worthless. Well I checked with 2 local realtors today who both verified that the Harbour Townhomes have tremendous potential for the person who can put the appropriate amount of money into them. Same with Best Jets. Here's a company doing good business but who could do great business if they had the right equipment available to them. So PBLS buys them "cheap" because they have the liquidity to finance their healthy expansion. Surely some of that liquidity comes initially from Preferred Shares or the sale of common shares, but that's what healthy companies do.
Sorry to be so long winded (what's new?), but the use of Preferred is not a bad thing IMO. It shows me that these companies that "see" more about PBLS than we do are impressed enough to take Preferred Shares from a penny stock instead of cash. THAT'S HUGE.
BTW, for the Harbour Townhome deal, all of the Preferred Shares have the option to convert on a 1 to 1 basis for common shares after a restricted time period. They are not promised a dividend or a percentage of future quarterly/annual earnings. They are a great usage of equities by PBLS for this acquisition IMO.
Also, buying companies with debt is a GREAT tax break at the EOY which is why 2005 financials showed no taxes paid.
Ren
IMO
"Experience: that most brutal of teachers. But you learn, my God do you learn." C.S. Lewis
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