In my opinion, the goodwill impairment charge had little to do with Nuverra's stock price decline because a goodwill charge had already been anticipated by the market and had been openly discussed by management, especially in light of the decline to $2.40 BEFORE the 3Q13 results were announced. (Market value lower than book value signals goodwill impairment.) Rather, management's failure to execute was the bête noir, and there were little external factors that management could lay the blame on.
However, I believe the move to sell TFI is a good one from a number of perspectives. I know, biting the bullet in such a situation is never a totally comfortable one, but this was a good long term and short term move.
Moreover, because management has taken the write-down so relatively soon after the acquisition, I think we can reasonably ballpark the expected proceeds from the TFI sale. When management wrote down the asset value from $245 million to about $145 million along with an announcement that the Company intended to sell TFI, that new asset value of $145 million should represent the expected price that TFI could be sold for. It would seem likely that management already consulted with its investment banker in arriving at that value.
So at first glance, the expected proceeds should be $145 million, including selling costs. However, because companies do not always take selling costs into account when determining market values for goodwill impairment, to be very conservative, let's assume a discount of 20% should apply here. Although marketability discounts will vary depending on the circumstances, a 20% discount on the $145 new asset value for TFI isn't a bad rule of thumb here. That would put expected proceeds from the sale at about $116 million.
Hopefully, I'm being too conservative in my estimate, but even at $116 million, that would be a real boost to the balance sheet, converting an intangible asset into a real asset, and one that is near and dear to our hearts...... cash!
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