Prem Sikka has written a rather brief but comprehensive summary of many of the bad things banks have been caught doing and in many cases still getting away with. Accounting standards have be complicit in many of these frauds, especially FAS 140 (R) which allowed banks to sell bundles of "securitized" mortgage notes from SPE's (now called VIEs) using borrowed funds that are kept off balance sheet in these entities called SPEs/VIEs. The FASB had in mind that responsible companies (read that banks) would not issue debt in excess of the value of the collateral (e.g., mortgage properties). But FAS 140 (R) fails to allow for the fact that collateral values such as real estate values may be expanding in a huge bubble about to burst and leave the bank customers and possibly the banks themselves owing more than the values of the securities bundles of notes. Add to this the frauds that typically take place in valuing collateral in the first place, and you have FAS 140 (R) allowing companies, notably banks, incurring huge losses on debt that was never booked due to FAS 140 (R).
Well, we won't stick a price on it. They are absolutely wonderful businesses run by sensational people, and they are selling at prices that are higher than they've sold at most of the time. But they may well be worth it, either in present terms, or they may be a couple of years ahead of themselves. Gillette doesn't repurchase their shares ... Coke consistently repurchases their shares. We generally like the policy of companies that have really wonderful businesses repurchasing their shares. The problem with most companies repurchasing their shares is that they are frequently so-so businesses and they are repurchasing shares for purposes other than intensifying the interest of shareholders in a wonderful business. It's hard to do things intelligently with money in this world and Coke has been very intelligent about using their capital, particularly to fortify and develop their bottler network around the world, but there's only so far you can go with that, and to enhance the ownership of shareholders in a company like Coca-Cola [is great].
Essays on TenderOffers and ShareRepurchases
A popular and probably the most well-known strategy is the behaviour of hedge fund in special situations like mergers, hostile takeovers, reorganisations or leveraged buy-outs. Hedge funds often buy stocks from the distressed company, thereby trying to profit from a difference in the initial offering price and the price that ultimately has to be paid for the stock of the company.
Tender offer share repurchase | scholarly search
1. (Introductory) According to the article, what accounting and disclosure issues have delayed the initial public offering of shares of Groupon, Inc.? What overall economic and financial factors are also affecting this timing?
2. (Introductory) What was the problem with Groupon CEO Andrew Mason's letter to Groupon employees? Do you think Mr. Mason intended for this letter to be made public outside of Groupon? Should he have reasonably expected that to happen?
3. (Advanced) What accounting change forced restatement of the financial statements included in the Groupon IPO filing documents? You may access information about this restatement directly at the live link included in the online version of the article.
4. (Introductory) According to the article, by how much was revenue reduced due to this accounting change?
5. (Introductory) Access the full filing of the IPO documents on the SEC's web site at Proceed to the Consolidated Statements of Operations on page F-5. How are these comparative statements presented to alert readers about the revenue measurement issue?
6. (Advanced) Move back to examine the consolidated balance sheets on page F-4. Do you think this accounting change for revenue measurement affected net income as previously reported? Support your answer.
7. (Advanced) Proceed to footnote 2 on p. F-8. Does the disclosure confirm your answer? Summarize the overall impact of these accounting changes as described in this footnote.
8. (Advanced) What type of audit report has been issued on the Groupon financial statements in this IPO filing? Explain the wording and dating of the report that is required to fulfill requirements resulting from the circumstances of these financial statements.