ACME Communications announced today that they completed the sale of their radio stations. In my initial write-up I estimated that the completion of this transaction would result in an approximate dividend of $1.05/share. It seems that my estimate was significantly off the mark since the company announced today that the special dividend will be $0.93/share. Part of the reason that the dividend is lower than expected is the fact that some cash remains locked up in two escrow accounts:
In addition to the Daily Buzz, the Company has $1.0 million in a one-year escrowed indemnification deposit to Lin Media and $290,000 in a two-year escrowed deposit to the Federal Communications Commission related to the sale of the New Mexico stations.
If the cash is returned to the company the next two years this could add $0.08/share in value. We have to wait till Friday for the latest quarterly report, so it’s unknown how much cash will remain on the balance sheet after the dividend payment. It’s not yet totally clear if I’m going to achieve the return I wished, but there is at least zero downside anymore. My average cost for my ACME position ended up at exactly $0.92962/share, so I got that covered with the $0.93/share dividend.
do you think being ~10% off is a lot? what would you consider good?
In this case I do think being off 10% is a lot. Here you knew exactly how much money the company would get after the sale was completed, so the uncertainty about the range of outcomes was relatively small. But I failed to anticipate that a significant amount of cash would have to be locked up in escrow accounts, and at the same time more money than expected is used for ‘something’ or is still at the company level (will have to wait for he quarterly report to figure out what happened).
I would consider being off <5% good here. Some 'unexpected' issues should be expected.