Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
TRACKING THE NUMBERS: Aether Tax-Loss Assets May Not Carry Forward
Summary: As a wireless-service provider, Aether (AETH) racked up almost $1 billion of losses. Since selling the wireless business in 2004, Aether has been looking to use its $130 million on-hand cash to acquire a highly profitable business, using the wireless tax losses to offset future taxes on the profitable entity. The company is acquiring Athlete's Foot for $51.5 million (plus a future payment of up to $8.5 million, based on performance). The question is, does this make sense from a tax-loss utilization perspective? After a 2004 bankruptcy reorganization, Athlete's Foot's 200 domestic stores (575 total) compete directly with giant Foot Locker (NYSE:FL). With current annual EBITDA estimated at about $10mm, it will take many years to use up the tax losses on the books.
Comment on related stocks/ETFs: Reaction to the Aether's acquisition has not been enthusiastic. Athlete's Foot has already gone bankrupt once, and remains a business with low margins and fierce competition. Aether intends to acquire another brand of active wear, with the intention of improving profitability by licensing its name-brands.