palu77

Rick's Cabaret and eHealth Bucking the Trend

Rick's has already addressed the put options for the club acquisitions.

"Mr. Langan also reaffirmed the company’s capability, if it became necessary, to repurchase the outstanding stock put options issued in connection with recent acquisitions. “We estimate that approximately $3.8 million of our cash would be required in fiscal 2009 to redeem 171,000 shares that could be put; in fiscal 2010 it would require only about $5.5 million to fully redeem all 244,000 shares that could be put under the terms of the options. This assumes a full purchase of the puts with no stock to be sold into the market. We are confident that we will be able to redeem all of the existing put options with our existing and anticipated free cash flow. We currently have approximately $4 million in cash on hand and are generating significant new cash each month. It is important to remember that in return for these options we got solid assets.”

Based on this comment, Rick's has the cash and cash flow to cover these deals. Furthermore, Rick's enter these deals knowing the downside risk and at the time had two choices to buy the clubs: 1) pay with debt or 2) use equity and ensure the debt with the puts. The later option allowed Rick's to buy the clubs at a discount because they could sell the stock "put" to them from the club owners on the open market. This in effect will reduce the cost of the club purchase by 20% at the current market price.

Again these deals were entered into willingly with full knowledge that RICK was buying clubs at 3-6x's earnings. They should be fine here and once the market realizes this the price should rebound.

Good luck.

Paul