K1 Ventures

[opmi]

the above article is a waste of time. likely written by a noob investor.

[desmondxyz]

the above article is a waste of time. likely written by a noob investor.

Likely a professional noob....

[cif5000]

the above article is a waste of time. likely written by a noob investor.

Wow, like that still noob? You very high standard leh.

Btw...you've got the answer to these questions?

[level13]

2 very different set of figures:

-K1 Ventures Buys Helm Holding in $472M Transaction

-K1 bought Helm for USD110M

So which one is right?

[lvpierre]

the above article is a waste of time. likely written by a noob investor.

Wow, like that still noob? You very high standard leh.

Btw...you've got the answer to these questions?

ya your standard very high. i thought some questions are quite valid and no harm to ask the management/auditors. i post the full questions here, maybe fellow buddies have answers to the questions and got more intellectual questions. i can help to post the questions to investor central.

here are the full questions:

11/3/2014 - k1 Ventures Ltd is selling its 80.1%-owned subsidiary Long Haul Holding Corp to Wells Fargo Bank for US$152 mln (S$192 mln) cash.

The key asset of Long Haul Holding Corp is a 100% stake in US-based transport leasing company Helm Holding Corporation.

The sale is in line with management's guidance to hold back on new investments, to focus on managing and selling existing ones.

But having read the announcement we are still left with several questions we feel need to be asked.

We have sent all these questions to the company and received a reply from their investor relations department.

While we were assured via email that we would receive answers, we are yet to hear from them.

If and when we hear from the company, we will update this article.

In the meantime, here are our questions:

First, we are not clear how much cash it made, or lost, in acquiring an effective 80.1% stake in Helm Holding Corporation for S$726.5 mln in 2005, operating it for almost nine years and now selling it for S$192 mln.

Second, the disposal of Helm Holding Corp appears to be a "major" transaction, yet the requirement for shareholders’ approval was waived.

Third, media reports suggest that the US-based companies in which k1 Ventures Ltd is invested, are facing lawsuits.

Before we explore the details, let's look at the company's recently announced earnings for Q2 FY14:

Revenue: -57.1% to S$20.8 mln
Profit: -97.5% to S$0.7 mln
One-off gain: S$1.5 mln vs S$1.9 mln
Cash flow from operations: S$12.6 mln vs S$35.3 mln
Dividend: Nil vs 1 cent per share

Revenue was lower due to a 91% drop in investment income from Knowledge Universe Holdings LLC.

That was partially offset by a 2.5% rise in the transportation leasing business of Helm Holding Corp in US.

Its profit was sharply lower due to a 19.1% rise in finance costs and a 15% drop in share of profits of associates and joint ventures.

Investor Central. We keep your investments honest.
Top Questions

1. Should the sale of a company be counted as revenue?

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k1 Ventures Ltd's revenue is made up of income from transport leasing business, proceeds from sale of investments, investment income and interest income (refer pages 55 & 67 of FY13 annual report).

In FY13, its revenue included S$55.6 mln proceeds from sale of investments.

During that year, it sold a 1.43% stake in McMoRan Exploration (MMR) for S$49.1 mln.

A quick look at its FY13 annual report (pages 43 & 62) reveals k1 Ventures Ltd's investment in MMR was recorded as a non-current asset in its balance sheet.

That means, the company sold a long term asset and recorded the proceeds as revenue in its income statement.

Now that seems a bit odd when compared to the accounting style of other investment-holding companies.

Hotung Investment Holdings Ltd is one such investment-holding company.

According to pages 44 & 64 of Hotung's 2012 annual report, its auditor, KPMG, has booked only the gain/loss from sale of investments as the company's revenue.

In other words, KPMG doesn't find it appropriate to book entire sale proceeds of investments as the revenue for the company.

Therefore that makes us wonder what would be the right approach to recognise revenue for an investment-holding company.

Ms Ng Peck Hoon at Deloitte & Touche LLP is the auditor of k1 Ventures Ltd.

2. How much cash has it earned, or lost, since acquiring Helm Holding Corp?

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k1 Ventures Ltd acquired an effective 80.1% stake in Helm Holding Corporation for US$472 mln in July 2005.

This was the equivalent of S$726.5 mln, according to k1 Ventures Ltd's FY06 annual report (page 68).

At that time, Helm Holding Corp was said to be the largest locomotive operating leasing company and the largest independent railcar leasing company in North America.

As on December 31, 2004, Helm Holding Corp had a fleet of 795 locomotives and 19,847 railcars.

Compared to the sale price of US$152 mln (or S$192 mln), k1 Ventures Ltd seems to be making a loss of US$320 mln (or S$534.5 mln) on its investment in Helm Holding Corp.

But that ignores the performance of Helm Holding Corp in the last nine years.

Helm Holding Corp recorded a profit before tax of S$32.9 mln in FY06 (refer page 104 of FY06 annual report), S$27.5 mln in FY07, S$68 mln in FY08 (refer pages 86 & 87 of FY08 annual report), and S$4.4 mln in FY09 (refer page 82 of FY09 annual report).

But in FY10, Helm Holding Corp recorded a loss before tax of S$26.4 mln (refer page 80 of FY10 annual report), which was followed by a S$0.7 mln loss in FY11 (refer page 78 of FY11 annual report).

In FY12, Helm Holding Corp recorded an even wider loss before tax of S$56.4 mln (refer page 78 of FY12 annual report).

In FY13, Helm Holding Corp swung back into the black with a profit before tax of S$3.7 mln (refer page 76 of FY13 annual report).

Together, that adds up to a net profit before tax of S$53.1 mln since k1 Ventures Ltd acquired it in 2005.

And k1 Ventures Ltd's 80.1% share of that works out to be S$42.5 mln (also refer to page 21 of FY09 annual report).

In a nutshell, k1 Ventures Ltd's S$726.5 mln acquisition of Helm Holding Corp yielded a net profit before tax of S$42.5 mln over a period of nine years.

And now, k1 Ventures Ltd is selling its entire stake to Wells Fargo Bank for S$192 mln.

On the face of it, k1 Ventures Ltd appears to have lost a significant amount in acquiring, managing and now disposing of Helm Holding Corp.

In the absence of specific cash flow details, we wonder how much cash did it actually lose, or make, over the life of its investment in Helm Holding Corp.

3. How did Focus Up Holdings Ltd come in to the picture?

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According to its February 21 announcement, k1 Ventures Ltd and its subsidiary Focus Up Holdings Ltd acquired an effective 80.1% stake in Helm Holding Corp in July 2005.

But k1 Ventures Ltd's announcement in 2005 didn't even mention Focus Up Holdings Ltd.

And its FY06 annual report (page 83) shows Long Haul Holding Corp was directly owned by k1 Ventures Ltd, whereas Focus Up Holdings Ltd was owned through another subsidiary company.

So it appears to us that, contrary to k1 Ventures Ltd's claim in February 21 announcement, Focus Up Holdings Ltd wasn't involved in the acquisition of Helm Holding Corp.

Moreover, according to its FY13 annual report (page 60), both Focus Up Holdings Ltd and Long Haul Holding Corp are directly owned by k1 Ventures Ltd.

That makes us wonder how Focus Up Holdings Ltd is involved in the acquisition and disposal of k1 Ventures Ltd's interests in Helm Holding Corp.

4. What Be the first to like this question.

According to the February 21 announcement, k1 Ventures Ltd and its wholly-owned subsidiary, Focus Up Holdings Ltd, have entered into a "definitive agreement and plan of merger" for the sale of Long Haul Holding Corp to Wells Fargo Bank.

That makes us curious about the "plan of merger" and the entities which would merge in the process of disposal.

5. Are the remaining 19.9% shareholders of Long Haul Corp selling their shares too?

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In 2005, k1 Ventures Ltd sold a 19.9% stake in Long Haul Corp to the existing shareholders and management of Helm Holding Corp.

Now that it is selling Long Haul Corp to Wells Fargo Bank, it makes us curious if the 19.9% shareholders are also selling their shares to Wells Fargo Bank.

And what price did they fetch for their 19.9% stake?

6. Which regulator's approval would it need to dispose its stake in Helm Holding Corp?

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The February 21 announcement said the transaction is subject to regulatory approval.

However, it didn't disclose which regulator's approval would be necessary.

7. For what reasons did SGX-ST waive the need for shareholders' approval on its disposal of Helm Holding Corp?

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In February 21 announcement, k1 Ventures Ltd said "The Singapore Exchange Securities Trading Limited ("SGX-ST") has ruled that the Helm Disposal is in the ordinary course of business of the Company and accordingly, Chapter 10 of the listing manual (including Rule 1014) is not applicable".

In other words, k1 Ventures Ltd will not have to make necessary disclosures even if the sale of Helm Holding Corp constitutes a "discloseable" or "major" transaction.

In fact, our back of the envelope calculations reveal that it is actually a "major" transaction.

According to the February 21 announcement, the net assets value of k1 Ventures Ltd's 80.1% stake in Helm Holding Corp was S$129 mln on December 31.

That works out to be 36.9% of k1 Ventures Ltd's net asset value of S$349.3 mln on December 31 (refer page 4 of Q2 earnings report).

Also, the sale proceeds of S$192 mln works out to be more than 49% of k1 Ventures Ltd's market capitalisation of S$390 mln on February 20 - a day before the deal was announcement.

As both of the above relative figures are more than 20%, k1 Ventures Ltd's disposal of Helm Holding Corp constitutes a "major" transaction as per Rule 1014 of the Listing Manual.

And that makes the deal conditional upon approval by the shareholders in a general meeting.

However, under certain circumstances, SGX-ST has powers to waive the requirement of seeking shareholders' approval.

According to Practice Note 10.1 of the Listing Manual, SGX-ST might grant a waiver if it considers the disposal to be in the ordinary course of business.

In determining that, SGX-ST would evaluate if the disposal would result in a material change to the nature of the company's business.

SGX-ST might also grant a waiver if the shareholders have had an opportunity to vote on the disposal of assets in the previous general meetings or they have waived their rights to vote on such a disposal.

It may also grant a waiver in case of disposal of a non-core assets which doesn't not affect the nature of the company's main business.

While deciding on the waiver, SGX-ST takes into consideration the opinion of the company's board of directors that there would be no material change in the risk profile as a result of the transaction.

Also, it seeks a confirmation by an independent financial adviser that the directors' opinion, and the basis of that opinion, have been stated after due and careful enquiry.

Now, Practice Note 10.1 categorically states "Where the opinion and confirmation of the directors and the independent financial adviser are submitted, or required by the Exchange, and a waiver is granted, the issuer must announce such opinion and confirmation and their basis via SGXNET".

The Practice Note adds, "Substantive factors should be disclosed to justify the aggregate value of the consideration. For the avoidance of doubt, a statement that the consideration was on a "willing buyer willing seller" basis is not sufficient".

After reading the Practice Note 10.1, we are struggling to anticipate the reasons for which SGX-ST granted a waiver to k1 Ventures Ltd.

And here are the reasons:

First, Helm Holding Corp contributed more than a third of k1 Ventures Ltd's revenue in FY13 (refer page 67 of FY13 annual report).

Second, k1 Ventures Ltd appears to be making a significant loss on the disposal of Helm Holding Corp for S$192 mln, compared to the purchase price of S$726.5 mln.

Third, the company has not disclosed the basis on which the sale price of S$192 mln was determined.

Except the fact that it was arrived at on "a willing buyer, willing seller basis".

Now, according to the Practice Note 10.1, that's exactly what won't suffice in case of a major transaction.

Finally, k1 Ventures Ltd has not yet announced on the SGX's website the basis of directors' opinion and its confirmation by an independent financial adviser.

Therefore that leaves us wondering the reasons for which the Exchange granted a waiver to the company.

8. Is its Chairman and CEO interested in the sale of Helm Holding Corp?

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k1 Ventures Ltd's February 21 announcement didn't disclose whether its directors are interested or not in the disposal of an 80.1% stake in Helm Holding Corp.

But according to page 39 of its FY13 annual report, Mr Steven Jay Green - the Chairman and CEO of k1 Ventures Ltd - was deemed interested in US$3,754,975 worth of debentures of Helm Financial Corp.

To our reading, Mr Green has his own financial interests in the transaction between k1 Ventures Ltd and Wells Fargo Bank.

9. How serious is the racketeering lawsuit against Guggenheim Partners LLC?

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k1 Ventures Ltd invested US$100 mln in preferred units and warrants of Guggenheim Capital LLC in May 2011.

Guggenheim Capital LLC is a privately-owned financial services firm, based in Chicago.

According to k1 Ventures Ltd's FY13 annual report (page 20), it owns 100,000 Series A preferred units, 250,000 common units and 11,111,111 warrants of Guggenheim Capital LLC.

The warrants are convertible into common units at an exercise price of US$9 each.

On February 12, Bloomberg reported Guggenheim Partners LLC, a unit of Guggenheim Capital LLC, was accused of "fraud and racketeering" in a lawsuit in Chicago.

The suit was filed by annuity buyers of the insurance companies controlled by Guggenheim Partners LLC.

The lawsuit alleged that Guggenheim acquired insurance companies weakened by the recession and used them to sell "seemingly safe and secure annuity products" while "funneling cash" to its friends, affiliates and associates.

The lawyers of the plaintiff went on to liken Guggenheim's conduct to that of Enron, added the Bloomberg report.

But to everyone's surprise, the plaintiffs withdrew the lawsuit the next day.

The Attorney of the plaintiffs said the lawsuit was withdrawn as he was "rethinking a few points", reported Bloomberg.

While it remains to be seen if the lawsuit is filed again or not, one wonders if that would affect k1 Ventures Ltd's US$100 mln investment in Guggenheim Capital LLC.

10. How does Knowledge Universe Education LLC plan to repay notes due in February 2015?

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According to its FY05 annual report (page 24), k1 Ventures Ltd injected its education-related investments, along with US$12.6 mln cash, into Knowledge Universe Holdings LLC in November 2004.

In return, Knowledge Universe Holdings LLC allotted a 12.2% stake worth US$56.6 mln to k1 Ventures Ltd.

At that time, Mr Steven Jay Green was the Chairman and CEO of the company.

According to a Bloomberg report on March 20, 2007, Knowledge Universe was set up by Michael Milken and his brother Lowell, and Oracle Corp's CEO Larry Ellison, for US$500 mln.

Michael Milken is the Chairman of Knowledge Universe.

He was the head of junk-bond trading at Drexel Burnham Lambert Inc in the 1980s.

Mr Milken served almost two years in prison after pleading guilty to securities fraud in 1990.

He was also permanently barred from serving as a broker or investment adviser.

In 1998, he paid US$47 mln to settle SEC's claims that he had violated the ban.

According to a The New York Times report on December 18, 2004, Mr Steven Jay Green ran several companies financed by Mr Milken's former employer Drexel Burnham Lambert, including the luggage company Samsonite.

Last year, Harland Clarke Holdings Corp sued Mr Milken and Knowledge Universe Education Holdings LP.

Harland Clarke Holdings Corp alleged that Mr Milken and Knowledge Universe defrauded it while selling GlobalScholar, an education technology company, for US$135 mln in 2011.

In another development, Bloomberg reported Knowledge Universe Education LLC "pulled" a US$342 mln high-yield loan it was seeking to raise in August last year.

Knowledge Universe would have used a part of the proceeds to repay US$260 mln worth of 7.75% notes due in February next year.

It would have used the remaining proceeds to repay a US$75 mln credit facility due 2015.

Bloomberg quoted Hal Diamond, a credit analyst at Standard & Poor's, that Knowledge Universe would have had to pay interest at a higher rate than what they must have anticipated.

S&P's has a CCC rating on Knowledge Universe's debt with a negative outlook.

Moody’s Investors Service has a Caa1 rating on its 2015 notes.

The Bloomberg report added, according to a ratings definition provided by S&P's, a debt rated CCC is vulnerable to non-payment and is dependent on favorable business, financial, and economic conditions for the borrower to meet its financial commitments.

Therefore that makes us wonder how it plans to repay the notes and the credit facility due next year.

And what does it mean for k1 Ventures Ltd's investment in Knowledge Universe LLC?

11. Second class-action lawsuit against K12 Inc in two years. How serious is it this time?

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k1 Ventures Ltd, through Knowledge Universe Holdings LLC, is indirectly invested in NYSE-listed K12 Inc.

In its Q2 FY14 earnings report (page 9), k1 Ventures Ltd said it received 426,846 common shares of K12 Inc, worth S$19.5 mln, during the first half of the year.

However, it didn't disclose the reasons why it was allotted common shares in an indirectly-invested listed company.

According to a research paper published by the University of Colorado, K12 Inc is one of the largest for-profit education management organisations in the US.

In 2012, the shareholders of K12 Inc filed a class-action lawsuit against the company in a US district court.

They alleged that K12 Inc issued false and misleading press releases, financial statements and filings with the SEC.

The lawsuit followed The New York Times' report in December 2011 which highlighted questionable student recruiting strategies and flawed academic assessment practices at the company.

In March 2013, K12 Inc settled the lawsuit for US$6.75 mln.

Less than a year after that, K12 Inc's shareholders are suing again.

On January 31, The Wall Street Journal reported Bernstein Litowitz Berger & Grossmann LLP filed a class-action lawsuit, on behalf of Oklahoma Firefighters Pension & Retirement System, against K12 Inc.

The lawsuit asserts claims on behalf of the shareholders of K12 Inc between March 11 and October 9, last year (referred as the Class Period).

The The Wall Street Journal report adds, the lawsuit alleges K12 Inc issued a series of materially misleading statements and omissions about its student enrolment and revenue growth prospects for FY2014, including compliance with state regulations governing enrolment.

"During the Class Period, the Company publically endorsed analysts' consensus estimates for full fiscal 2014 financial guidance and emphasized that K12 was "on track to have one of the best business development years" in the Company's history, which was supposed to "drive even higher growth for fiscal 2014" than in fiscal 2013. Further, the Complaint alleges that Defendants falsely touted K12's "serious" attention to regulatory compliance. These and similar misrepresentations and omissions were made on the Company's quarterly earnings calls and at industry conferences", said The Wall Street Journal report.

On February 4, The Wall Street Journal reported that Levi & Korsinsky LLP has also commenced a class-action lawsuit against K12 Inc on the same grounds.

On February 14, Lieff Cabraser Heimann & Bernstein LLP also commenced a class-action lawsuit against K12 Inc.

On February 18, Glancy Binkow & Goldberg LLP reminded shareholders that the deadline to file a motion to be appointed as lead plaintiff in the class-action lawsuit ends on April 1.

All these reports indicate that several investors and law firms are actively pursuing the class-action lawsuit against K12 Inc.

We wonder the impact this class-action lawsuit will have on k1 Ventures Ltd's investment in Knowledge Universe Holdings LLC and K12 Inc.

12. Why was k1 Ventures Ltd allotted common units in K12 Inc?

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The shareholders of k1 Ventures Ltd would also want to know the reasons for which it was issued 426,846 common shares of K12 Inc worth S$19.5 mln, apparently for free.
Here is a map of the company and its key subsidiaries, people and deals.

Map courtesy of Handshakes

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We have sent these questions to the company (eva.ho@kepcorp.com) and its auditor (png@deloitte.com) to invite them for an on-camera interview, and/or seek their written response.

As mentioned, we have received a reply from Ms Ho advising that we would receive answers, however despite several follow up emails we are yet to receive them (which is why you are seeing this message).

What questions would YOU like to ask?

Click "Contact us" on our website and select "Ask our companies a question".

[opmi]

I very low standard and simplistic one. Not trying to be ya ya papaya.

Helm was sold at $X. I only care about the net proceeds back to shareholders. The financials are irrelevant once Well Fargo agreed to pay the price.
And Well Fargo is a credible buyer so likely the deal will complete and money is good.

Why not need EGM? As quoted in annc, it is in the ordinary course of business. As per SGX rules.

For K12 distribution, Mike Milken want to distribute listed K12 shares. k1 should be more than happy to take it and sell and pay back shareholders.
Still ask why??? Hahahah... Milken call the shots at KU, not k1 minority.

K12 lawsuit - You just go google any US share that plunge a lot recently. OR google THOSE LAW FIRMS. A lot of 'ambulance chasers' lawyers trying to fish for class action suits. Very common and nothing usually happened. SO only noobs can think these lawsuits are significant.

Any more question to answer??

[mrEngineer]

For 8 years and such a large reduction in entreprise value, the IRR for the divestment should be really low.. But have to consider about the distributions received for the past 8 years too

[desmondxyz]

http://www.legalbusinessonline.com/news/...l-10/65128

Anyone has any more concrete update for this CGA ipo?

[opmi]

k1 price move up a little bit....people buying in anticipation of next week qtr results and 7 cents div from Helm disposal??

[desmondxyz]

5cts div..... Big big ang pow.....Huat la!!