Check out SGH PRO FORMA FINANCIALS and this will all make sense..
SEV has net assets of 2.227Bn and these are high quality assets.
WesTrac has net assets of 195M,
this includes 450M of intangible assets such as the CAT dealer network
496M of inventories
288M of receivables
A few defaults on those receivables (how many are past due!!), a writedown in inventories and suddenly WesTrac's liabilities exceed their assets (half the definition of insolvent! The other half requires cash to pay off creditors).
WesTrac plans to consume 145M in cash in 2010 and 117M in 2011. That is over 250M in cash deficit which if they borrowed (they probably could not add more debt) would leave their share holders equity at zero. It certainly doesn't bode well for paying off creditors.
Anyway put it all together and the substantially overleveraged WesTrac, which is on the verge of having negative net assets, is being bailed out by SEV.
I thought this sounded like a good deal. So I wondered why ACE would want to sell. Now we all know why.
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