i'm out - this is why

I thought I would tell you why I am staying out of CER, and I'm going to try to keep my word to stay out - we'll see after mediation results are out. CER is really tempting due to its obvious upsides. However I'm going to go against the trend of optimistic posts and look at some downsides.

These are my issues: DYOR

1. Legal wrangling and mediation is soon to start. I'm no lawyer, so have no idea of what the outcome will be. You can see the details on There may be three outcomes: (See IMF website - www.imf.com.au for more details

a. CER wins their case - Good.

b. CER is found to have been negligent between 7/8/07 and 17/12/07. Very rough sums for compensation: about 87 days x 2 mill shares traded x $1.23 loss ps = $175 mill approx. If we assume 25% of trades were churn = $130 mill.

c. CER is found to have been negligent between 5/4/07 to 28/2/08 - value of losses is about $550m, about $410m if 25% is churn.

IMF says estimated claim max: $100m in respect of each action (the claim size is materially greater than this, but is subject to collectibility).

In scenario b - if CER feels they are on shaky ground and will have big legal bills, they may offer (say) $65 mill - and I would hope they could find that money. There may be a point for scenario b that CER could not fund.

IF the lawyers feel there is a strong case for scenario c, and they win - all bets are off. Shareholders lose the lot.

Mediation starts 26th July in Melbourne with Tony Fitzgerald as mediator. Maybe CER is definitely safe up until that date. Soon after we may know which way things are heading. I'll certainly be happy to commit my money if there is an outcome that caps the downside.

BTW Lawyers always want cash, not equity. If the shareholders are given equity - that will be at great cost.

2. Other opportunities: there are heaps of bargains out there that do not have any daggers pointed at their hearts. I have no idea of the odds of CER winning their case - but see that funders (legal experts) are paying for a no win no fee case.

3. Hard work - again - CER is not easy for me to keep a grip on. This is because I fear #1.

4. Lenders are not easing up much in the US from what I can see. CER is in a chicken and egg situation - that the SP is low and therefore the co cannot easily raise equity cash to solve any problems that may arise.

5. I'm more of a trader over the business cycle, rather than day to day or month to month. CER does not really suit my temperament.

I'd love to see some well considered comments. Thanks to all CER posters who have provided the benefit of their knowledge, research, time and experience freely.

It appears the current SP reflects these concerns and others (so no sentiment rather than sell): I'd love to hear what others think! Are any opinions of legal experts available?

Again DYOR, and make up your own minds