Investor007 - I will not quibble with your numbers etc other...

Investor007 - I will not quibble with your numbers etc other than the following two items (which I will call item 1, 2 - even though they are in different order in your post) which I will copy for simplicity. Obviously it is easy to criticise, and anything can be criticised when somebody has the courage to put some ideas and opinions out there - I hope I will provide some good reasons for my countering views.

Item 1
*** *-* Whilst there is talk that GNC will write down some of their assets (which is likely), the important issue to note is the replacement value of their infrastructure. Are 260+ silos, 9 ports, 60% of Allied Mills & malting houses worth more than $1.45 bil? I would think so. If you were to replicate these assets from scratch, I honestly believe you need more than $1.45 bil. Given Viterra paid approx. $2 billion (including debt) for ABB's 110 silos, 7 ports and malting capacity which is half that of GNC, I can safely say I am assured as a GNC shareholder. ***

I think it is unlikely that GNC's assets (in GNCs hands anyway - may be sold to a better manager or for land value etc - not sure at all) can be compared as equivalent to ABBs. When you look at the Return on assets for ABB you get the following (I used some minor shortcuts like assuming all debt at 6% every year to save time):
Year; 2008; 2007; 2006; 2005; 2004 (Did not have 2009 for ABB so did not add to comparison)
ROA ABB; 3.3%; 0.6%; 4.5%; 4.0%; 5.65%
For ROA GNC; -1.9%; -1.8%; 6.1%; 0.6%; 2.1%

If you look at the average ROA over five years, ABB is 3.6% versus GNC at 1%. This may be effected by two shocking years for GNC in 2007+2008. The average for the better years of 2004 to 2006 is ABB 4.7 vs GNC 2.9, which is a factor of 1.6 times.

Unfortunately while ABBs assets are worth a return of (say) 4.7%, GNC is returning 2.9% over this (rosier) period (or 3.6% versus 1% including bad years. For a really specialised asset like this you may pay double or so for what ABB has, after allowing for some "option" value. Obviously there are differences in the assets.

There is probably a distribution in GNCs assets where a certain proportion are economic and a proportion uneconomic. GNC may need to get rid off (say) half its assets (or who knows) to meet a hurdle rate of return of (say) 4% over the cycle. Replacement value is not really worth looking at IMO.

Item 2
"*-* Management are being proactive in stripping out costs (i.e. closing merchandising division)"

You probably know what I am going to say from my earlier post. Management cannot strip off everything that is uneconomic, as shareholders will kill them - I believe this may be half of GNCs assets. Then there is possibly a network effect that will reduce the value of each asset further if some are cast off. It would be very unpalatable for management to tell the truth to the shareholders and market about the real value of the investments and assets they have, based on the period I have mentioned. There is option value in the assets, and there will be years when there is a fantastic return. For whatever reasons possibly including drying climate the assets are no longer as valuable as they may once have been. They are also not as valuable as ABB's assets.

There may be a turnaround in the return on these assets at some stage. I'm not sure why any turnaround would be about to happen next year. We really do not know what the weather will be like over the next few years - even if our estimates are getting better for a 10 day forecast. So I assume that things will keep going as they have. The more I think about the new UMH business, the more I think maybe GNC should change their name to UMH, sell off everything that does not complement UMH, and have a new line of business. Not sure to be honest - cannot pretend to be able to suggest a fix.

Short position - and I think I am convincing myself not to go long at the bottom.

Please excuse the negativity emanating from this post.