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Maybe this goes without saying, but the audit from Delloitte still is the biggest near term catalyst. Many is the mutual fund/insurance community (excluding hedge funds) I believe will not buy any shares till Delloitte gives a clean bill of health. That is just how it works. Every one here has done a ton of due diligence, but for these large money managers the risk of being 99% sure MW is wrong is not good enough. I am of the opinion that the audit will take 3-4 months. So assuming Delloitte started on Nov 1 then don't expect the audit till end of Jan or Feb. Delloite is going to be very thorough and check and double check everything. Deloitte's reputation is on the line and they don't want to make an error on something that is so public. Deloitte will be checking all trails of cash from original point of sale through SP and finishing with NQ. This takes time as NQ has customers all over the world. This is going to be a lengthy audit.
i agree with Kevin on the short term. I don't see any catalysts that can knock the stock back to 10 in the near term. We have not heard from MW since analyst day and I don't think NQ left MW with anything else they could challenge. I see a scenario where Deloitte issues the audit and MW challenges it as saying it was a biased audit...bla bla and then MW never makes another comment about NQ again.
Since we are discussing options here, I have been taking advantage of the high implied vol in Dec and recommend the same for the group as no new news should be coining out in Dec maturity. Maybe another 13G of a new fund holding a stake or another partnerhip but that's really it.
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Taking New Oriental Education (EDU) as the base case scenario for what happens re: special investigation and audit report I have found some observations which I think are applicable and of interest.
(1) 20 Jul 2012 EDU establishes Special Committee to investigate MW claims. 30 Sep 2012 EDU announces results of investigation. So base case Audit should take about 2 months. We are nearly 1 month from NQ special investigation announcement.
Take 10 days off for X-mas / NY period => I am expecting to have audit results very early in the new year.
(2) Actual announcement of EDU Special Audit investigation was buy the rumour sell the news event. From MW low to Audit announcment stock had recovered from $9 to $18. Post the announcement it took over 2 months to break push past $18. I would however note that EDU had its own special considerations at the time including concerns that pace of learning centre roll out was too fast and negatively impacting bottom line. I think mkt was looking at next two ER as confirmation that earnings growth and margins were still healthy. In addition the SEC was still looking into whether EDU had correctly used VIE structures post MW allegations.
Based on EDU price action, I expect NQ to continue to drift up untill Audit results and expect a small sell off at that point. Since NQ doesnt share the similar SEC / Margin concerns I would expect such sell off to be much shorter lived.
(3) EDU special committee didnt investigate every MW allegation. Most were without any pointed evidence or merit. It did investigate three of the main MW allegations re (1) disguised franchises used to inflate revenues (2) VIEs not used correctly (3) Financials did not reflect income tax paid overstating earnings.
In each case the conclusion was "no significant evidence" found to support thesis. This implies even if some evidence is found to support MW in the case of NQ, there will still be a test for significance presumably with a high threshold.
I therefore think if the audit conclusion if presented in the same fashion, will easily clear NQ, if similarly performed on the main MW allegations i.e. (1) No cash (2) YDT independence (3) YDT sales (4) L2 Cash (5) VIE IPO fund transfer mechanism. I think these are easy to verify although (3) might take longer. I dont think audit will stretch to NQ Mkt shr.
I suspect we drift higher to $18-20 by christmas. It seems a lot of the swing traders have left the name and there is a lot of accumulation and consolidation going on.