Dave Bowers summarily ousted from Bowers & Merena ?????

[Oldtrader3]

This post on the forum is a honorium for Q David Bowers, one of the giants of our hobby. Could we do this another day, in another way?

[Sunnywood]

Oldtrader, Thanks for pointing that out ... I didn't start this thread so that it could degenerate into a coin vs. comic mudslinging forum.

 

Here is a copy of part of a message I sent to QDB and part of his response:

 

Dear Dave,

 

I was concerned when Bowers & Merena was sold to Collectors Universe, as the fine reputation of your firm has been unequalled in our field. As a business owner myself, I could understand your decision to sell. However, I would never have imagined such an unceremonious ending to your association with the firm. The Board and president of CU have done something disgraceful, and it was an extremely bad business decision. They underestimated your standing with the collecting community. This will not serve them well.

 

You have always been a beacon in the numismatic community and an exemplar of academic scholarship. Your company has always been the most highly regarded dealership and auction house by all collectors large and small, myself included. I wish to voice my support for you and Chris, as well as the entire fine staff at Bowers & Merena. Whatever you decide to do, the numismatic community will support you with all its heart.

 

Best regards and best wishes from one more voice in the numismatic community.

 

And here was part of Dave's response:

 

Dear Douglas!

 

Thanks so much. I REALLY appreciate your nice words. All of this was very unexpected to me - and we are all in a recovery and rebuilding phase. Of course, I still love coins. Doug, keep in touch.

 

In case anyone thinks Dave's departure was of his own choosing, notice the use of the word "unexpected" .... this makes me angry at CU

 

Sunnywood

 

 

 

[keithdagen]

In case anyone thinks Dave's departure was of his own choosing, notice the use of the word "unexpected" .... this makes me angry at CU

 

It is pretty obvious that the CU ship is heading straight for an iceberg and instead of someone steering the ship away, they are just throwing stuff off the boat in an attempt to avoid the accident.

[gmarguli]

It is pretty obvious that the CU ship is heading straight for an iceberg and instead of someone steering the ship away, they are just throwing stuff off the boat in an attempt to avoid the accident.

 

Come on now. CU is doing great. Let me point out how well they are doing:

 

1) Today there are 5311 U.S. Coin sets registered. As soon as they find ways of creating more so-called sets, this number will jump. This is the true measure of success there. However, I do wonder if it will keep growing with that [!@#%^&^] BJ in charge?

 

2) They reported a 6.6% increase in revenues. Small print: A 28.7% increase in net LOSS.

 

3) Their turnaround time has worsened to have estimates of months instead of weeks before you see your coins again. Their competition seems to be on track with their normal turnaround times.

 

4) Their stock is soaring (up 0.39% today alone!) on heavy volume of 4,000 shares.

 

And for what it is worth, it's just not true about them throwing stuff overboard. They're throwing the stuff into the engine fire so they can go fasting into that iceberg.

[EVillageProwler]

I think it's pretty easy for Kool-Aid drinkers of any flavor that no matter how much they wish it, a company's success or failure will be independent of drinkers' wishes...

 

The best they can do is to offer constructive feedback. However, it is difficult for the company's execs to know how to act based on a wide ranging chorus of input...

 

EVP

 

[Tradedollarnut]

Small print: A 28.7% increase in net LOSS

 

Actually, it's getting much worse than it appears at first glance. They no longer have $400k in amortization per quarter - a paper loss that was written off lump sum last year due to new accounting rules. If you go back and take that out of the equation so you can compare apples to apples, it's apparent things are getting bad. Especially in light of the fact that the Logan collection was sold that quarter - it realized almost $8M, their largest auction in a long time.

[keithdagen]

Well, they're losing about $400 a pop every time someone sends a PR-70 in for Grade Review.

[PQSeated]

Is the PCGS sector currently making money? They way that business has supposedly been booming over there, it sounds like they're digging in a gold mine. I think the turn-around time over there is absolutely disgraceful and a major blow to the company, in my opinion. I know CU has continually been posting losses. If CU does happen to go bankrupt, what happens to all of the sectors, and most importantly PCGS.

[Sunnywood]

I haven't reviewed the financial statements of CU at all, so the following is mere conjecture. However, it seems to me that PCGS is a great business, and a great business model. And it appears on its face to be a profitable business model. It should be making plenty of money !! So where the #$*& does all the PCGS revenue go? Are some executives perhaps running the company for their own gain? How do you take a great business like PCGS and end up showing losses? What on earth are they writing off?

 

Now, B&M was certainily a VERY different business model from PCGS. It is easy to see how a combination of those two might not have been a good fit. But kudos to Dave - let's remember that he & Ray Merena did get $8 million in cash plus a substantial quantity of (albeit now worthless) CU stock. So let's see, QDB ended up with $8 million, and CU is losing money. So now who's the better businessman???

 

Sunnywood

 

[Tradedollarnut]

$8M cash and about $2M current worth of stock. I know I wouldn't sell my company for that and I doubt QDB would have, given the choice.

 

They've got about $15M in fairly liquid net worth. I don't see how they could still be recovering income tax, so if you throw that out, even at $1.5M loss per quarter they can operate as is for 4 more years. But if B&M tanks, that $1.5M loss could escalate pretty quickly.

 

I would agree that PCGS must be profitable. Even with a significant shift in submissions toward the cheaper modern coins, they still should be making money. I would bet a substantial sum that B&M couldn't have lost money with an $8M prices realized on the Logan sale. I know that Lyn Knight is profitable. That means that the balance of the company plus general corporate overhead is killing them! How long before significant changes are forced to be made?

 

If I were them, I'd decide right now if I was going to be able to acquire new sources of revenue. If not, I'd buy back stock on the cheap (it's trading for under book value) and prune overhead drastically.

[Sunnywood]

$8M cash and about $2M current worth of stock. I know I wouldn't sell my company for that and I doubt QDB would have, given the choice.

 

TDN,

 

Pardon me for saying so, but that seems kind of silly !! Not all companies are worth the same, and not all business owners have the same goals and objectives at any given time. Perhaps the sale price of B&M was attractive at the time (actually it was $16.25M then, not $10M). Just because your company may be worth more than $10M to you right now, doesn't mean that other business owners wouldn't be happy to pocket that sum for their businesses !! Fact is, QDB did, given the choice.

 

I abhor the way QDB has been treated (as I have made quite clear), and I support him 100%, but don't cry for him that he "only" got $10M for his company !!!

 

I'd buy back stock on the cheap (it's trading for under book value) and prune overhead drastically.

 

Yeah, and I know what I would prune first !!!

 

Sunnywood

 

 

 

[Oldtrader3]

The problem is that what ever they paid for B&M over gross asset value, including inventory, has to be expensed in the year of the acquisition. I understand that new IRS rules do not allow expensing of Goodwill over several years. Now it has to be expensed in the year that it was accrued (correct me if I am wrong, Keith).

 

I have no idea what B&M gross assets are worth, but I would guess that there is some Goodwill in the purchase price. Many companies have been hit with major Goodwill expenses in the past couple years because of this tax code change.

[jtryka]

It's not the IRS rules, it's the FASB rules (specifically FAS 142 as it relates to Goodwill). The rule can get a little complicated, but basically for older acquisitions with goodwill, the company must examine the value of the goodwill, and when they perform these valuation tests and the value has dropped, the must report a charge to operating earnings. I am not familiar with CLCT in particular so I can't say this applies per se. Hope this makes things as clear as GAAP!

[Oldtrader3]

Thanks for clearing that up. I was not sure where the ruling originated just on it's effect on companies having to charge the expenses against current earnings.

 

The company that I worked for before retiring got slammed by this double pronged effect of non-performing acquisitions. Not only did they lose Revenues and EBIT, they also had major expense writoff's of Goodwill generated by restated assets.

[IrishMike]

I've had to make a living over the years studying company financial statements. The public data is fairly old. The new stuff should be out soon. 2001 was a financial mess for CLCT from an income perspective. Three major reasons popped up in their footnotes, besides the goodwill write down.

 

Many of their dealers were late in paying because of slow sales. Company obviously doesn't collect fees from some companies until they sell the item. The sportscard business was way off due to lower demand, causing the price of new cards to plummet, not making them worth submitting. Lastly was listed costs to update and install new computer systems.

 

Nothing about B&M was listed. It, however was an easy target if for no other reason than its location. Move the business to existing facilities in San Jose and cut overhead. The only real assets that B&M have are some inventory, the reputation and skills of its employees. The latter just took a big hit.I would think the other auction houses must be licking their collective chops.

 

TDN is correct that the balance sheet is strong. They have no bank debt and are fairly closely held, so no one from the outside can exert real pressure on them. They need a professional manager. I don't know if Hall fits this slot. The new boss seems bent on making an immediate statement, for his sake he had better be right in most of his decisions.

[Sunnywood]

If I didn't have my own company to run I'd go in there and shake things up and turn them all upside-down on their heads !!! That business should be profitable !!!!!

[Tradedollarnut]

Sunnywood: I have heard thru the grapevine why QDB sold and I stand by my statement that he would not have sold for $10M or even $16M. The only reason he sold was to help create something of huge stature and value - a pipe dream as it turns out. Otherwise, I believe he would have preferred to keep his company, continue doing what he does best and have a "family" business.

[keithdagen]

If I remember right, I believe that some of the off-brand collectible divisions, like the autograph and sports card divisions, are real dogs.

[Sunnywood]

TDN,

 

If that is true then Dave was ill advised. However, it may turn out that CU ends up with nothing more than a pipe dream, while Dave ends up with $10M plus a new company of his own founding ... again though, I have to think that CU would have had a non-compete in place. A standard two-year non-compete does not run from the date of initial employment, but rather from the date of termination or separation. If they didn't have such a provision in place, they are mighty unintelligent.

 

Sunnywood

 

[EVillageProwler]

Sunnywood,

 

I believe the non-compete clause kicks in if he leaves of his own volition. If he were terminated or otherwise forced out, then I doubt the non-compete would be valid.

 

In other words, a company can't dismiss someone and then not allow that person to make a living in his area of expertise.

 

EVP

 

[Sunnywood]

EVP,

 

Actually the one we always use kicks in after termination of employment regardless of how the termination occurs!!!

 

But of course, there is no such thing as a statutory non-compete clause ... it all depends on how it is worded in the particular contract in question. It will be interesting to see what CU does if as & when QDB opens up shop.

 

Here's an idea for forum members: let's propose suggestions for what Dave's new company should be called !!!

 

I will start with a few ideas:

 

New Hampshire Coin Co.

Wolfeboro Numismatics Inc.

Bowers, Babalis & Karstedt

The Hantonian Company

Nova Constellatio (my favorite !!)

Cartwheel Auctions

 

Does anyone like any of these? Let's see what you all come up with. After we get a whole bunch, we could put a list together and e-mail it to Dave ...

 

Sunnywood

 

 

[jtryka]

Non-competes are very dependent on the state involved. I know in Oregon (from personal experience) non-compete clauses are almost impossible to enforce. And very few include non-compete enforcement after an involuntary separation, in most states it would be unconsionable (i.e. company went bankrupt, but none their former employees are allowed to work again for 2 years, would be struck down by just about any court in the land).

[gmarguli]

Non-compete clauses are hard to enforce. The courts won't usually allow you to tell an employee that they can't make a living at their profession - especially for those employees that are thousands of miles away.

 

As for his company's new name: QDB Auctions: The Official Auction House of NGC.

[Oldtrader3]

I hope that Dave's Golden Parachute is substantial. IMHO he is one of the few CEO's that has earned whatever amount that it is, in spades. CU would be a seriously lessened company without B&M, and B&M's auctions as it's Flagship. Revenues aside, he was the glue that held the fabric of CU together, from his auction earnings alone! His large shoes will be hard to fill, as will the staff members that have left with him.

 

Dave and his able staff have built their auction skills to the level of the best in the coin industry. The auctions display creativity and terrific listing descriptions and catalog support. Let's see how this holds up under the current leadership of CU. I am not sure that the current meet all your projections or you will be reduced to ashes model (Wall Street management style) is appropriate for the coin industry. Mainly because the prime performance drivers of coin markers are gold prices and interest rates which are largely out of the coin industries control.

 

My sense of it is that the Kingswood auction management's Customer Service, particularly in billing and follow through of timely shipments, is way behind that of B&M's auctions. At least in the past 2 years. I noticed that QDB stayed well clear of CU auction management. Besides, the CU staff is infested with arrogance and lack of follow through, whereas, the B&M staff is always helpful with excellent follow-through on their commitments. Surely, this is a reflection of Dave's management style and that of his key employees. When B&M management makes a mistake, they make things right again.

 

The highpoint of my dealings with CU was when they sent my bill for several auction lots to my correct address (in California) but they sent several thousand $'s worth of gold coins to my ex-wife (in Utah!)! Had she opened the package, it would have meant the end of my chances of ever seeing my gold coins again (lack of follow-through)!

 

When confronted with this gaff, CU Auction Management blew it off as a simple mistake. One of these coins was a 1910-S, MS64 Saint which is now worth $2000. I must thank Dave Bowers and Rick Montgomery for their help in resolving this gaff.

[lclugza]

Mr. Bowers did have a non-compete clause when he worked for Paramount (who had bought his and Mr. Ruddy's Empire Coin Company). If I remember correctly, he had to wait two years after he left Paramount before going back to work in the rare coin business. In those two years he sold automatic musical instruments instead.

[EVillageProwler]

Under what conditions did Bowers leave the Paramount family? I believe that he left of his own volition, which appears not to be the case this time.

 

EVP

 

[lclugza]

I'm pretty sure he left Paramount of his own volition.

[Sunnywood]

I thought NGC forum posters who have expressed support for Dave Bowers would enjoy seeing the following excerpt from one of Dave's e-mails:

 

I have not seen the NGC forums, and I invite you to extend to all forum members my best wishes and also for my appreciation of any support.

-

DAVE BOWERS

 

I am sending Dave a link to the NGC forums so that he can read some of the posts here ...

 

Sunnywood

 

[Tradedollarnut]

posted tonite across the street that Richard Bagg has left the building.

[Oldtrader3]

Has that been verified? I am not challenging your veracity. It's just that so many rumors have been flying around (i.e. by Hammer).

 

If so, very, very soon B&M Rare Coins is going to be a mere shell of it's former self!