America First and Microsoft's Purchase of LinkedIn

By Malcolm Berko

August 24, 2016 5 min read

Dear Mr. Berko: Two questions: What do you think of America First Multifamily Investors, which pays 8.7 percent tax-free? And what do you think of Microsoft's purchase of LinkedIn? I'd like to sell 1,000 of my 2,000 shares of Microsoft and put the money in America First. At 73, I figure I don't need more capital gains and want to maximize my income. — JO, Indianapolis

Dear JO: America First Multifamily Investors LP (ATAX-$5.71) is a $65 million-revenue company chartered in 1986 to acquire, hold, sell and otherwise manage a portfolio of federally tax-exempt mortgage revenue bonds issued to provide financing for multifamily residential apartments. Management will purchase additional tax-exempt mortgage revenue bonds, use leverage to increase its tax-free income, diversify to reduce risk and hedge interest rates to maintain a steady dividend. ATAX owns 65 mortgage revenue bonds, issued through various state housing authorities, on 44 properties. These properties comprise 8,230 living units in Ohio, California, Iowa, Texas, Tennessee, Louisiana, New Mexico, Maryland, Minnesota and both Carolinas. Between 1993 and the present, through thin and thick, through recession and prosperity, through good markets and bad markets, in low-interest and high-interest environments, ATAX has paid annual dividends between 50 cents and 54 cents a share. And in those 23 years, its share price has ranged from a low of $4.27 last January to a high of $9.44 in December 2002.

I'm always suspicious of high-yielding investments, especially those that are leveraged (ATAX is 37 percent leveraged), those that are not taxable and those that derive income from housing bonds. ATAX has a $6.50 book value, $43 million in cash, a current ratio of 1.2 and $21 million in free cash flow, with 60 million shares outstanding. And according to Andy Grier, a fund analyst with ATAX, the 50-cent dividend, yielding 8.7 percent, is 90 to 92 percent nontaxable. You must understand that ATAX is a rank speculation, but it's a good rank speculation. If that $50,000 represents a small portion of your portfolio, I'd be comfortable taking a leap of faith with 9,000 shares, which will bring in $4,500, of which $4,000 may be tax-free.

Microsoft (MSFT-$58) may be making a dreadful boo-boo with its $196-per-share purchase of LinkedIn (LNKD-$192), which since 2011 has dumbly traded between $56 and $275 and never earned a dime. MSFT's new CEO, Satya Nadella, will be the old CEO if this LNKD acquisition fails as I and some important insiders think it will. Nadella believes that adding a professional social network to its business-focused software line will allow MSFT to wean itself from its legacy of personal computers. LNKD, with zero earnings prospects in sight, isn't a bargain at $26 billion; rather, it's an expensive and seemingly frantic gamble. And MSFT has a really stinky record with takeovers and buyouts. Its purchase of Nokia's handsets quickly morphed into a $7.5 billion write-off. Microsoft bought Yammer for $1.2 billion, which turned into a black hole, and then put $605 million into Barnes & Noble's Nook e-reader, which flopped, and its Skype purchase is an embarrassing failure. MSFT paid $6.3 billion for aQuantive, an online advertising company that's worthless. MSFT bought Visio for $1.4 billion, Navision for $1.5 billion and Tellme Networks for $800 million, and they're all worthless. During Steve Ballmer's tenure, MSFT bought 149 companies, and 121 of them have vaporized into the ether. No wonder Ballmer is bald.

Nadella sees a synergy in LNKD, with MSFT's Office productivity suite, which is delivered online, and LNKD's core database of 433 million profiles. Nadella suggests that a LKND and MSFT merger represents the coming together of the professional cloud and the professional network. I think that it's the coming together of professional idiots and that Nadella's gone bonkers. This is the marriage of two uncommonly diverse management cultures and business goals. MSFT's business is developing, licensing and supporting software products and services, not social pages for professionals seeking business connections and new jobs.

After the merger is completed, I suspect that MSFT's share price will be dead in the water for a couple of years as LKND and MSFT people fight to find common ground.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Photo credit: Phillip Pessar

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