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In reply to the discussion: Sears Closing Hundreds Of Stores, Many KMart Stores Going Out Of Business As Well [View all]adieu
(1,009 posts)Goes in, buys KMart (and then Sears) for pennies, then sells just the properties in the high property value downtown areas to increase cash flow and give an appearance that the stores are back to profitable. Stock prices go up, he sells his shares, then bankrupts the company and let investors and others (probably the REITs) left holding the bag.
The reason he could do that was because the properties, especially those in prime downtown locations, were bought many years ago and GAAP required those assets to be valued at purchase price, less depreciation, so they were, on paper, worth almost nothing. But they were VERY valuable, given the prime downtown locations and the existing market value price.
Now, we can't change accounting rules to require that assets be valued at current market value price because some assets are difficult to assess. Once you built a nuclear power plant, for example, what exactly is the market value price for that plant? It's not like you can go on realtor.com or CL and advertise for sale at some amount OBO. Also, other companies may "too optimistically" over-value some of those assets to raise the value of their equity (hence stock price). That was what MCI and some others did.