As the saying goes, there are only two things certain in this world: death and taxes. This week, Russia's tax enforcers decided to simplify that truism by boiling it down to death by taxes.
By now, there's probably no need to regale investors with the sordid tale of Russia's war against one of its crown jewel oil companies, YUKOS (Pink Sheets: YUKOY). (For those who want a quick primer, the stories linked at end of this article should bring you up to speed.) Suffice it to say that YUKOS' owner, Mikhail Khodorkovsky, made a critical mistake in challenging the authority of Russia's president a couple years back. As a result, he sits in jail, and his company is about to die a tragic death at the hands of Russia's Tax Ministry.
YUKOS is currently valued at all of $8 billion in market cap. A few weeks ago it was worth considerably more, but then, Russia was demanding "only" $7.5 billion in back taxes from the company for fiscal years 2000 and 2001. Last month, I was musing -- purely hypothetically, mind you -- that Russia could more easily destroy the company if it could only find a few more billions of dollars in tax liability in the company's books.
Fateful words. Over the past month, Russia's tax police have been very busy little beavers, "discovering" huge arrears in taxes owed for fiscal years 2002 and 2003. Total tax demands on the company now stand at roughly $25 billion. Were YUKOS to sell itself to an outside buyer at its current market price, it couldn't raise enough cash to pay off even a third of that tax debt. In fact, even were YUKOS to sell off just its assets, rather than the company as a whole, it wouldn't raise enough to pay the tax piper. According to the company's September 2003 GAAP quarterly results (the most recent available on its website), all of YUKOS' assets taken together don't add up to more than $19 billion.
Long story short, YUKOS appears to be dead and its shares worthless. The Tax Ministry's demands have essentially converted the company's common shares into a liability rather than an asset for those who hold them. The only faint hope remaining for its investors is that the gathering storm of litigation against the Russian State itself will succeed in returning to them some small part of their lost investments.
Read all about YUKOS' tribulations in:
- Russia Names Its Price
- ConocoPhillips Looks East
- YUKOS: From Dismal to Worse
- Russian Market in Gulag
- YUKOS' Slippery Situation
Fool contributor Rich Smith has no interest in Yukos.