Monday, August 31, 2009
While some skeptics are saying that many of Marvel's characters have reached the end of their useful life, Disney will now have access to Marvel's 5,000 lesser-known characters. Plenty of opportunity to exploit these assets.
The price paid is about a 5% Free Cash Flow yield (and that's being generous by using 2008 numbers) and a PE of 21 -->> expensive yes, but not bad at all if Disney's scale and creativity can succesfully utilize Marvel's assets.
One reason for the hefty purchase price is that a huge amount of the shares are owned by Issac Perlmutter, a man who wrestled control of the company away from the likes of Carl Icahn and Ron Perelman. Expect a guy like that to demand a nice payday to part with his shares.
Disney CEO Iger, discussing reasons for the deal, among them being a push into more male-centric characters.
Wait, you're not supposed to "fudge" data??? What's the fun in that?
Company's response to the regulator's inquiry:
"While the words in the comment were not well chosen, they were merely a prompt for the author of the Financial Statements to reconfirm the rounding difference expressed in an early draft of the Financial Statements where there was a minor rounding discrepancy. "
REDWOOD SHORES, Calif.--(BUSINESS WIRE)--Saba Software, Inc. (NASDAQ:SABA - News), the premier people management software and services provider, today announced that it has repurchased approximately 4.7% of its outstanding shares of common stock. The 1,384,920 shares of common stock were repurchased by Saba directly from funds managed by FirstMark Capital L.L.C. in a negotiated transaction for an aggregate purchase price of $4.85 million. The repurchased shares have been retired and will resume the status of authorized but unissued shares of common stock.
"Our recent share repurchase reflects continued confidence in Saba`s strategy and ability to execute as well as an ongoing commitment to increase stockholder value," said Bobby Yazdani, Chairman and CEO of Saba. "We believe that the current market value of our shares does not accurately reflect the underlying value of the company and that stock repurchased at this price will benefit stockholders."
In fairness to Saba, yes, the market does not give the company much "valuation" credit. Net of its big cash holdings, the company trades at a Price-to-Sales under 1, a cheap number for a software outfit. The company announced earlier this year that it would partner with IBM, a potentially big development that sent shares from $1 to the current $3.50. Selling shareholders at FirstMark Capital probably figure this is a nice time to exit. What's EXTRA nice for them is the sweet deal of unloading their entire stake directly to the company, instead of selling on the open market -->> the amount they sold is equal to over 8days of total trading volume in this stock, meaning it likely would've taken a long time to bleed shares to the market in order to avoid depressing the price.
Details of the deal, which Baker Hughes expects to be accretive to earnings by 2011:
The agreement represents a premium to BJ Services stockholders of 16.3% over the closing price of BJ Services stock on August 28, 2009. Under the agreement, BJ Services stockholders will receive 0.40035 shares of Baker Hughes and cash of $2.69 in exchange for each share of BJ Services common stock. Upon closing, and reflecting the issuance of new Baker Hughes shares, BJ Services stockholders collectively will own approximately 27.5% of Baker Hughes' outstanding shares.
"Our two companies have highly complementary products and services with very little overlap. Baker Hughes has a long record of partnering with BJ Services on major projects. The proposed merger will make Baker Hughes a stronger, more efficient service provider for our customers worldwide, by integrating pressure pumping with Baker Hughes' wide range of products and services."
Baker Hughes expects to realize annual cost savings of approximately $75 million in 2010 and $150 million in 2011 as it eliminates redundant costs, consolidates facilities, and further rationalizes field costs. Baker Hughes expects the combination to be accretive to earnings per share in 2011."
From a Free Cash Flow perspective, the deal looks pretty rich. This year's net income is estimated at about $200million and 2010's at $150million, both down significantly from the 2006-2008 timeframe. Factoring in continued high capital expenditures and there simply is not free cash flow generation. Baker Hughes is likely assuming at least partial reversion to previous years profit levels, and will probably cut Capex and operating costs in a bid to make this deal a winner.
Previous years' selected financial data for BJ Services:
Some bailouts are better than others - the taxpayer has made out well with some of the bank loans:
The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually
One man continues his fight against Google, at his new firm.
Despite good intentions, phasing out incandescent light bulbs may not save much energy, while offering lower quality light.
Investment banks saw the worst August since 1994 in terms of M&A deals.
An oil expert doesn't see the world weaning itself off the commodity anytime soon.
Some Tribune creditors will make the legal argument that the company was basically insolvent at the time of the LBO deal.
With Ralph Lauren's US sales flattening, they see their underpenetration in Asia as a big growth opportunity.
Friday, August 28, 2009
SANTA CLARA, Calif.--(BUSINESS WIRE)--As a result of stronger than expected demand for microprocessors and chipsets, Intel Corporation now expects revenue for the third quarter to be $9.0 billion, plus or minus $200 million, as compared to the previous range of $8.5 billion, plus or minus $400 million.
The gross margin percentage for the third quarter is expected to be in the upper half of the previous range of 53 percent, plus or minus two percentage points.
With large fixed costs, Intel's gross margin increases quickly with higher than expected revenues.
Intel's earnings per share for 2009 are estimated at about 56cents - about to rise thanks to this preannouncement. 2010 earnings estimates are pegged at 1.12. Those figures lead to Free Cash Flow of $4.2billion and $7billion in 2009 and 2010. Taking the higher 2010 estimate implies a FCFY(Free Cash Flow Yield) of 7.6% based on the company's (net of cash) $92billion market value. Not the kind of yield I chase.
The shares are up 2.5% today, while the broad market is down almost a percent.
Street reactions, courtesy of briefing.com:
-->>Kaufman notes Dell's Q2 reported last night was decent and thinks its preannounced miss in mid-July turned out too conservative; was effective in setting expectations lower. They note they beat ex-"organizational effectiveness" which adds quality to the earnings. They note gross margins improved to 18.7% from 18.1% QoQ and reversed a trend of deterioration over the last two quarters. They find this impressive and it looks like all major PC vendors including HPQ, AAPL, and Dell have managed margins well in a tightening component environment. They have raised ests, still below consensus for FY11 and have raised their tgt to $13 from $11. They do not find its valuation compelling vs HPQ and AAPL (ex net cash). They continue to believe DELL needs to take bigger and bolder steps to position itself for sustainable success...
-->>Deustche Bank notes that with these results in the rear-view mirror, they expect investors to increasingly focus on the Win 7 PC upgrade opportunity; they expect further multiple expansion as the Win 7 launch approaches and visibility on PC fundamentals crystallizes. They have raised their tgt to $20 from $15... Credit Suisse notes DELL's quarter had clean upside, with surprisingly strong gross margins and cash flow. They note the two key near-term bear arguments for the stock-gross margins and cash flow-were countered by the July quarter results. They continue to believe the PC market will enjoy a solid corporate refresh cycle in calendar '10, largely due to the rising maintenance costs of legacy PCs. Dell's heavy corporate exposure positions it well in this respect. They note corporate spending trends and demand from Asia will be key catalysts; they raise their tgt to $19 from $16...
-->>UBS notes Dell should benefit from the desktop refresh cycle (they feel may still be overstated). Near-term, they believe Dell will continue to see lumpiness in rev & margins as it continues to transition, its end markets continue to see pressure, and as it continues to invest into growth markets & channels. They have raised their tgt to $16 from $14.50; they reiterate their Neutral rating.
Thursday, August 27, 2009
-->>"Gross margin was 18.7 percent of revenue as strong improvement in cost of goods sold, disciplined pricing, a sequential increase in sales from enterprise products, and a $69 million buyout of a revenue-sharing agreement by a vendor offset previously highlighted pressure from component costs, competitive pricing and revenue mix in client systems."
Operating cash flow was $1.1billion, and end-of-quarter cash and investments totalled $12.7billion, or 42% of today's market value.
Despite the good results, Dell is not yet ready to call an inflection point, and they see the much-anticipated PC refresh cycle as a 2010 story, disapointing some who were hoping for a back-half of 2009 boost.
As usual, my biggest problem with this company is that they continually cannot make cash from operations in excess of net income - they say it's coming but it's still a ways off.
Back then the FCFY was about 17%, what I considered to be WAY above their cost of capital of 5-6%, as they demonstrated by tapping the debt market.
At this afternoon's price, I get an FCFY of about 11%, and that's before the street gets comfortable with possibly higher Free Cash Flow estimates for this year and next. Still way above their cost of capital so I think the shares will go higher from here:
PORTLAND, Ore., Aug. 26, 2009 (GLOBE NEWSWIRE) -- Precision Castparts Corp. (NYSE:PCP - News) has agreed to acquire Carlton Forge Works (Carlton) and related entities for $850 million.
"Carlton is a critical strategic asset that we have aggressively pursued for several years," said Mark Donegan, chairman and chief executive officer of Precision Castparts Corp. "Ring rolling has been a distinct gap in our product portfolio, and Carlton, the technology leader in that market, will enable us to provide a full range of products to our engine customers. Carlton has also been very successful in building its market positions on all major programs currently in development, including the Boeing 787 and Airbus XWB.
"Carlton significantly broadens our forging capabilities, and, with our combined strengths, we can attack markets that we haven't been able to penetrate individually," Donegan continued. "Our Wyman-Gordon forging operations will share best practices with Carlton, and we can bring Special Metals' and Caledonian's strengths to bear in significantly reducing Carlton's material cost structure. In addition, with seven other PCC manufacturing operations in southern California, we will be able to leverage our growing economies of scale in that region."
PCP did not disclose details of Carlton's profitability. According to Wikipedia the company has 250-300 employees, so PCP paid roughly $3.09million per employee. PCP's own market value is $13billion or about $640k per employee, so we'd better hope there's some high margins at this business! (Note - I am skeptical about these figures, so maybe the employee number is off)
AmTech Research raised its price target for PCP to $105 from $74. I like the deal too, but increasing the price target 42% on a deal of this size seems a bit excessive...
Stepdad: kidnapped daughter alive after 18 years
A woman who has been missing from her South Lake Tahoe home has surfaced in Concord, 18 years after she was kidnapped, and two people are apparently in custody, her stepfather said today.
Jaycee Dugard, who would be 29 today, walked into the Concord Police Department on Wednesday, stunning police and family members who had all but lost hope that she was still alive.
Dugard's stepfather, Carl Probyn, 60, of Orange (Orange County) told The Chronicle today that his wife, Terry, called him at about 4 p.m. Wednesday with the news he never though "She basically said, 'Are you sitting down?' I said, 'Yes.' And she said, 'They found Jaycee - she's alive."
The two, who are separated, cried for about two minutes on the phone.
Dugard was last seen on June 10, 1991 as she was walking to a bus stop in South Lake Tahoe. Dugard, a blue-eyed, blond 11-year-old dressed in a pink top and pink pants, set out to catch the bus to her school near South Lake Tahoe. She never made it.
As Probyn watched helplessly from the family's driveway on a hill about two blocks away, a two-tone gray sedan pulled up and someone yanked the girl into the car and sped off. Even though officers responded within minutes, no trace of the car or girl was ever found.
Aug 27th 2009 NEW YORK From The Economist print edition
Georgia’s troubled banks
SUMMER in America’s deep South is usually a mixture of backyard barbecues, baseball games and sweet tea. This year, however, there has been no respite for regulators trying to contain the banking crisis. On August 21st BBVA, a Spanish lender, agreed to rescue, with government support, Guaranty Bank, a failing Texan firm with $12 billion of deposits. Across the Gulf of Mexico, in sweltering Georgia, things look worse. The state accounts for a fifth of the 100 or so bank failures in America since the start of 2008.
There may be more to come. Each week the Federal Deposit Insurance Corporation (FDIC) announces more failures in America. It has a secret list of more than 300 “problem banks” that are at risk of going broke, most of them small-town lenders. To identify bad banks, analysts are again using the “Texas ratio”, which compares non-performing loans to core capital and was popularised in the savings-and-loan crisis two decades ago. An alternative is to track where the FDIC sets up temporary offices. One is in Irvine, California, close to IndyMac Bank, which failed last year. There is a 500-man operation in Jacksonville, Florida, that has been placed deliberately close to Georgia.
What explains the FDIC’s modern-day siege of Atlanta? There were “too many banks to begin with,” says Dan Blanton, the head of Georgia Bank and Trust, a local community bank. Until the late 1990s most banks were run with county charters which restricted them from branching outside their own small patches of turf. Even today each of Georgia’s 159 counties has multiple banks to provide locals with southern hospitality, mortgages and current accounts. According to Joe Brannen of the Georgia Bankers Association, Georgians have “more affection for community banking” than people elsewhere.
Many of these community banks became overextended during the state’s economic boom. Over the past decade Georgia’s population has grown by 1.5m; thousands are still thought to be moving in each month. Property development surged in tandem. Georgia’s small banks were unable to meet the increasing demand for construction loans with slow-growing local deposits, so they began to offer high-yield certificates of deposit to out-of-state customers. As a proportion of funding, Georgia’s banks were twice as reliant on these as the average American bank. When the financial crisis struck, this “hot money” quickly left the state.
Although small, community banks were not isolated from systemic problems. They banded together in “participations”, a kind of multi-bank loan particularly common in Georgia, thanks to Silverton Bank, a prominent broker of syndicated deals. Known as the “banker’s bank”, Silverton was founded by a consortium that included about 200 Georgia lenders. When it was forced to liquidate in May, with more than 500 such group loans on its books, it caused a systemic problem for other banks in the state. Some of the defaulted loans were obscure and fiddly. One involved more than 60 Georgian banks funding land acquisitions on the outskirts of Phoenix, Arizona.
Yet whatever the structure of Georgia’s industry, the root cause is that bankers just got too optimistic. Banks fail, Mr Blanton says, when they “let the bucket fill up too much.” With few healthy banks left locally the most likely buyers of struggling lenders are outsiders, including foreign banks keen to expand their presence or private-equity firms. That latter prospect improved on August 26th when the FDIC agreed to lower restrictions that had been proposed for non-bank investors. Even then, however, for Georgia’s banks things are pretty far from being peachy.
Amidst yet another delay, Boeing will take a $2.5billion charge for the delayed 787 Dreamliner. Shares higher though.
Good news - as the cost of solar panels drops, the need for it to be "legislated" into use (versus being cost effective) is reduced.
For solar shoppers these days, the price is right. Panel prices have fallen about 40 percent since the middle of last year, driven down partly by an increase in the supply of a crucial ingredient for panels, according to analysts at the investment bank Piper Jaffray.
Having pillaged US taxpayers to pay for the Cash for Clunkers, program, Ford is attempting to have the Europeans throw money their way also.
Aug. 27 (Bloomberg) -- Ford Motor Co. is lobbying European governments to extend consumer sales incentives to avoid a new market collapse when the programs end, according to the U.S. automaker’s top executive in the region.
WSJ op-ed on the hand-wringing over HFT (High Frequency Trading)
What is flash trading? As pioneered by the electronic communications network Direct Edge, it is simply a way for one customer to query other customers to see if they will take the other side of a trade.
Tribune bondholders want to investigate Sam Zell's $8.3billion buyout of Tribune Co.
Zell’s leveraged buyout and “the unsustainable debt burden imposed on a business already in a secular decline undoubtedly caused” Chicago-based Tribune’s bankruptcy, the bondholders said in a court filing yesterday in Wilmington, Delaware. They hold more than 18 percent of the company’s bonds, according to the filing.
Ireland's dependable economic indicator show citizens leaving to find jobs.
Sean McManamon left Ballycroy -- a picturesque village sandwiched between the Atlantic Ocean and the Nephin Beg mountain range -- for a job in London in February after his small construction firm folded. Mr. McManamon, a midfielder who was a stalwart of the Ballycroy team's defense, emigrated around the same time as three other players, leaving the village without an adult team for the first time in more than 50 years.
It is the 35-year-old father of four's second stint as an emigrant. He hopes it is his last. Emigrating again, after being in London for eight years and returning in 1999 to capitalize on Ireland's real-estate boom "was easily one of the hardest things I've ever done," says Mr. McManamon, who left his family, a 100-acre farm and a nearly finished seven-bedroom home behind. "I never thought I'd leave Ireland again."
Wednesday, August 26, 2009
The WSJ reports:
In an annual survey by Financial News' sister publication Wealth Bulletin, the Royal Penthouse Suite at the President Wilson Hotel in Geneva, Switzerland, tops the list as the most expensive hotel room in 2009, commanding $65,000 for its four-bedroom penthouse -- twice as much as patrons paid a year ago for its luxurious setting and views of Lake Geneva and Mont Blanc.
The hotel's management puts the rise down to "buoyant demand" from government officials and U.N. diplomats
Hoteliers said that although the number of business travellers has fallen in the past year, government officials have taken their place in the best rooms and suites.
Pauly Shore has a new reality show:
Variety has learned that London-based production company The Shine Group just picked up a new reality series starring Encino Man star Pauly Shore.
Now the (really, really) bad news:
According to the trade paper, "Adopted" will chronicle the ’90s goof’s efforts to adopt an African child.
Lest we forget, Pauly is the genius who was famously snubbed for an Oscar in the 90's drama Bio-Dome:
GTN has seen 6.2million shares traded already today in 3hours, and the NYSE asked the company to explain. Gray Television had no comment.
Galleon Management filed on the 21st
Citadel filed today.
Huron shares are up about 2.5% today, as people may be excited by Citadel's involvement. The stock jumped massively around the recent earnings report as people realized the selloff may have been overdone in relation to the news, and the shares have underperformed the general market by over 10% since that run.
A couple days ago, Avondale upgraded the shares and put a $25 price target on them, which would be a nice gain from today's $19 and change. Like the rest of wall street, they "let the dust settle" after the earnings restatement, and the stock subsequently jumped 40-50%. Can't blame them for being cautious.
Recession is hitting people everywhere, especially those who took on big debt for law school.
This fall, law students are competing for half as many openings at big firms as they were last year in what is shaping up to be the most wrenching job search season in over 50 years.
Live free or move. Americans in London are leaving the UK as tax rates on high earners rise above 50%.
Raining on the parade, the NYTimes points out that the improved home sales data was "goosed" by the $8k first time home buyers credit, as well as the lower-end part of the market falling too fast to quickly.
Homebuilders see some light at the end of the tunnel?
“We decided to build it out ourselves,” said John Bayless, president of the Sacramento division of Signature Properties, a closely held developer in Pleasanton, California. “Our feeling is, ‘The tide’s turning. Let’s build ‘em.’” Homebuilders that spent the past three years selling off land and writing down the value of property holdings are scouring markets in Sacramento, Phoenix, Denver and Orlando -- cities synonymous with the real estate bubble -- looking for deals on ready-to-build lots as they prepare for a rebound.
More insane spending by California's public schools, and they turn around and blame the greedy banks.
Some districts spent millions of dollars from refinancing not to upgrade classrooms but to purchase administration buildings and build sports stadiums.
Those decisions overrode requests from school board members and parents to support more urgent needs -- such as fixing leaky roofs, replacing faulty electrical systems, modernizing science labs and increasing security at schools where student violence had flared.
The Moreno Valley Unified School District, a 39-school system in Southern California, used 90 percent of its $6.5 million in cash to build a 3,000-seat outdoor stadium equipped with a wireless videotaping system for football games.
Tuesday, August 25, 2009
They previously cited a lack of real estate opportunities as a reason for slowing store openings, from the 2008 10k:
Yet today they appear to be coming accross some opportunites, probably at great rates too. CEO R. Neal Black:
“Quality real estate opportunities are beginning to open in the marketplace and we are ready to expand our store base at a more rapid rate. We believe we are poised to take advantage of these opportunities as a result of our strong financial position. We have a proven ability to open 60 stores a year and these future store openings will put us back on the track we were on prior to the national economic crisis,” continued Mr. Black.
JOSB shares have trounced the general market over the past few years, and sometimes it's left me scratching my head, as the company is incredibly promotional. Their website for example:
In addition to sourcing 80% from outside the United States, a review of the company's design process sheds light - their focus on traditional cuts avoids the "fashion risk" that other designers face when trying to catch the next fad. It also keeps design costs much lower than that of the competition:
JOSB currently operates 467 stores, and is aiming for 600. Net income per store has risen from $91k in 2004 to $126k in 2008 and is still rising as the store base ages and becomes more profitable. At 600 stores I could see JOSB doing at least $100million in net income, or almost 5.50 per share versus 2009 expectations of 3.46. With the company's proven earnings stability, an 8% FCFY(Free Cash Flow Yield) would not be unreasonable, and adding back the large cash balance, this company's market value could double in the next few years.
Obama will ask Ben Bernanke to stay on as Fed Chief.
Nokia playing catch-up to Apple in the "movie-capable" phone market.
Hotel chains dropping stars (reducing service) in order to save money.
The NYPost interviews the Klunker family about Cash for Clunkers
Thanks to cost advantages, China is taking the lead in solar production.
Monday, August 24, 2009
"HOUSTON--(BUSINESS WIRE)--MAXXAM Inc. (NYSE Amex: MXM) announced that it will convene, as promptly as practicable, a special meeting of its stockholders to approve, subject to final action by the Board of Directors of MAXXAM Inc. (“MAXXAM” or the “Company”), a 1-for-250 reverse stock split of the Company’s common stock and preferred stock. The purpose of the reverse stock split is to reduce the number of holders of record of MAXXAM common stock below 300, which will permit the Company to suspend its reporting obligations and deregister its common stock under the Securities Exchange Act of 1934, as amended. Terminating the Company’s status as a public company will allow the Company to realize substantial cost savings on an ongoing basis."
I understand that small companies face exorbitant "public market" costs, at least relative to larger companies as a percent of their general spending. But SEC filings are what hold the company accountable to shareholders, so I'm not sure this is great news.
And if you don't own 250 shares? You're forcefully cashed out:
In the reverse stock split:
-Stockholders who own fewer than 250 shares of common stock or preferred stock on the effective date will be entitled to receive cash (without interest) in the amount of $10.77 for each share of common stock and $11.52 for each share of preferred stock they own.
At the end of the day, given this company's performance, ongoing legal issues, and "drying-up" source of revenue, one might be pleased to accept a cash-out. In reality, this company is hardly public right now anyway, given this ownership stake:
Our Chairman controls the election of the Company’s Board of Directors.
Charles E. Hurwitz, the Company’s Chairman of the Board, controls a majority of the Company’s common stock (the “Common Stock” ) and 84.4% of the Company’s total combined voting power. As a result, Mr. Hurwitz is able to control the election of the Company’s Board of Directors and controls the vote on virtually all matters which might be submitted to a vote of our stockholders.
Risks Related to Our Real Estate Operations
Revenues for our real estate operations are expected to decline for the foreseeable future.
In 2005, our real estate operations realized substantial revenues related to sales of residential lots and acreage at our Fountain Hills, Mirada and Palmas developments. As the proceeds from these asset sales have not been redeployed to other real estate assets and there have been significant declines in real estate demand in areas where the Company operates, this level of sales activity is not expected to recur for some time.
Among gainers are the mortgage enablers.
Leading the losers is Tital International. Their tires are proving to last about 1% as long as expected, possibly because of dealers sabotaging them? Not good at all.
The tires, which cost about $42,000 each, carry Caterpillar Inc.-built 797B trucks at oil-sands operations such as Shell’s Muskeg River Mine 270 miles (434 kilometers) north of Edmonton. Taylor, who in March said expanding into oversized tires would triple sales to $3 billion in five years, blamed the early failures on local dealers who set air pressure too low, raising internal temperatures and causing steel belts to separate.
“The tire dealers up there demanded a 7 percent to 10 percent kickback, but I refused to pay it,” Taylor said. “If you don’t give them some money, they let a little air out of your tires, and no one sees it.” He didn’t identify the dealers.
Hugely upset shareholder Philippe Laffont provides more ammo to his argument that management and the board acted irresponsibly in approving the buyout. Maybe the best part is that Needham, the investment bank advising the board on the $28 per share deal, had a $38 price target last fall!
I'm including his entire letter here, emphasis and color shading done by me not him.
24 August, 2009
Mr. Thomas J. Evans
President & CEO
Friday, in another acknowledgement that the management/ Apax proposal is a bad deal for existing shareholders, RiskMetrics Group (formerly known as ISS), a leading expert on corporate governance and mergers, issued a DO NOT TENDER report recommending that shareholders not tender into the current offer. Furthermore, I find it extremely troubling to read in the report that despite attempts on RiskMetrics’ side, you and the board refused to meet with them, a highly unusual move. The RiskMetrics report comes on the heels of another independent assessment that was critical of the deal and the process by which it was approved: Steven Davidoff’s August 19, 2009 “Deal Professor” column in The New York Times Dealbook1.
The RiskMetrics report focuses on many of the issues that we have raised with you:
•There does not appear to be any immediate driver for a sale, and given the share price discount to relatively recent trading prices, the timing of the sale appears to be inopportune for shareholders.
•The deal structure benefits the acquirer: Among other things, the breakup fee is higher than typical, the Company was not shopped aggressively, there is an expedited tender offer schedule and the shareholder approval requirement is below standard “best practice” for going private transactions involving insiders.
•The disinterested director committee did not take primary responsibility for negotiations, did not have separate counsel and declined the opportunity to speak to RiskMetrics about the process. (I was amazed to read that the disinterested directors approved the deal with the help of Needham in less then 5 days. Did anyone remind Needham that their equity analyst had published a note in December, in the depths of the financial crisis, with a target price of $39 per share? )
Tom, why are there so many staggering and unanswered questions? Why would you sell at the low? Why would you sell during a financial crisis? Why would you sell when Apax, your buyer, uses the weak excuse of not paying more for this deal because they cannot finance it? Why would you rush this deal through with high break up fees, matching rights, and a low shareholder approval requirement?
As I think about these questions, I think about all the ways in which management’s incentives differ from those of other shareholders and conclude this is the only reason you and Mr. Morse would support such a terrible deal. After all, Mr. Morse will get to cash out half his stake in the Company at $28.50 and still roll a large chunk of his after-tax profit in this deal. And most important, you and the rest of your management cohort have a chance to share in a whopping $120 million (or even larger) compensation pool. Not bad for someone whose 2008 total compensation from the Company was $685,000. In fact, the lower the price offered to the rest of us, the higher your chances of participating in the bonus pool - what an interesting and perverse effect!
Your statement to me that shareholders are "lucky" to get $28.50 per share after you missed a quarter is naive and self-serving. It is naive to think the stock market would "punish you and bring your stock price to $12 or less" (your own words) based on your second quarter results. Many companies have missed earnings before you. Bankrate’s long-term value is based not on one missed quarter but on the long-term strength of its franchise and prospects for the future. It is self-serving because you needed the excuse of the bad quarter to rationalize an under priced deal born of a shoddy process. We obviously question the simultaneous timing of both announcements and note that you never gave the market the chance to value your company on the basis of second quarter results alone. How practical!
Tom, you and your board have betrayed the existing shareholders while rolling your own equity into this new deal and negotiating a great pay package for yourself and your management team. Either you should have fought for a better price or you should have committed yourselves to continue to run Bankrate as a public company with a great chance of getting the stock back to the $40 range, 40% higher then your takeout price. In fact, your stock closed above $40 per share on 125 trading days in 2008. At $40 per share, your stock would still be valued at a 6x 2012 adjusted EBITDA based on your own June 5 projections.
RiskMetrics has come out against this deal. We continue to urge all shareholders NOT to tender their shares and to withdraw today any shares previously tendered.
/s/ Philippe Laffont
The offer price is $17.50 per share, about a 27% premium to Friday's close. Charlotte Russe shares bottomed at $4 back in November, and at this morning's price CHIC shareholders have beaten the S&P500 by 23% over the last two years.
Earnings estimates for 2009 and 2010 have been boosted recently, but still make the company's shares appear expensive, at a 2010 PE of almost 24. Worth noting is the company's sizeable cash balance of $60million, over $2 per share. The company has expanded its store base a little over 10% annually, and with 487 stores they're going to enter the "sweet spot" in terms of store age -->> older established stores will make up a higher % of their total, and these tend to be more profitable on a per-square foot basis. Also a positive is that the bulk of the capital expenditure phase is largely in the rear-view mirror, and big depreciation charges understate earnings.
Earnings peaked in 2007 with net margin of 5% -->>the new owners will leverage lower private market costs, and the talent of former Old Navy president Jenny Ming, to improve upon that. Getting back to 2007 numbers in terms of sales-per-square-foot would get to maybe $30million in free cash flow - more if they slow store expansion and cut costs. There is certainly some great value here for the buyers, as that is a 10% FCFY(Free Cash Flow Yield) if you net out CHIC's cash balance.
From the release:
Under the terms of the merger agreement, an affiliate of Advent will commence a tender offer to purchase for cash all of the outstanding shares of Charlotte Russe common stock, and the associated preferred stock purchase rights, at a price of $17.50 per share, for a total value of approximately $380 million.
John Goodman, Chief Executive Officer of Charlotte Russe, said, “Over the last several quarters, we have worked diligently, increasing our focus on individual store performance metrics, better merchandising and implementing best retail practices to improve operational performance, profitability and shareholder returns. Advent brings in-depth sector knowledge of the rapidly changing retail landscape and an exceptional track record of supporting growth. I am confident that this partnership will create opportunities for our employees and positions us well for the future.”
(Previous) Shareholder KarpReilly had been pushing for change at the company for some time, and had an offer on the table to buy the company outright, at half the current price:
KarpReilly looks to have made some good money on its position, but with the stock now at $17.40, they must be absolutely FUMING that they sold their position in the $12 range, after it was their pestering that lit the fire under management's a$$ to sell the company:
Back to the drawing board for Titan International, whose 13 foot truck tires ended up lasting 1% as long as expected.
Sergey Aleynikov, arrested for stealing the code he developed for Goldman's trading operation.
Tough times at the Hallmark Channel
5th Avenue's highest-grossing retailer? Apple.
China's Latin American investments.
Private equity firms are severely hurt by "wipeouts," but they don't have to be fatal.
NYTimes warns that investing in oil majors is not always the best way to speculate on higher oil prices.
Friday, August 21, 2009
Thomas. M Hoenig wants us to avoid the mistakes Japan made in elongating their bank pain. He suggests models like Sweden used, and the US back in the day.
Maybe the most reasonable suggestion yet comes from John Hussman of Hussman Funds. This piece is from back in March of this year. He points out that the government rushes in with taxpayer money because banks are in danger of becoming "insolvent." But this definition of insolvency simply includes equity (stockholders). He points out that bank debtholders should be on the hook too, as they're simply speculators higher up the capital structure (paid back first in a liquidation). We the taxpayer have effectively been paying to prevent bondholders from suffering losses.
From the beginning of the recent crisis, starting with Bear Stearns, I have emphasized that nearly all of the financial institutions at risk of insolvency have enough liabilities to their own bondholders to fully absorb all probable losses without any loss to customers or the American public. The sum total of the policy responses to this crisis has been to defend the bondholders of distressed financial institutions at public expense.
Note that in the example balance sheet above, 30% of the liabilities of the institution represent debt to the company's own bondholders. It is these individuals – not homeowners, not the American public – that are being defended by the promise of trillions of dollars in public money.
For example, while Citigroup has approximately $2 trillion in assets, those assets are financed not only by customer deposits, but also by nearly $600 billion in debt to Citigroup's own bondholders. It is these private bondholders who provided the funds for Citigroup to acquire questionable assets.
The bondholders of distressed financial institutions – not the American public – should bear responsibility for the losses of those institutions.
I believe now as I did then that operating results at Dollar General have improved amazingly, which is the point of an LBO. Now we get to the "exit" strategy for KKR. All IPO's are an "exit strategy" of some form or another, for venture capital backers, original employees, etc. Nothing wrong with that. But be especially careful in a case like this.
Reading yesterday's S-1, the first bit of comedy is the company referring to the LBO transaction as a "merger."
"Our common stock was publicly traded from 1968 until July 2007, when we merged with an entity controlled by investment funds affiliated with Kohlberg Kravis Roberts & Co., L.P. ("KKR"). We are now a subsidiary of Buck Holdings, L.P. ("Parent"), a Delaware limited partnership controlled by KKR. Our 2007 merger and the related financing transactions described herein are collectively referred to in this prospectus as the "Merger Transactions."
To be fair, here are some upbeat highlights:
"These initiatives also allowed us to expand our gross profit margin to 29.3% in fiscal 2008, up from 27.3% for the 2007 predecessor period and 28.2% for the 2007 successor period, and 30.8% in the first quarter of 2009 as compared to 28.8% in the first quarter of 2008. We had net income of $108.2 million for the full fiscal year 2008 and $83.0 million for the first quarter of 2009, compared to $5.9 million for the first quarter of 2008. Since our 2007 merger, we have reduced our total outstanding long-term obligations by $540.9 million to $4.1 billion, and we have had no borrowings under our revolving credit facility since the 2008 first quarter, having funded all capital expenditures and working capital needs from operating cash flow. In addition, at May 1, 2009, our cash balance was $434.6 million."
And now the bad. The most important things to note from the filing:
-->> "We will not receive any proceeds from the sale of shares of our common stock by the selling shareholders."
-->> "We have no current plans to pay dividends on our common stock in the foreseeable future. However, we anticipate paying a special dividend of approximately $200 million to our existing shareholders prior to this offering. This dividend will be paid with cash generated from operations."
-->> "Upon the completion of this offering, pursuant to our monitoring agreement, we will pay a fee of approximately $64 million from cash generated from operations to KKR and Goldman, Sachs & Co."
RUN away from this "IPO." The company is receiving none of the cash. You are taking the "other side of the trade" from some extremely smart individuals who are trying to time this exit perfectly, as it is critical to show their investors they can still pull these leveraged transactions off. Most insulting is while puking their shares back to the public, KKR is taking $200million as a parting gift, out of the company's operating cash flow. And they're taking an i-banking fee??!!
Great NYTimes piece on banks losses. Despite the rampant reporting on "toxic assets" and other exotic products, most banks are failing the old fashioned way - poor loan decisions.
Despite the company warning that its stock is worthless, active trading in the "Old GM" continues...
Russian dam tragedy highlights a crumbling infrastructure left behind from the Soviet days.
AIG's new CEO, on why he took the position. (I LIKE this guy).
U.S. firms have to “start rebuilding themselves, without government regulation, government control, government decisions on how you pay people,” Benmosche said. “If we do it the right way, I’m convinced we can restore credibility in our industry, as well as for our country.”
Yikes. Paul Allen's troubles with Charter Communications may result in a $1billion tax hit, or 1/16th of his net worth.
China plans to reign in the country's banks, who have lent money to stock market speculators rather than business owners.
When institutional investors stayed away from CIT bonds, the company shopped them to less sophisticated investors, who're now sitting on over 50% losses.