Monday, June 30, 2008

More Berkowitz

Bruce talks about Leucadia (LUK), Americredit (ACF), AIG (AIG) and the banks. Also, he goes into Sears Holdings (SHLD)

Berkowitz has the correct look at Sears, not just a retailer but a collection of successful entities that when monetized (it is happening), will provide returns.





Disclosure ("none" means no position):Long SHLD, None

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Posted by Todd Sullivan at 10:10 PM Links to this post

Bruce Berlowitz on Wealth Track

Berkowitz has sold 1/2 of its energy holdings and is moving into health care...





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Posted by Todd Sullivan at 10:00 PM Links to this post

Khosla on Biofuels

Vinod is putting his millions behinds his words...


With ethanol plays like Versasun (VSE), Pacific Ethanol (PEIX) and Archer Daniel's Midland (ADM) off highs, those investors might want to watch.





Disclosure ("none" means no position):Long ADM

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Commodities

Some thoughts from the lake.....Dennis Gartman talks about commodities..


Gartman talks about oil (USO) and the demand destruction of it undergoing. He also talks about corn, wheat and the lost acreage of them due to the recent flooding.

One would think that food prices are going higher due to worldwide demand and weather and oil may crash short term. We sold our oil position a little while ago.

Oil is due for a rapid correction followed by a slow drift up. I think the easy money here has been made though.






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Posted by Todd Sullivan at 9:36 AM Links to this post

Friday, June 27, 2008

The Week's Best At VIN

A long list for the week away at Value Investing News


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Rhode Island SC Ruling Due Next Week?

Jane Genova Reports

RI SC RULING EXPECTED 6/1 or 6/2 - Informed sources indicate

Informed sources reported to me today that a ruling is expected from the Rhode Island Supreme Court on the the lead paint public nuisance appeal this coming Tuesday or Wednesday.

Those sources are anticipating a decision favorable to the three defendants Sherwin-Williams (SHW), NL Indusries (NL) and Millennium Holdings. How favorable is the issue. There could be a third trial rather than the whole enchilada being tossed.

We lead paint watchers are also very interested in the opinion of the RI SC on contingency, particularly in relation to the issue of separation of powers.



Disclosure ("none" means no position):Long SHW, none

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Posted by Todd Sullivan at 12:30 PM Links to this post

Blackrocks (BLK) Bob Doll

Since he has billions to invest, it bears listening to him..

Doll discusses the S&P, Oil (USO), the Fed, European Bankers, Speculation, Merrill Lynch (MER)





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Another Vacation

So headed out again this time for 10 days Saturday.

The family is heading to upstate New York to Lake Tuscarora for 10 days of fishing, campfires and nana time for the kids...

Last year we had no internet (or cell) access so I am not sure if we will this year on the lake. At any rate, even if we do, posting will be extremely limited if not non-existent, this is kiddie time. If anyone wants to be able to post in my absence, let me know and we can set something up. I have a handful of folks in mind....

My goal is to get through the following books.




I have started Einhorn's and so far it is great........

and




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Friday's Links

Oil, JC Penny, War, Recession

- The speculators?

- This is great "outrage".

- Of course they have.....we are winning it

- Well, maybe that is because we really have not had one in that long?

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Posted by Todd Sullivan at 5:44 AM Links to this post

Bruce Berkowitz (video)

Fairholme's (FAIRX) Bruce Berkowitz talks about his latest foray into health care.

Berkowitz top 5 holdings are
Berkshire Hathaway (BRK.A)
Canadian Natural Resources (CNQ)
Sears Holdings (SHLD)
DISH Network (DISH)
Mohawk Industries (MHK)





Disclosure ("none" means no position):Long SHLD, none

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Friday's Upgrades and Downgrades


UPGRADES
Coldwater Creek (CWTR)- CL King Accumulate » Strong Buy
SuccessFactors (SFSF)- Wedbush Morgan Hold » Buy
Zoran (ZRAN)- Longbow Neutral » Buy
Lincare (LNCR)- Wachovia Mkt Perform » Outperform
Pantry (PTRY)- Friedman Billings Mkt Perform » Outperform
Check Point Sftwr (CHKP)- Lehman Brothers Equal-Weight » Overweight
Corinthian Colleges (COCO)- Lehman Brothers Equal-Weight » Overweight
Host Hotels (HST)- Robert W. Baird Neutral » Outperform
City National (CYN)- Keefe Bruyette Mkt Perform » Outperform


DOWNGRADES
i2 Tech (ITWO)- Susquehanna Financial Positive » Neutral
F5 Networks (FFIV)- McAdams Wright Ragen Buy » Hold
Goldman Sachs (GS)- Wachovia Outperform » Mkt Perform
Spectrum Brands (SPC)- BMO Capital Markets Market Perform » Underperform
Research In Motion (RIMM)- JMP Securities Mkt Outperform » Mkt Perform
PG&E (PCG)- Jefferies & Co Buy » Hold
MGM Mirage (MGM)- JP Morgan Overweight » Neutral
Red Hat (RHT)- Oppenheimer Outperform » Perform
Entergy (ETR)- Banc of America Sec Buy » Neutral
AstraZeneca (AZN)- HSBC Securities Neutral » Underweight
British Sky Brdcst (BSY)- JP Morgan Overweight » Underweight
WuXi PharmaTech (WX)- Oppenheimer Outperform » Perform


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Posted by Todd Sullivan at 12:26 AM Links to this post

Thursday, June 26, 2008

More on Sears Holdings "Going Private"

Ever since the first post on this issue I have been looking into this further. Today's Autozone (AZO) filing with ESL (Sears Holdings (SHLD) largest shareholder) gave me the information I needed.

From the Findlaw Legal site

"Delaware's Analysis

Fiduciary principles have long been established to protect minority shareholders in interested transactions. This protection is embodied in the "entire fairness" standard, a reasonably stringent review. Under a fairly recent line of cases, controlling shareholders can avoid the entire fairness review by structuring their going-private transaction as a tender offer. As described in the Delaware Chancery's decision In re Pure Resources, Inc. Shareholders Litigation, Delaware courts now apply two distinct fiduciary standards to boards evaluating a controlling shareholder's acquisition of the remaining shares of a company.7 On the one hand, as detailed in Kahn v. Lynch Communications Systems, Inc., Delaware courts apply the "entire fairness" standard to long-form merger transactions involving a controlling shareholder:

"The concept of fairness has two basic aspects: fair dealing and fair price. The former embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and stockholders were obtained. The latter aspect of fairness relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company's stock. However, the test for fairness is not a bifurcated one as between fair dealing and price. All aspects of this issue must be examined as a whole since the question is one of entire fairness." 8

Moreover, in Lynch "[t]he Court held that the stringent entire fairness form of review governed . . . [even though]: i) the target board was comprised of a majority of independent directors; ii) a special committee of the target's independent directors was empowered to negotiate and veto the merger; and iii) the merger was made subject to approval by a majority of the disinterested target stockholders."9 Even with these additional protective mechanisms, the Kahn Court determined that merger transactions involving a controlling shareholder contain an "inherent coercion" of the interests of minority shareholders, thereby requiring the more stringent "entire fairness" standard.

On the other hand, as demonstrated in Solomon v. Pathe Communications Corp., Delaware courts do not apply the "entire fairness" standard to tender-offer transactions involving a controlling shareholder if the tender offer is not coercive.10 Specifically, the Solomon Court found that "in the absence of coercion or disclosure violations, the adequacy of price in a voluntary tender offer cannot be an issue."11 Recent decisions in In re Aquila12 and In re Siliconix Inc. Shareholders Litigation have followed this doctrine and found that "unless coercion or disclosure violations can be shown, no defendant has the duty to demonstrate the entire fairness of . . . [a] proposed tender offer."13 The tender offers in Siliconix and Aquila contained a majority of the minority tender conditions and agreements to consummate DGCL §253 mergers at the same price as the tender offers. While the Chancery Court in those cases determined that the tender offers were not coercive, they did not specify factors for determining whether a tender offer is coercive.

In Pure Resources, while the Chancery Court "remain[ed] less than satisfied that there is a justifiable basis for the distinction between the Lynch and Solomon lines of cases,"14 it was unwilling to apply the Lynch "entire fairness" standard to tender offers involving a controlling shareholder. The Court found "the preferable policy is to continue to adhere to the . . . Solomon approach, while giving some greater recognition to the inherent coercion and structural basis concerns that motivate the Lynch line of cases."15 In an effort to blend both lines of thought and expand upon the decisions in Siliconix and Aquila, the Court determined that a tender offer by a controlling shareholder would be noncoercive only when "1) it is subject to a nonwaivable majority of the minority tender condition; 2) the controlling stockholder promises to consummate a prompt [DGCL]§253 merger at the same price if it obtains more than 90% of the shares; and 3) the controlling stockholder has made no retributive threats." Accordingly, although the distinction between a noncoercive tender offer and a long-form merger appears to rest on form over substance and has been questioned by commentators (e.g., Franklin Balotti), Delaware courts continue to honor the distinction.16

Conclusion

As seen by the Delaware Chancery's decision in Next Level Communications, Inc. v. Motorola, Inc.17, target boards evaluating going-private transactions involving a controlling shareholder should continue to use the framework provided in Pure Resources. Whether a going-private transaction involving a controlling shareholder is structured as a merger or a tender offer, additional protective mechanisms should be employed to insulate target boards from breaching their fiduciary duties. For long-form mergers, "an approval of the transaction by an independent committee of the directors or an informed majority of minority shareholders shifts the burden of proof on the issue of fairness from the controlling or dominating shareholder to the challenging shareholder-plaintiff."18 Alternatively, tender offers can avoid a coercive taint by including (i) a nonwaivable majority of the minority tender requirement, (ii) a back end short-form merger at the same price as the tender offer, and (iii) the absence of any retributive threats.19 Given the Chancery's internal struggle with this issue, the Delaware courts appear likely to revisit the matter."

Sears Holdings is a Delaware Corp. and would fall under its jurisdiction should this come up.

Any attempt by ESL to take Sears private would fail the "fairness" tests.

Price. Lampert has publicly said repeatedly that the market is undervaluing Sears shares and its prospects. Those statements alone would require him to offer a massive premium to the current price in order to satisfy the "fairness in price" requirement.

"Majority of minority". In order to be free of a "coercive" offer claim, a majority of the minority shareholders would have to vote for the transaction. Does anyone really think Legg Mason, Pershing and Bill Ackman and Bruce Berkowitz, who all own shares in the $100 plus range would vote for a deal for anything less that what they bought shares at? Do we think they would demand a nice premium to even consider saying ok? Me too..

Those three hold 22% of the outstanding shares or, a virtual "majority of the minority". Here is the kicker. As Lampert uses Sears cash to buy up shares to increase his ownership, he also increases theirs, giving them even more power in any deal.

Special deal for the big three to sell? Nope. This is what killed the Sears Canada deal. Pershing argued that Lampert achieved his "majority of the minority" by offering the banks that gave him their shares a higher price that the rest of the shareholders. The courts ruled that this is "unfair" to the remaining shareholders and ruled the "majority" Lampert had invalid. Without the bank shares being counted, Lampert lost his "majority". The same scenario would hold here. Any deal the big three get, we would also.

The oft said "if Lampert owns 60% of the shares he can do whatever he wants" claims are patently false. As a shareholder, no matter how small, you do have rights...



Disclosure ("none" means no position):Long SHLD, none

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Posted by Todd Sullivan at 1:52 PM Links to this post

ESL / Autozone Agreement Filed with SEC

Here are the applicable portions.


Section 3.1 New Directors.

In accordance with the provisions of this Article III, the Company shall take appropriate actions, once nominees are identified satisfying the requirements of Section 3.2, to add three (3) new members to the Board (the “New Directors”). It is the intent of the parties that such additions shall occur as promptly as practicable, but in no case later than the Company’s 2008 Annual Meeting of Stockholders.

Section 3.2 Selection of New Directors.

(a) An independent search agency has been engaged to identify a nominee for one (1) of the New Director positions (the “Specified Director”) pursuant to criteria previously determined by the Nominating and Corporate Governance Committee and all of the directors shall be permitted to propose persons as suggested candidates for the Specified Director to such independent search agency. A candidate identified shall be considered by the Nominating and Corporate Governance Committee in accordance with its regular policies and procedures, which shall include, without limitation, consideration of such candidate’s background, competencies and experience. A candidate shall be recommended by the Nominating and Corporate Governance Committee as a nominee for election by the Board as the Specified Director only if he or she is (a) deemed to be “independent” pursuant to the Company’s corporate governance principles and the rules and regulations of the New York Stock Exchange and (b) reasonably acceptable to both ESL and a majority of the members of the Nominating and Corporate Governance Committee. Only a nominee who is recommended by the Nominating and Corporate Governance Committee shall be presented to the Board as a potential nominee for election as the Specified Director.

(b) Two (2) New Directors (the “Non-Specified Directors”) shall be appointed from nominees identified by ESL, including persons suggested by other directors to ESL who are reasonably acceptable to ESL (any such person, a “Candidate”). Each Candidate identified shall be considered by the Nominating and Corporate Governance Committee in accordance with its regular policies and procedures, which shall include, without limitation, consideration of such Candidate’s background, competencies, experience and affiliation with ESL (if any). Only candidates which are reasonably acceptable to both ESL and a majority of the members of the Nominating and Corporate Governance Committee may be recommended by the Nominating and Corporate Governance Committee for election to the Board. Either or both of the two Candidates may, at ESL’s discretion, be an officer of ESL and its affiliated investment entities. Each candidate shall qualify as “independent” pursuant to the Company’s corporate governance principles and the rules and regulations of the New York Stock Exchange. The Company will use its reasonable best efforts to have the Nominating and Corporate Governance Committee promptly recommend Candidates for election to the Board once candidates are identified satisfying the requirements above.

(c) Subject to the nomination of directors in accordance with the provisions of Section 3.2(a) and 3.2(b), the Company’s Board of Directors shall promptly take all action required to cause the Specified Director and Non-Specified Directors to be so elected.

Section 6.3 Future Sales and/or Transactions Involving an Acquisition of the Company.


(a) ESL shall not dispose or agree to dispose of any shares of Common Stock pursuant to any agreement, arrangement or understanding (whether or not in writing), including by way of merger or other business combination, at a price above the market price per share prevailing at the time of such agreement, arrangement or understanding, without taking appropriate steps to ensure that the purchaser of such shares simultaneously provides all other holders of Common Stock with an opportunity to dispose of a number of shares (representing, for each Company stockholder, the same proportion of owned shares of Common Stock as ESL proposes to dispose of) in such transaction on the same terms and conditions, including price per share, as ESL. It is understood that (i) sales in the open market shall be deemed to be at prevailing market prices and (ii) (a) the transfer of Shares of Common Stock from one ESL affiliate subject to this Agreement to another, (b) distributions by ESL to its shareholders or limited partners, and (c) sales to the Company or third parties approved by at least two directors representing a majority of the independent, disinterested directors unaffiliated with ESL, shall not constitute a disposition subject to this Section 6.3(a).

(b) ESL shall not pursue, either directly or indirectly, including as part of a group, a transaction resulting in the acquisition of all or substantially all of the shares of Common Stock not owned by ESL or by such group (including, for example, in a leveraged recap in which “stub equity” is left in the hands of some or all of the non-ESL stockholders) unless the following procedures and requirements are followed and satisfied. The Board shall establish a committee of independent, disinterested directors unaffiliated with ESL (the “Special Committee”) to review and evaluate any transaction (other than any such transaction in which ESL would be treated on the same basis as all other Company stockholders) proposed by ESL or in which ESL intends to participate, with full authority to negotiate and recommend the terms of such a transaction on behalf of the Company and the non-ESL stockholders. ESL will proceed only with a transaction recommended by the Special Committee, unless the acquisition is structured as a “non-coercive” tender offer, followed by a merger at the same price if the offer is successful, not subject to the test of “entire fairness” in accordance with applicable Delaware case law (e.g., the decisions involving Silconix and Pure Resources), assuming, for these purposes, that the Company had been incorporated under the laws of the State of Delaware and was subject to Delaware law.

(c) The provisions of this Section 6.3 may be enforced by any directors constituting a majority of the independent, disinterested directors unaffiliated with ESL or, in the absence of any such persons sitting on the Board, through a derivative action.

Section 6.4 Information Regarding Common Stock.

If ESL increases or decreases the number of Subject Shares it owns at any time prior to the Termination Date, ESL shall give prompt notice to the Company of such increase or decrease (which notice may be satisfied by a filing of a Form 4 with the Securities and Exchange Commission on a timely basis). If requested by ESL, the Company shall promptly provide ESL with the number of Outstanding Shares.

Section 8.1 Termination.

This Agreement and all of its provisions shall terminate upon the Termination Date; provided that Sections 8.3, 8.4, 8.5, 8.7, 8.8, 8.9, 8.10, 8.13 and, in the case of clause (b) below, 6.3 of this Agreement shall survive any termination of this Agreement. For purposes of this Agreement, “Termination Date” means the earliest of (a) the date upon which the Subject Shares shall, in the aggregate, constitute less than 25% of the Outstanding Shares, (b) the date upon which the Aggregate ESL Percentage shall exceed 50% and (c) the date upon which the Parties (which, in the case of the Company, shall have been authorized by at least two directors representing a majority of the independent and disinterested members of the Board unaffiliated with ESL) mutually agree in writing that this Agreement and all of its provisions shall no longer be in effect. Nothing in this Section 8.1 shall be deemed to release any Party from any liability for any breach by such Party of their representations and warranties or any other terms and provisions of this Agreement.



Full Filing

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Posted by Todd Sullivan at 1:41 PM Links to this post

Borders (BGP) CEO George Jones (video)

This was an interesting interview of the Borders (BGP) CEO and unfortunately way too short..

Jones talks about the consumer, the new direction, Barners & Noble (BKS) and other possible buyers.





Disclosure ("none" means no position):Long BGP, none

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Posted by Todd Sullivan at 12:39 PM Links to this post

More on Lampert's AutoZone (AZO) Agreement

I posted the agreement between Eddie Lampert and Autozone (AZO) this morning and got a flood of questions. Reader Jeff answered 90% of them with this post.

"EBITDAR- Earnings Before Dep./Amor, Interest, Taxes, Rent (lease payments).

Thus, the company can take on long term debt of 2.5x its annual EBITDAR. Relatively modest leverage.

The voting restriction for ESL is basically saying that, if he continues to accumulate, the shares he gets over a certain level (40% now, coming down to 37.5%), he will need to vote them in proportion to how the rest of AZO's shareholders vote.

So, if all non-ESL shareholders vote 50/50, in aggregate, ESL will be required to vote any of its shares in excess of 40% 50/50 as well. This will stay in effect as long as ESL's ownership remains in the range of 25% - 50%.

So Lampert gets his wish that they continue to recap a bit, taking on more leverage and buying back more shares, in exchange for some voting concessions."

Now, something interesting. With the new repurchase allotment, Autozone will be repurchasing 8% of the outstanding shares. By default, this will bring Lampert's ownership up to 44.2% without him buying another share.

That will leave 5.8% (338 thousand shares) left for him to purchase in order for him to invalidate the agreement and vote his shares as he wishes because he will then own 50% of the shares.

One had to wonder then, what is the point of the agreement? Was Lampert pushing for something now and has decided to back off in return for an 8% ownership increase via the repurchase?

It is the only explanation as the agreement simply by itself, for no alternative reason makes no sense and is meaningless.

Something is going on....

Ideas?



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Posted by Todd Sullivan at 7:56 AM Links to this post

Autozone (AZO) Increases Buyback, Reaches Agreement with Lampert

AutoZone, Inc. (AZO) today announced that its Board of Directors has authorized the repurchase of an additional $500 million of the Company's stock, bringing its current unused repurchase authorization to $608 million. Including the additional authorization, the cumulative share repurchase authorization approved by its Board since 1998 totals $6.4 billion.

Additionally, as part of the Company's ongoing evaluation of its capital structure, the Company has decided to increase its adjusted debt / EBITDAR leverage metric to at least 2.5x from the previously established 2.1x. The Company believes this will better optimize its current capital structure and also reflect the ongoing strength of its free cash flow generation.

AutoZone also announced that it has entered into an agreement with ESL Investments, Inc. (with its affiliates, "ESL") setting forth certain understandings and agreements concerning ESL's continued investment in AutoZone. ESL currently owns approximately 36.2% of the outstanding AutoZone common stock. Pursuant to the agreement with ESL, the Company has agreed to use its commercially reasonable efforts to achieve at least the new 2.5x adjusted debt / EBITDAR leverage metric by the end of the Company's second quarter fiscal 2009.

"We are very pleased to have reached this agreement with our long-term and significant stockholder, ESL, which was motivated, by our desire to continue to return excess capital to stockholders in the context of appropriate, mutually agreed governance arrangements," said Bill Rhodes AutoZone's Chairman, President and Chief Executive Officer. "We appreciate ESL's belief in the Company and its management over the past eleven years and look forward to its continued involvement in helping us achieve our goals for the benefit of all stockholders."

The agreement with ESL provides, among other things, that, should ESL's percentage ownership of Company shares increase above certain thresholds, ESL will vote its shares owned above such thresholds in the same proportion as shares unaffiliated with ESL are actually voted. The initial threshold is 40%, which will reduce to 37.5% following the 2009 annual meeting of stockholders. The agreement also states the Company's intention to add three directors in the near future, two of whom will be identified by ESL for consideration by the Company's Nominating and Corporate Governance Committee, thereby increasing the Board's size to 12 members. Thereafter, the Company expects to reduce the Board's size to 10 members in conjunction with the 2008 annual meeting in December. The agreement also contains certain other protections for non-ESL affiliated shareholders as well as for ESL.

The agreement with ESL or certain of its provisions will terminate, except as the parties otherwise mutually agree, upon the earlier of the date upon which the shares (a) owned by ESL constitute less than 25% of the then outstanding shares or (b) owned by ESL constitute more than 50% of the then outstanding shares, provided that ESL has acquired subsequent to the date of the agreement additional shares representing above 10% of the then outstanding shares.



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Will This Be Six Flags (SIX) Last Summer?

I started following the soon to be doomed park operator after a trip there last year. After a recent Hershey Park vacation, I am even more convinced they are done...

After large shareholders began selling and management began blaming god for poor results, I couldn't wait for the latest excuse. Fortunately, you really only need wait a quarter.

At least they have begun to attempt some honesty with shareholders. Although, they still are blowing smoke up investors...well...

Dealscape Reports:
"The second-largest U.S. amusement park company, Six Flags Inc. (SIX), has been on a downhill ride over the last decade with its latest twist, a downgrade to selective default from CCC+ by Standard & Poor's.

The move highlights the financial woes Six Flags has been suffering as the company has been hit hard by the slowing economy, particularly impacted by the rising price of gas, and intense competition from other forms of entertainment. The company has tried to save money with its recent move of exchanging $530.6 million in notes due in 2010, 2013 and 2014 for $400 million in bonds maturing in 2016, resulting in a net savings of $130 million. Additionally, the company has divested and closed some of its properties to free up more cash.

Despite these measures, Six Flags has not been able to stop the trend of losing money every year since 1998, plagued with a massive debt load of more than $2 billion due to overexpansion. With all the financial pressures that Six Flags has been experiencing, the only remedy for the theme park operator may be a merger with a stronger partner. However, when rival Cedar Fair Entertainment Co.(FUN) tested the M&A waters last year, it found no takers. So Six Flags' ride may end in bankruptcy"

Six Flags is the only company I have ever seen that has a debt level ($2.3 billion) that is 14 times larger than it market cap ($160 million). Stunning....

Good news is that at $1.60 a share, you can skip a soda at the park and pick up three shares for the cost of the soda. Although, the soda at least will give you some enjoyment.

I do not buy the recent excuse du jour, gas prices. If anything, the regional parks ought to benefit as people will not travel long distances for vacations but seem more likely to do the day trip that is Six Flags. Witness this report

What is the problem? Simple really. A lousy experience that lacks any value.

Until that changes, expect nothing but more excuses, until the end, which, may not be much longer..


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Posted by Todd Sullivan at 6:53 AM Links to this post

Starbucks Ditches CD's: What Took So Long?

I thought this was a goner months ago?

Starbucks has perhaps realized it is not an entertainment company, but a coffee chain? By September, it is rumored the company will eliminate retail CDs sales in stores. Starbucks will offer just four CDs per store rather than the racks offering multiple CD choices customers currently there.

Starbucks says it was selling more than 4 million CDs a year. Now, if we divide it by the 14,000 location we get and average of 285 CDs per location or less than one a day. Why wasn't this killed, oh maybe a year ago?

Now it isn't clear if Starbucks is going to kill the whole division or not. It should. It is sucking resources and funds that ought to being put to better use. Maybe a dividend? Payoff some debt, now at $500 million vs less than $2 million a year ago? Maybe?

Over a year ago we first looked at this in a post and at least now they at least seem to be getting the point.

Now let's not get all excited and run out and buy shares. Unless Starbucks axes the whole division, the move is just a drop in the bucket. At least if they nix it, we can then at least say they are getting things together. In now way does that constitute a reason to buy shares.

Far more needs to be done..........



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Posted by Todd Sullivan at 6:22 AM Links to this post

Thursday's Links

Fisher, SNS & SHLD, Gas, Google

- Phil was one of the greats

- Some thoughts

- Demand is falling

- Who to believe?

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Posted by Todd Sullivan at 5:40 AM Links to this post

Hershey Needs Tootsie

So, if Hershey (HSY) is not going to be sold, it needs to acquire to keep pace with the new Mars & Wrigley (WWY) combo.

Recently Hershey reaffirmed its fiscal 2008 guidance and expects net sales growth to be in the range of 3%-4% and earnings per share-diluted from operations (EPS) to be $1.85-$1.90. They reported revenue of $4.9 billion in fiscal 2007. According to Reuters Estimates, analysts on average are expecting the Company to report revenue of $5.1 billion in the same period.

On another note:
Gene Marcial, Business Week’s Inside Wall Street Columnist, says Tootsie Roll is a buyout candidate:

Here is a review of the article:
1. Though the company has not performed well lately, as first-quarter sales tumbled, costs spiraled higher, and earnings are on a downward slope.

2. However, the “smart-money crowd” is starting to gather in the stock. That has lifted Tootsie’s share price since late April, when the stock traded at $23. It sprinted up to $27 by early June, where it has remained.

3. Tootsie Roll possesses many of the ingredients that make it a palatable buyout target; the company certainly needs new energy to spark a lift in sales, earnings, and stock price. And Tootsie Roll’s management hasn’t displayed the skills to improve the company in the current environment of rising commodity prices and stiffening competition.

4. Tootsie Roll’s chairman and CEO is now 88, and his wife, the company’s president and chief operating officer, is 76. They control some 76% of the class B voting stock and 54% of the common shares of the Chicago-based company, so the question of a hostile or unsolicited takeover at the Chicago-based company seems out of the question.

5. According to Mario Gabelli, “It looks like a sale will happen, although the big question is when.” Other big shareholders include Wells Capital Management, with a stake of 9.5%, T. Rowe Price (TROW), which holds a nearly 5% position, and Barclays Global Investors (BCS), with 4.3%.

6. Tootsie Roll is a well-recognized brand name, the balance sheet is strong with understated assets, cash flow, and dividend. But, earnings have been flat for years. And, that might attract its bigger rivals, which could see the prospect of rewarding synergies and potential growth in combining with Tootsie Roll. Such larger competitors include Hershey (HER), Mars and Wrigley (WWY).

Hershey needs to expand its offering and Tootsie Roll is both ripe for buying and an iconic brand to add to the stable. Even after the recent price increase. Tootsie sports a valuation of only 1.5 billion, roughly 1/4 that of Hershey.

One has to think that what Hershey would want is the name, close some outdated production facilities and consolidate operations and cost saving would surely be available.

PS. On a side note. A recent vacation to Hershey Park with the kids was a smashing success. First class amenities and and fantastic park. Not a single complaint to be had other than wishing we had chosen to spent more time there. Maybe next year....



Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 3:26 AM Links to this post

Thursday's Upgrades and Downgrades


UPGRADES
Atwood Oceanics (ATW)- Credit Suisse Underperform » Neutral
Pier 1 Imports (PIR)- DA Davidson Neutral » Buy
Spherion (SFN)- CL King Neutral » Strong Buy
Greif (GEF)- Janney Mntgmy Scott Neutral » Buy
Yahoo! (YHOO)- Canaccord Adams Sell » Hold
Ameristar Casinos (ASCA)- Morgan Joseph Sell » Hold
National Penn (NPBC)- Boenning & Scattergood Market Perform » Market Outperform
Polo Ralph Lauren (RL)- Morgan Keegan Underperform » Mkt Perform
NASDAQ (NDAQ)- Piper Jaffray Neutral » Buy
Nelnet (NNI)- Friedman Billings Mkt Perform » Outperform
Winn-Dixie Stores (WINN)- Friedman Billings Mkt Perform » Outperform
Regal Entertainment (RGC)- BMO Capital Markets Market Perform » Outperform
Atlas Pipeline (APL)- Citigroup Hold » Buy
AT&T (T)- Bernstein Mkt Perform » Outperform
Ashland (ASH)- JP Morgan Underweight » Neutral
TIBCO Software (TIBX)- JP Morgan Neutral » Overweight
A. Schulman (SHLM)- KeyBanc Capital Mkts Hold » Buy


DOWNGRADES
Barrier Therapeutics (BTRX)- Roth Capital Buy » Hold
Aurora Oil & Gas (AOG)- Jefferies & Co Hold » Underperform
NY Comm Bancrp (NYB)- Citigroup Buy » Hold
Syniverse Holdings (SVR)- Robert W. Baird Outperform » Neutral
Arch Chemicals (ARJ)- Oppenheimer Outperform » Perform
RPM Inc (RPM)- KeyBanc Capital Mkts Buy » Hold

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Wednesday, June 25, 2008

CNBC's Phil Lebeau: Now One of My Favorite Bloggers

Why?

For this reason:

Not that he supports Ford (F) or GM (GM) but that he calls out Cramer...

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Fed Holds Pat: Yawn.....

This really does not even qualify as news today....


The Fed Said:
"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high.

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting."

What mattered here more than the action was the statement. As hoped, Bernanke & Co. have turned their sites on inflation and are giving the market time to adjust to the higher rates that are coming.

This was the right move and the upcoming increases will be the right moves also.

I have been saying this since way back and still believe it. When the current crisis passes, and like all the other in the past it will. Bernanke will finally get credit for the outstanding job he did maneuvering financial markets through it. He thought outside the box and used some unique tool available to him while at the same time allowing those in the market who made mistake to pay for them....



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Bill Parcells and Sears Holdings

Bill Parcells had a great quote that has always stuck with me. He was asked about his team at the time that was 2-6 but had lost some close games whether or not he felt the team was better than its record. His reply, "You are what you are". If you are 2-6 that is what you you are, nothing more and nothing less.

Here is a recent article on Sears Holdings (SHLD) that bares reading.

Why do I bring up Parcells? Well, his quote has a lot to do with current perceptions of Sears.

Sears, is currently a retailer that is struggling. It should be noted that this is not a current situation held by Sears only, retailers, expect Wal-Mart (WMT) and Target (TGT) all are. Now, Lampert is 100% correct when he says "We’re the $50 billion company that people think doesn’t have any customers or relevance,”.

That is true Sears is by no means anywhere near "in trouble". Cash is great, debt is insignificant and the balance sheet is pristine for a retailer in the current environment.

All that, however does not comfort many shareholders who have watched the stock fall 50% in the past year. Again, a 50% drop is number held by scores of other retailers (JC Penny (JCP), Macy's (M)for starters) but again, it is what is it, lousy.

Back to football...

Had you been a person who bet of football in 1995 and watched the Patriots that year (the year Parcells made the quote), you would have seen a team with a strong leader that made some mistakes that had caused it to lose some games it otherwise would have won. The team had a good young quarterback, strong defense ,capable receivers and a good kicker (not to mention great coaching). In short, all the ingredients where there for success. A misstep here and there caused poor results.

One could perhaps see the "value" in the team and recognized that a little tweaking could result in a dramatically different outcome the following year.

Had you gone to Vegas that off-season recognizing all this and bet the Patriots would have made the Playoffs and / or the Super Bowl the next year, the odds you would have gotten were wonderful. When they actually made both the following season, you would have laughed all the way to the bank

Parcells, recognizing the shortcomings in the team made some changes but stuck to his core philosophy that had worked in the past. The result? Success

Sears:
See the similarities? Lampert has acknowledged some mistake and is trying to take steps to correct them. A new CEO, new structure to maximize brand value and and new leader for those brands are in the works. What has not changed is the core strategy of patience and disciplined capital expenditures. That strategy has made early shareholders very wealthy even after the recent stock slide and is a proven long term one.

Those who think Sears is on the brink of extinction are like the football fans who have a 5-5 team and say they've "been lucky and should be 2-8", well, they aren't, they are 5-5. Conversely, the retail environment will not turn anytime soon so the same 5-5 team cannot be said "should be 7-3 because they have been unlucky" (in this case the "bad luck" is the economy), they are 5-5.

What one can do is look forward and see a very smart leader, correcting errors, with a very strong core (balance sheet) and a proven track record. Based on that you could say the current situation is not reflective of the future results one should anticipate.

Hence, value investing in Sears.........




Disclosure ("none" means no position):Long SHLD, WMT, none

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Einhorn Files 13-G in Fifth Street Finance Corp. (FSC)

David Einhorn yesterday filed a 13-G in lender Fifth Street Finance (FSC).

According to the filing:
As of the date of this filing, each of the Reporting Persons may be deemed to be the beneficial owner of the following number of shares of Common Stock:
i)Greenlight LLC may be deemed the beneficial owner of 990,640 (4.4%) shares of Common Stock held for the account of Greenlight Fund and Greenlight Qualified.

ii)Greenlight Inc may be deemed the beneficial owner of 655,848 (2.9%)shares of Common Stock held for the account of Greenlight Offshore.

iii)Advisors may be deemed the beneficial owner of 494,248 (2.2%) shares of Common Stock held for the account of the managed account for which Advisors acts as investment manager.

iv)DME GP may be deemed the beneficial owner of 494,248 (2.2%)shares of Common Stock held for the account of the managed account for which Advisors acts as investment manager.

v)Mr. Einhorn may be deemed the beneficial owner of 2,140,736 (9.5%) shares of Common Stock. This number consists of: (A) 990,640 shares of Common Stock held for the account of Greenlight Fund and Greenlight Qualified, (B) 655,848 shares of Common Stock held for the account of Greenlight Offshore, and (C) 494,248 shares of Common Stock held for the account of the managed account for which Advisors acts as investment manager.

The information set forth in Rows 5 through 11 of the cover page for each Reporting Person is hereby incorporated by reference into this Item 4(b) for each such Reporting Person. The denominator for determining the percentage of shares of Common Stock held by each of the Reporting Persons was 22,614,289, which is the number of shares of Common Stock outstanding as of June 11, 2008, as reported in the Prospectus filed by the Issuer on June 12, 2008 with the Securities and Exchange Commission.



Read the filing here:

About 5th St:
Fifth Street Finance Corp. (Fifth Street) is a specialty finance company that lends to and invests in small and mid-sized companies (with annual revenues between $25 million and $250 million) in connection with investments by private equity sponsors. It provides financing to support the acquisitions or recapitalizations of companies by private equity sponsors. The Company is externally managed and advised by FSC Management LLC. As of September 30, 2007, its portfolio was comprised of debt and equity investments in 10 portfolio companies and the weighted average annualized yield of its debt investments. As of September 30, 2007, all of the Company’s debt investments were secured by first or second priority liens on the assets of its portfolio companies. Fifth Street Mezzanine Partners III, L.P., the Company’s predecessor fund, commenced operations as a private partnership on February 15, 2007. Fifth Street Mezzanine Partners III, L.P. has merged with and into Fifth Street.


Disclosure ("none" means no position):None

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Ken Fisher Talks About Dow Chemical (DOW)

Fisher has some interesting thoughts on Dow (DOW)




On another note, am I the only one who was really distracted by Fisher's hands during his talks? It looked like they were fake and a puppeteer was controlling them.

Strange...


Disclosure ("none" means no position):Long DOW

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Wednesday's links

Dodd, Graham and Dodd (not Chris), Lenny, Gumshoe


- This is great...

- 6th edition of Security Analysis

- More on Dykstra

- More "junk mail"
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2pm: What Is Going to Happen?

In a word.....nothing.

Why?
Think about it. What is the rational for the Fed raising rates? To slow the economy by reducing credit. Well, I'm not sure about about you but from what I am seeing, that is already happening. One could make the argument and be very accurate in doing so that the current credit environment is far in excess (in its restrictiveness) when compared to the 2% Fed funds rate.

Raising rates in the current situation when placed in a risk reward scenario doesn't work. The risk that a rate increase would push a teetering economy into recession outweighs any inflation decrease you may get.

We do not need to slow down growth to fight inflation now. When you look at it, we really do not have any real growth to slow down. Q1 GDP was .9%. That really leaves very little room for error.

The singular problem here is commodities driven by demand for food and fuel and stagnant supply. A .25 point rate increase will change neither. When one looks around the world currently we have US gas demand falling over 2% vs last year, China is reducing fuel subsidies (will raise domestic prices there and kill demand) and other nations are considering the same. US consumers are not buying SUV's and trucks and replacing them with smaller cars and even motorcycles. The effects of those actions on gas and oil (USO) demand will be felt down the road.

Before Bernanke can begin raising rate he needs to be sure the US is not slipping into recession. Despite what people are saying, we are in a recession when we are, not when "it feels like we are" or the media proclaims one. That being said, according to the data, we are not even as of yet in the beginning of one. Now, if Q2 GDP slips into the negative, then we may actually have a modest one. Should it come in flat, then we most likely will escape it. Bernanke will not raise rates until he has more clarity.

This meeting will feature no change in the Fed funds rate and a change in the statement saying future action are tilted towards fighting inflation and a rate increase.



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Posted by Todd Sullivan at 7:14 AM Links to this post

Wednesday's Upgrades and Downgrades


UPGRADES
Centurytel (CTL)- Stanford Research Hold » Buy
Cheesecake Factory (CAKE)- Wedbush Morgan Hold » Buy
Global Industries (GLBL)- CapitalOne southcoast Add » Strong Buy
Pioneer Natural (PXD)- BMO Capital Markets Market Perform » Outperform
Raytheon (RTN)- JP Morgan Neutral » Overweight
RC2 (RCRC)- Piper Jaffray Neutral » Buy
Key Energy (KEG)- RBC Capital Mkts Sector Perform » Outperform
UST Inc (UST)- UBS Neutral » Buy
Invitrogen (IVGN)- JP Morgan Neutral » Overweight
Marvel Enterprises (MVL)- RBC Capital Mkts Sector Perform » Outperform
Telecom Italia (TI)- Bernstein Mkt Perform » Outperform
Clearwire (CLWR)- Citigroup Sell » Hold
Credence (CMOS)- Citigroup Sell » Hold
Complete Production Services (CPX)- JP Morgan Neutral » Overweight
Huntsman (HUN)- UBS Neutral » Buy
Puget Energy (PSD)- Robert W. Baird Neutral » Outperform

DOWNGRADES
Oceaneering Intl (OII)- CapitalOne southcoast Strong Buy » Add
Stanley Inc. (SXE)- BB&T Capital Mkts Buy » Hold
Mentor Graphics (MENT)- Needham Buy » Hold
Visa (V)- Avondale Mkt Outperform » Mkt Perform
Marshall & Ilsley (MI)- Fox Pitt Outperform » In Line
NYMEX (NMX)- Fox Pitt Outperform » In Line
SAIC (SAI)- JP Morgan Overweight » Neutral
Fuel Systems Solutions (FSYS)- Broadpoint Capital Buy » Neutral
HOKU Scientific (HOKU)- Broadpoint Capital Buy » Neutral
Emerson (EMR)- Credit Suisse Outperform » Neutral
Corn Products (CPO)- Citigroup Buy » Hold
BJ's Wholesale (BJ)- Citigroup Buy » Hold
Affiliated Managers (AMG)- Wachovia Outperform » Mkt Perform
UPS (UPS)- Robert W. Baird Outperform » Neutral
Third Wave (TWTI)- Robert W. Baird Outperform » Neutral

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Tuesday, June 24, 2008

Dow Chemical (DOW) Forced to Raise Prices & Cut Output

The good news here is that the move is being done to "restore margins" and the previous 20% increases have stuck.

Watch CEO Andrew Liveris this morning on CNBC. He reinforces many of the same things we spoke about in my interview with him earlier this month.

Part 1:


Part 2:


Bottom line, Liveris is going to deliver earnings for shareholders in the long run. If that means he has to restrict supply and raise prices he will. If means he has to move production to nations that offer cheaper inputs for his products, he will (and is).

Short run, it will not be very pretty. You do not raise prices 35% to 45% on all product lines and reduce output in a month for any other reason than things are real tough. Liveris said as much in the CNBC interview when he said "we are fighting for our lives in the trenches right now". Current estimates are for $.92 a share for Q2, do not expect that to be hit.

Perhaps it is me, but, Dow below $36 a share? Should it happen I will not be able to resist buying more. It has only hit that level twice since 2003, I will be buying.

What we are seeing simply is the result of years of Congressional neglect on energy coming home to roost. Congressional drilling bans, restrictions, refining permitting nightmares and the list goes on and on. It take 3.5 years to get a nuke plant approved in the US, a joke.

We have enough natural gas off our coasts to power us for generations but we are restricted from getting it. Want to save on oil? Lower the natural gas price so far below that of oil (by adding supply) and watch the millions of homes in the northeast that heat with oil, using over a thousand gallons each during a typical winter make the switch to natural gas to heat their homes.

Until that time, we are going to have to get used to higher prices for petroleum products, which, unfortunately cover a huge swath of the good we use daily.

The good news for Dow shareholders? Kuwait and Saudi JV's. These price increases will stick and when production is moved to the Saudi and Kuwait facilities, Dow will be getting "the milk from the cow, not the farmer". Essentially the equation enables Dow to get oil at below market prices and sell the finished good at market rates, expanding profits and margins. The other option, since input prices are lower, is keeping margins the same and sell finished good below market prices and capture share.

Either way, shareholders win big, eventually...

PS. On another note, how about Liveris standing there for not one but two interviews on CNBC today to announce the news? It was not some middle of the night press release followed by a "no comment" from management. Typical Liveris, "this is the deal and what we are doing about it" (quotes mine). You can count the number of CEO's who do that on one hand.

For all his honesty and forthrightness regarding Dow, you would think more people would take what he says about the future of the company more seriously. No matter, either way, it will happen and by ignoring him, investors give me time to gobble up more shares, at a now rock solid 4.5% yield at sale prices....

Thank You



Disclosure ("none" means no position):Long Dow

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Posted by Todd Sullivan at 10:33 AM Links to this post

More on CNBC's Jim Cramer as Mr. Market

Here is a great post over at Seeking Alpha that takes Jim Cramer and compares him to Ben Graham's Mr. Market.

The genesis was this classic flip flop from Cramer a week ago. It is making waves thanks to Don Harrold who put it together. CNBC has to do something about this guy. He will single handily ruin the credibility of the whole network.




Read the post here:


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Posted by Todd Sullivan at 7:39 AM Links to this post

AutoNation's (AN) Mike Jackson on Gas Tax

You know, if Congress would just listen to Jackson and Dow's (DOW) Andrew Liveris on energy, we would be so much farther along the road than we are now.



We recently took a long position in AutoNation (AN). This interview Jackson did was what got me really looking into the company and considering a purchase.

This is a multi-year bet as auto sales do not look to turn soon but the demand will continue to build and when it releases, profits ought to flow...

It should be noted that famed value investors like Leucadia (LUK), Berkshire's Buffett (BRK.A) are buying into the sector as it troughs.



Disclosure ("none" means no position):Long AN

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Posted by Todd Sullivan at 5:37 AM Links to this post

Tuesday's Links

Brown v Tilson, Meet the Press, Pledges, Paint

- Round 2

- Still won't be the same

- Saw this coming

- Looking forward

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Tuesday's Upgrades and Downgrades


UPGRADES

Sonic Solutions (SNIC)- Kaufman Bros Sell » Hold
Phase Forward (PFWD)- Needham Hold » Buy
Owens-Illinois (OI)- Banc of America Sec Neutral » Buy
Wimm-Bill-Dann Foods (WBD)- Credit Suisse Neutral » Outperform
JC Penney (JCP)- Deutsche Securities Hold » Buy
Cummins (CMI)- UBS Sell » Buy
Natl Oilwell Varco (NOV)- RBC Capital Mkts Underperform » Sector Perform
VisionChina Media (VISN)- Oppenheimer Perform » Outperform

DOWNGRADES
Perdigao S.A. (PDA)- Citigroup Buy » Hold
Cabot (CBT)- KeyBanc Capital Mkts Buy » Hold
Xyratex (XRTX)- Wachovia Outperform » Mkt Perform
Capital Trust (CT)- UBS Neutral » Sell
Motorola (MOT)- Piper Jaffray Neutral » Sell
MF Global (MF)- Keefe Bruyette Outperform » Mkt Perform
Xyratex (XRTX)- Robert W. Baird Outperform » Neutral
Acorda Therapeutics (ACOR)- Friedman Billings Outperform » Mkt Perform


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Monday, June 23, 2008

Altria Eliminates "Marlboro Ultra Smooth"

While it may initially look a bad omen, the reality is that it is a very good move.

First, Marlboro and Marlboro Lights are the #1 cigarettes in the US, by a mile. Second, smoking is in decline and growth for the company will be had through increased market share of the above brands, cigars and smokeless products. Third where is the cash being used to develop and market this product better used?

The ongoing testing of smokeless products for the company are encouraging and being expanded to other markets.

This is where R&D dollars ought to be going. The company expects overall cigarette sales to fall at an annual rate of 2.5 percent to 3 percent in coming years. At the same time the smokeless market is experiencing growth of about the same percentage.

The move is a common sense one. Place dollars into a growth area vs a declining one. Eliminating smooth will have no negative effect on Marlboro sales for the company and having the flexibility to accelerate the smokeless products can only help.



Disclosure ("none" means no position):Long MO

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Posted by Todd Sullivan at 11:30 AM Links to this post

Cramer Ought To Be Fox Business's Promo

They could simply say, "We will never do this....". Hats off to Adam

See it here:


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Whitman's Q2 Letter

As usual, great reading regarding Whitman's Third Avenue Value Fund (TAVF).


On "Bear Raids":
"It seems as if it is now easier, and more economical, to conduct bear raids than has ever been the case heretofore – even before 1929.
1) There is no longer an uptick rule. Prior to July 2007 and since the early 1930’s, a common stock listed on the New York Stock Exchange (as was Bear Stearns Common) could be shorted only at a price that was higher than the last price or change of price.
2) There are now well-developed options markets, where one can go short without incurring any material cash outlays – say, buy put options and offset the cost of
put options, by selling call options.
3) It is now feasible to sell short specific indices, e.g., the Markit ABX.HE, the indices that track prices of residential mortgages.
4) Perhaps most important, the means are more available, and more effective than they have ever been, to spread rumors through new communications devices – the Internet and business television stations."

He continues:
"Bear raids will continue unabated unless those people leading shortselling forays can be shown some downside, whether economic, legal or both. For example, there appears to be a four-pronged approach toward trying to destabilize MBIA as a going
concern. First, there are efforts to strip the holding company of assets so that the holding company might become insolvent. Second, there is pressure brought on the
ratings agencies to remove the AAA ratings from MBIA’s insurance subsidiaries. Third, there are pleas to regulators suggesting that they restrict the insurance subsidiaries’ ability to write policies. Finally, and as part of the other three, the bear raiders are trying to discourage clients from doing business with
MBIA. None of these actions seem to have any merit at all. But from the bear raiders point of view, why not press these approaches?

After all, there is no downside."

Now, I have no problem with short sellers. None at all. What I do take issue is their ability to establish positions and not be held to the same reporting requirements "longs" are. If you can make money by either being long or short, all the power to you. But, to enable those being short to hide positions while requiring those long to fully disclose is questionable.

It seems as in that vein , especially when you consider the MBIA (MBI) and Ambac (ABK) cases have the longs and shorts pitted against each other, the disclosure requirements and lack thereof gives one side a decided advantage over the other.

I do not know ultimately who will be born out right regarding MBIA and Ambac but we do know, Ackman has shrunk his position, dramatically. Whitman has increased his. Dinallo will not let the insurers blow up on his watch as regulator, it would be viewed as his failing.

I think the shorts were right to this point and Whitman will be proven right by the this time in the next year or two.

Read Full Letter Here:



Disclosure ("none" means no position):Long Third Avenue Value (TAVF), None

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Monday Humor, Otherwise Known as the Cicuit City (CC) Earnings Call

Some of these are priceless, when I get into this I feel like I am in a Corporate version of "Spinal Tap". I think Schoonover actually believes himself...

"I am very pleased to report to you that our first quarter results were above our guidance and the company is on track to deliver its financial guidance for the year. Fiscal year 2009 will be a year of very hard work and focus on execution, but we expect to improve our financial performance compared with fiscal year 2008 and set the stage to return to sustainable profitability in the future." said Schoonover leading off the latest earnings call.

OK, but wasn't Q1 already considerably worse than last year and did we expect Q2 to be worse that last year? Answer? It was and Q2 will be. Just how good does Schoonover expect Q's 3 and 4 to be?

"We saw improvement in trends in nearly every category. The work is progressing well and we must maintain our focus in order to produce year-over-year improvement in our financial results."

True, except for sales, profits, margins, debt and cash. They were all worse.

COO John Harlow said:
"We measure customer satisfaction in two ways; one, through third-party mystery shops; and second, through customer first scores. We saw another 250 basis point improvement in mystery shop scores from March to May, on top of a 600 basis point improvement we saw from when we started measuring in July to March."

You could measure them in repeat sales? After a larger drop (12.2%) than any other electronics retailer last quarter, people are just not shopping there.

Back to Schoonover:
"We still have a long way to go but I am encouraged by what we’ve been able to accomplish in the quarter. In short, we are building a new Circuit City that will be much stronger when economic headwinds subside. Bill."

Now, he has been there for three for three years now and results have deteriorated even when the were not only no "economic headwinds" but "tailwinds". That gives us no reason to expect anything different when the do "subside" which, by the way, may be another year or so.

Why will the 2nd half of this year be better than last?

Schoonover: "Just one last thing -- on a go-forward basis, as I think you’ve seen, the first quarter is certainly the most difficult quarter on the two-year comps for us and so as we go through the year, the ability to sustain and build versus an area where we had slipped last year, we see that as being another level of our ability to deliver for Q2 and beyond."

So, it will not be due to a resurgence of the business but "easier comps". Way to go boys...

Here is a great exchange:

Michael Lasser - Lehman Brothers

"It sounds like a lot of the focus has been on the in-store experience and you are pleased with some of the gains that you’ve made there with improving the close rate and the like. Can you talk a bit more about what you are doing to improve traffic and the draw rate? Because perhaps some of the improvements that you are witnessing are due to the declines in traffic and you are losing, you are moving closer to a core group of customers and as you lose out on some of those folks that have a lower propensity to purchase, that would cause the close rate to increase. So perhaps you could talk a little bit about the traffic."

John J. Kelly:CMO

"Some of the things that we are doing to improve traffic in addition, we obviously had been using our movies and music departments to drive traffic. Now we’ve moved into some of the more commodity type of products, such as Flash media and other types of media, product-centric and PC accessories to drive traffic. You are seeing demand for that type of product as prices come down and it begins to [commodicize] the ability for us to use those products as traffic drivers, and use them out in front, the front covers and back covers of our task to drive people into the building to purchase these products, and we can use that to offset what we see as a decline in music and movies."

John T. Harlow: COO

"I think our plans and strategies this year focus on close rate and basket attach, and we expect in a tougher economy with declining industry trends in packaged media to actually see less traffic.

We mentioned a couple of times that our first quarter was our toughest comp. It was also our toughest traffic comp for the year last year, and we have aggressive promotional calendars throughout the year around all the holiday drive times, beginning with back-to-school later this summer.

But bottom line here is most of the changes we’ve made are in the home entertainment side of our store. That’s roughly half of our company’s revenue and more than half the company’s profit. We are focused on optimizing those customers from a revenue standpoint and from a profit standpoint."

OK, but can you answer the question now? Are the "customer service" gains constantly mentioned simply due to the fact that those being quantified are those that are "the choir" and love the store? Are they the only ones left to judge now that the median buyer has left for Best Buy (BBY)?

Were are still waiting for the answer boys...

You know what this reminded me off? The Captain of the Titanic walking around marveling at the newly painted dining room of the ship while it slowly sinks.


Read the whole call here:


Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 7:33 AM Links to this post

Now Its JP Morgan (JPM) & Wachovia (WB)

This make a whole lot more sense than the previous rumor.

The latest rumor has Jamie Dimon and JP Morgan making an offer for Wachovia.

The deal make sense for a couple reasons. Unlike Bear Sterns (BSC), Wachovia is a bank with investor deposits. Dimon has made very public his desire to expand his banking franchise into the SE and a Wachovia deal would do just that. While a deal would push the combined bank over the 10% threshold for deposits, I think it is not a very large stretch to suggest that Congress would happily raise that cap to avoid more banking problems and /or more Middle East and Asian investing in another US bank should Wachovia need more capital.

The other option is SunTrust (STI) bank. Two things make this deal slightly less appealing for Dimon. It is a far smaller bank that Wachovia (roughly 1/3 the size) so its eventual impact on JP will be less. It also trades at a valuation that is 40% higher than its book value relative to what Wachovia trades at (.7 vs .5).

The valuation is a key point. By this metric Dimon could pay Wachovia shareholders a 40% share premium, (this is just an example) which would easily get approval and get the bank relative to its book for a current market price of SunTrust. Wachovia shareholders would jump (leap) at the opportunity to get $24 and change (or shares) for their holdings and have it run by Dimon vs whomever Wachovia decides will be the permanent replacement for ousted CEO Thompson.


Will it happen? I think consolidation is inevitable and it as not really happened yet. Citi (C) is out as a suitor, Bank of America (BAC) is trying to deal with the Countywide (CFC) fallout and Wells Fargo I think is just not interested in something the size of Wachovia. That leaves Dimon as the only real suitor.

What will he offer? I think far less that $24 a share and I think Wachovia shareholder will take just about anything at this point. If I am being honest, anything they offer to have Dimon in charge is better than just about anything Wachovia will eventually do anyway so let go....




Disclosure ("none" means no position):Long WB, WFC, C, None

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Posted by Todd Sullivan at 7:03 AM Links to this post

Monday's Links

Countrywide, Gore, Tilson, Dykstra


- These guys talk about ethics in business?

- Agreed

- Whitney responds

- Glad I ain't Lenny

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Monday's Upgrades and Downgrades


UPGRADES
Microchip (MCHP)- AmTech Research Hold » Buy
McKesson (MCK)- Leerink Swann Mkt Perform » Outperform
Houston Wire & Cable (HWCC)- William Blair Mkt Perform » Outperform
ITT Educational (ESI)- William Blair Mkt Perform » Outperform
AMR Corp (AMR)- Soleil Sell » Buy
Beazer Homes (BZH)- UBS Sell » Neutral
Apollo Group (APOL)- Credit Suisse Neutral » Outperform
Pepsi Bottling (PBG)- JP Morgan Underweight » Neutral
Fifth Third (FITB)- Keefe Bruyette Mkt Perform » Outperform
Cott (COT)- CIBC Wrld Mkts Sector Perform » Sector Outperform
Portland Gen Elec (POR)- JP Morgan Underweight » Neutral

DOWNGRADES
IDEX Corp (IEX)- Janney Mntgmy Scott Buy » Neutral
BioMed Realty (BMR)- Stifel Nicolaus Buy » Hold
OraSure Tech (OSUR)- Needham Buy » Hold
Biovail (BVF)- CIBC Wrld Mkts Sector Perform » Sector Underperform
DeVRY (DV)- Credit Suisse Outperform » Neutral
Sybase (SY)- Banc of America Sec Buy » Neutral
Frontier Fincl (FTBK)- Keefe Bruyette Mkt Perform » Underperform
Intl Rectifier (IRF)- Citigroup Hold » Sell
SanDisk (SNDK)- Citigroup Buy » Hold
ProLogis (PLD)- Banc of America Sec Buy » Neutral
Owens & Minor (OMI)- Banc of America Sec Neutral » Sell
Polypore Intl (PPO)- JP Morgan Overweight » Neutral
Denny's (DENN)- Merriman Curhan Ford Buy » Neutral
Symantec (SYMC)- Friedman Billings Outperform » Mkt Perform


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Saturday, June 21, 2008

The Week's Top Insider Buys

Deal volume by dollar amount.

Helix Energy Solutions Group Inc (HLX)= $9,999,849
Oragenics Inc (ONI)= $2,501,001
Synovus Financial Corp (SNV)= $2,064,314
Cbeyond Inc (CBEY)= $2,013,255
Emeritus Corp (ESC)= $1,606,337
Great Wolf Resorts Inc (WOLF)= $1,581,181
Marathon Acquisition Corp (MAQ)= $1,567,529
Neuro Hitech Inc (NHPI)= $1,260,000
General Electric Co (GE)= $1,049,650
Crescent Financial Corp (CRFN)= $1,014,070
Transwitch Corp (TXCC)= $975,000



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Friday, June 20, 2008

ADM Quietly Becoming Largest Commodity Trading Player

Forget ethanol and HFCS. Archer Daniels Midland (ADM) is quietly becoming the largest commodity trade clearer.

Futures clearing services provider ADM Investor Services Inc., a subsidiary of Archer Daniels Midland Co., said Friday it has agreed to acquire the customer business and technologies of Iowa Grain Co. Iowa Grain is a clearing member of the Chicago Board of Trade and a member of the Chicago Mercantile Exchange.

"With the increased volatility in the global futures markets, it's important to have a large and stable capital base, which this transaction will provide," said Iowa Grain President and Chief Executive Mike Brinati.

The companies said the combination will produce a financially stable futures commission merchant with efficient access to trading platforms and electronic trading facilities.

If we remember back to the last earnings release we remember the huge results in the Agricultural Services Division.

Results were driven by an almost sevenfold increase in profits at ADM's Agricultural Services division, from $46 million to $366 million. The division includes the company's grain-trading, -transporting and -handling businesses.

The Iowa purchase is just adding revenues and customers to that business. When you consider the amount of grain ADM handles and stores, further expansion into trading in the current environment is a natural and very profitable move. To fully see the scope of what we are talking about here, look at this map.

Commodity markets have exploded and with them has the trading in them. As a leading clearer of trades, ADM stands to profit no matter what the markets do, as long as there is action.




Disclosure ("none" means no position):Long ADM

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Weekend Reading at VIN

Here are the week's best at Value Investing News



16. Todd Sullivan's - ValuePlays: Buffett in Wachovia?


(via valueplays.blogspot.com)

Not so fast





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Dow Chemical & Owens Corning....hmmmm

Recent news got me to thinking....

First this:
"Dow Building Solutions (DBS), a market-facing business unit of The Dow Chemical Company (DOW), announced that it has signed an agreement to acquire Stevens® Roofing Systems and Geomembrane Systems, a business of JPS Industries, Inc. Based in Holyoke, Mass., Stevens® Roofing Systems manufactures reinforced thermoplastic (TPO) commercial roofing systems, an area with significant growth potential that aligns well with Dow's energy efficient building expertise. Pending the transaction close, Dow plans to operate the acquired business as Dow Roofing Systems LLC. Financial terms were not disclosed. Regulatory approval is not required, and the transaction is expected to close within 30 days.

Dow Building Solutions' participation in the commercial construction market centers around creating energy efficient structures, including insulation, weatherization systems and exterior wall systems. Stevens® is an innovator and a recognized leader in TPO single-ply roofing systems for commercial and industrial applications. The planned acquisition adds Stevens®' commercial roofing expertise to Dow's building science know-how, insulation and polymer technology expertise to deliver comprehensive solutions in this rapidly-growing industry segment."


Then this news:
Special-Situations Hedge Fund Harbinger Capital Partners has taken a stake in Owens Corning (OC). Since late April, Harbinger has spent $57.46 million purchasing 2.6 million (almost 2%) shares of Owens Corning on the open market at prices ranging from $20.56 to $23.96 each.

Harbinger may be think that like Sherwin Williams (SWH), Owens Corning (OC) is very cheap based on its long term earning potential, its market share and brand recognition.

In my recent conversation with Dow CEO Andrew Liveris we spoke about Dow's M&A prospects.

While the large "transformational deal" ($10 billion plus) most want is unlikely (and unwanted from this author's perspective) Liveris did say the scores of smaller deals were likely. Owens, with a market cap of $3 billion would fit into that frame. With $9.5 billion coming in Q4 and the roughly $3 billion already in the bank. The deal is easily doable.

Now, OC has put it asbestos litigation behind it and has successfully transformed it earnings profile to 60% international with it composites purchase recently. Both the composite, fiberglass insulation and roofing businesses do have some symbiosis with Dow businesses so cost savings would be available. It would also immediately vault Dow Building Solutions into a market leader.

The best part? The price. Like everything that has anything to do with housing or any kind, Owens share price has been hit, down 30% over the past year. Andrew Liveris, is, a value investor. He is also the best kind, a patient one. Owens right now represents value and more earnings diversification for the company. It also, now, finally, represents and international presence.

By the end of the year about 1/3 of Dow's market cap will be cash. Expect buybacks and dividend increases and small purchases. Owens is larger than "small" but still could easily work.

Just a thought.......



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Posted by Todd Sullivan at 9:40 AM Links to this post

CSX / TCI Court Documnents and Thoughts on "Disclosure"

Not sure if anyone has seen thins but it is a must read.

Judge Lewis Kaplan opens with Read the whole document at the link:
"Some people deliberately go close to the line dividing legal from illegal if they seea sufficient opportunity for profit in doing so. A few cross that line and, if caught, seek to justify their actions on the basis of formalistic arguments even when it is apparent that they have defeated the purpose of the law.

This is such a case. The defendants – two hedge funds that seek extraordinary gain,
sometimes through “shareholder activism” – amassed a large economic position in CSX Corporation (“CSX”), one of the nation’s largest railroads. They did so for the purpose of causing CSX to behave in a manner that they hoped would lead to a rise in the value of their holdings. And there is nothing wrong with that. But they did so in close coordination with each other and without making the public disclosure required of 5 percent shareholders and groups by the Williams Act, a statute that
was enacted to ensure that other shareholders are informed of such accumulations and arrangements.

They now have launched a proxy fight that, if successful, would result in their having substantial influence and perhaps practical working control of CSX. Defendants seek to defend their secret accumulation of interests in CSX by invoking
what they assert is the letter of the law. Much of their position in CSX was in the form of total return equity swaps (“TRSs”), a type of derivative that gave defendants substantially all of the indicia of stock ownership save the formal legal right to vote the shares. In consequence, they argue, they did not beneficially own the shares referenced by the swaps and thus were not obliged to disclose sooner
or more fully than they did. In a like vein, they contend that they did not reach a formal agreement to act together, and therefore did not become a “group” required to disclose its collaborative activities, until December 2007 despite the fact that they began acting in concert with respect to CSX far earlier. But these contentions are not sufficient to justify defendants’ actions."

This is a must read because it goes to disclosure. Hedge funds are constantly all over management (for the good of all) to be more transparent. But actions such as those by TCI, while technically legal, smack of hypocrisy. The same goes to short sellers who are short but refuse to disclose how short they are because "they are not legally required to".

Disclosure is disclosure and if it is good for some it has to be good for all. It cannot be a piece by piece game. Personally I think if you can be short through ownership of puts and be forced to disclose it then if you have sold shares short you ought to be forced to disclose it also.

If you are acquiring interest via swaps, the same ought to hold. On cannot hold the management of a company to a higher standard than themselves and then stand their a "tisk tisk" management for not "disclosing fully".



Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 9:23 AM Links to this post

It's Friday, So Let's Play With Macalope

It is time to play "MacSemantics" this Friday

This one gets even sillier:

First as always, Macalope's "piece":

Mac graciously does a mea-culpa here: "Todd starts by rightly dinging the horny one for failing to note that he did say Jobs did not actually go so far as to literally say iPhone purchasers were suckers, even though Todd put it in quotes. So the Macalope will agree he shouldn't have bothered making an issue of that particular point."

Then we degenerate to more Macgames:

"[Commenter colonelpanic points out that Todd is calculating off a different base by going back to the iPhone's original price, so his number don't jibe with Gizmodo's or the Macalope's. Some of this may be confusion over the Macalope's use of "original iPhone" to mean the original hardware at the May 2008 price. The Macalope has already conceded that the price drop from the iPhone's launch price to the price as of three weeks ago was necessary to stay competitive, the point is that Steve Jobs effectively announced no real price drop at WWDC, contrary to Sullivan's posts of last Monday. Todd's trying to reset the goal posts to justify his contention that the iPhone 3G is "cheaper". Sure, it's cheaper than it was last July, but it's not cheaper than it was three weeks ago.] "

Now, what was the post from your truly that started all this? Anyone remember?

Wasn't it "$199 3G iphone......Job's Admits Early iPhone Buyers "Suckers" ?. Didn't I then go on to talk about those who "waited in line for days" for a phone? Didn't I also then talk about "those of us who laughed when the phone was priced at $499"? Isn't the genesis of all the my assertions since two months before the phone was even launched that a price drop of this magnitude was necessary?

Wasn't the first sentence "How stupid do those folks who slept outside for days for a phone feel? They could have waited a year, got a better phone from apple (AAPL) for 1/3 the price...."

Now Mac, excuse us for thinking when you actually said "original price" that you actually meant the "original price". Silly, silly us. We should know you meant "the price that makes whatever argument I am making correct".

While your at it, we could just as easily give you GB$500 pounds and in that case after the exchange rate, if you force me to use dollars for the new phone and you use the pounds for your old one, you could make out even better. I mean, as long as we are just doing more "Apple twisting".

It is nice of you to admit that when one bases his assertion off the original price like I have done since day one that, that person would be 100% correct.

The rest of his post is reduced to some mildly amusing pseudo insult I can only imagine was done to hide the fact he has already admitted on two occasion I was in fact, based on the metrics I used, correct?

Mac post basically says "Sure you are right if you go by what you said, but you are wrong if you go by what I wanted (wished, hoped, tried to make people think) you said"

OK.....Good to know

Perhaps maybe if Mac spent a little more (or any) time writing original stuff rather than just sitting there picking at the work of others, he could avoid this?

Just a thought...



Disclosure ("none" means no position):Sold Apple July $280 calls in Jan.

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Posted by Todd Sullivan at 8:49 AM Links to this post

Friday's Links

Yahoo, ESL, Whitworth, Starbucks

- Yahoo goes after a blogger...

- Lampert's holdings

- At least he owns a bunch of the company he is helping to ruin

- Took long enough

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Friday's Upgrades and Downgrades


UPGRADES
Popular Inc (BPOP)- B. Riley & Co Neutral » Buy
United Comm Banks (UCBI)- Sterne Agee Sell » Hold
Landstar System (LSTR)- KeyBanc Capital Mkts Hold » Buy
Pike Electric (PEC)- Friedman Billings Mkt Perform » Outperform
Silicon Labs (SLAB)- Friedman Billings Mkt Perform » Outperform
Energy East (EAS)- Jefferies & Co Underperform » Hold
Casella Waste (CWST)- JP Morgan Neutral » Overweight
CarMax (KMX)- Wachovia Underperform » Mkt Perform
American Intl (AIG)- Citigroup Hold » Buy
Sepracor (SEPR)- UBS Neutral » Buy

DOWNGRADES
FedEx (FDX)- BB&T Capital Mkts Buy » Hold
Plexus (PLXS)- Needham Strong Buy » Hold
Puget Energy (PSD)- Soleil Hold » Sell
Tetra Tech (TTEK)- Stanford Research Buy » Hold
Scotts Miracle-Gro (SMG)- BMO Capital Markets Market Perform » Underperform
Coventry Health Care (CVH)- BMO Capital Markets Outperform » Market Perform
Cheesecake Factory (CAKE)- Credit Suisse Outperform » Neutral
Sonic (SONC)- Credit Suisse Outperform » Neutral
Integra Bank (IBNK)- Stifel Nicolaus Buy » Hold
Aastrom Biosciences (ASTM)- Dawson James Buy » Neutral
Agrium (AGU)- Credit Suisse Outperform » Neutral
Kraft Foods (KFT)- UBS Buy » Neutral
Synaptics (SYNA)- Oppenheimer Outperform » Perform
Huntsman (HUN)- Jefferies & Co Hold » Underperform
LG Display (LPL)- Deutsche Securities Buy » Hold
Coventry Health Care (CVH)- Wachovia Outperform » Mkt Perform
TEKELEC (TKLC)- Lehman Brothers Overweight » Equal-Weight
UBS AG (UBS)- Credit Suisse Outperform » Neutral
America's Car-Mart (CRMT)- Jefferies & Co Buy » Hold
Express Scripts (ESRX)- UBS Buy » Neutral
Medco Health Solutions (MHS)- UBS Buy » Neutral
WCA Waste (WCAA)- JP Morgan Neutral » Underweight
Commercial Metals (CMC)- Citigroup Buy » Hold


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Thursday, June 19, 2008

Hedge Fund Buys Owens Corning Shares

Special-Situations Hedge Fund Harbinger Capital Partners has taken a stake in Owens Corning (OC).

Since late April, Harbinger has spent $57.46 million purchasing 2.6 million (almost 2%) shares of Owens Corning on the open market at prices ranging from $20.56 to $23.96 each.

The most recent transaction was early this week as they purchased 479,790 shares for $11.5 million, according to a SEC filing late Wednesday.


Harbinger's Website says they invest in:

Restructuring/Bankruptcy

Purchase securities at a price that values the underlying investment at attractive valuations to private and public market multiples.

Turnaround

Purchase securities at a depressed price with the expectation that the business has bottomed or can be restructured out of court. Receive coupon payments and expect price appreciation to the intrinsic value of the enterprise.

Liquidation

Purchase securities at a price which is materially below our assessment of the asset values.

Event Driven

Purchase securities based on a quantitative analysis of the value of the underlying securities, timing and probability of a specific event such as an exchange offer, emergence from or announcement of bankruptcy, earnings announcement, or outcome of creditor negotiations.

Capital Structure Arbitrage

Simultaneous purchase and short sale of two or more securities of the same issuer in order to take advantage of perceived mis-pricings between an issuer’s securities or in anticipation of an event that will cause the pricing differential to narrow.

Short Sale

Sell short securities when a company’s deterioration or industry fundamentals are not reflected in current price.

Special Situations

Identify medium to long-term investments with a primarily long bias, with flexibility to use other investment strategies and types of securities when attractive opportunities arise.

Owens fits in to a few of the categories. The simple truth is that currently it is a wind energy and hurricane play. Nothing sells a whole bunch of roofing shingles like a hurricane of even minor intensity and Owens, currently a huge producer of the composite material used in wind turbines for wind energy can barely keep up with demand for the product. This is the reason they recently reiterated full year results despite the current housing calamity.





Disclosure ("none" means no position):Long OC

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Biglari Named Steak n' Shake Chairman

The Steak n Shake Company (SNS) today announced that its current board member, Sardar Biglari, has been appointed Chairman of the Board of Directors, replacing interim Chairman Wayne L. Kelley. Mr. Kelley will remain on the Board of Directors and will retain his position as Interim Chief Executive Officer until the Company concludes its search for a permanent Chief Executive Officer.

Biglari is the head of Western Sizzlin' (WEST).



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Wal-Mart Cuts CapEx Spending Again....Good, Can We Get More BuyBacks?

Wal-Mart is continuing to realize that making what they have better at this point returns more that just throwing up stores everywhere.

Spending on new stores will decline for a second straight year to $13 billion to $14 billion for the 12 months through January, down from an October projection of $13.5 billion to $15.2 billion, Wal-Mart said today. The company spent $14.9 billion in the previous fiscal year.

Let's not forget the original number for 2007 was $17 billion.

Plans are to add 170 U.S. supercenters this fiscal year and 140 in next 12-month period starting in February after opening 191 and 281 in the previous two fiscal years respectively.

Square footage of stores is expected to increase by 5% to 6% this fiscal year, slowing from 7.7% growth last year.

Wal-Mart is in the mist of a $15 billion share repurchase that, ought to be increases as this spending is decreased. The store remodels are excellent, the "Save More Live Better" campaign has been a success as predicted and customer are flocking to the stores as dollars are pinched.

The only thing really left to do to increase the rewards to shareholders in an increase in the share repurchase. The money is there, so is the financial flexibility. Why not?

As of 4/30 there was $7.1 billion left on the $15 billion plan announced in May 2007. It ought to be finished or real close to being finished this year based on results so far. Why not announce another $10 to $15 billion plan?




Disclosure ("none" means no position):Long WMT

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Circuit City.....going ....going.... Schoonover Inexplicably Still There

CEO Phillip Schoonover continues to be devoid of any reality......you have to read this.

Circuit City (CC) says its loss widened in the first quarter because of a 11.3% drop in sales at established stores ads it is also suspending its dividend. The soon to be extinct retailer reported a loss of $164.8 million, or $1 per share, compared with a loss of $54.6 million, or 33 cents per share a year ago. Circuit City Stores Inc. says revenue fell 7% to $2.30 billion from $2.49 billion.

For the Q2, Circuit City (CC) expects a loss of $170 million to $185 million. Analysts expect a loss of $143.4 million.

Lousy, right? Not according to Schoonover..

"In the first quarter, we continued to see improvement in many of our operating performance measures," said Philip J. Schoonover, chairman, president and chief executive officer of Circuit City Stores, Inc. "We are rebuilding our selling culture and focusing on creating a good first and last impression with the customer. We have seen improved trends in our store close rate and in our services and accessories attachments, and we are delivering a better customer experience in our stores as evidenced by the upward trends in our third-party mystery shop scores. In short, the quarter represented improved execution and solid, steady progress towards our goals, and we expect to start to see year-over-year improvements in our financial results beginning in the second half of the year. I want to thank our associates for maintaining a sharp focus on expense controls, in order to build a more competitive cost structure, as well as for their hard work and dedication throughout the quarter."

How about looking at some metrics that actually matter? Executive compensation? Sales collapsed, profits collapsed, margins fell, expenses as a percentage of sales rose, cash balances fell 74% to $94 million, accounts payable rose and debt rose 30%.

But wait, there is more:
"Crisp execution of our retail turnaround efforts remains our primary focus. The outcome of those efforts will position Circuit City well for the future and help us to capitalize on the anticipated improvement in the macroeconomic climate during the second half of the fiscal year," concluded Schoonover.

Now, Phil, how about we just stop the collapse before we start talking about turning this thing around? Nothing good has happened in the three years you have been there.

If that was not enough, it would seem they are going to turn down the overture from Blockbuster (BBI). While I fell that it would be a disaster for Blockbuster, it would be the best thing for Circuit city holders as they will never see the price Blockbuster offered in this decade.

Said Schoonover, "As we previously announced, the board of directors is leading a process to explore strategic alternatives to enhance shareholder value, and that review continues. The board has not determined any course of action. As part of that process, today we filed a shelf registration statement with the Securities and Exchange Commission in order to give us greater flexibility to respond to strategic opportunities as they arise. Separately, during the quarter, we settled the potential proxy contest with Wattles Capital Management."

What other choice could he possibly have? Nothing he has done in three years has worked. Just sell the damn things and give shareholder something....

The final slap in the face?

the company reaffirmed the following outlooks:
Fiscal 2009 Outlook
The company reaffirmed the following expectations for fiscal 2009:
-- Consolidated net sales relatively unchanged from the prior year
-- A mid-single digit domestic segment comparable store sales decline

Uh, any idea about little things like profits or losses? It kind of really does matter more than the other two above...

Jeez...one more
"For the second quarter, the company expects to record a loss from continuing operations before income taxes of $170 million to $185 million, compared with a loss of $128.2 million in the prior year second quarter. While the expected loss is larger than the prior year period, the year-over- year increase in the loss is significantly smaller than the increase in the first quarter loss."

Translation? Q2 will suck also, just not as bad as Q1. I think they want a pat on the back for that.

Great job guys...

I am trying to come up with something funny to say but I cannot think of anything better than what is in this press release...


Disclosure ("none" means no position):None

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Buffett in Wachovia?

It has been a while since the latest rumor about what Berkshire's (BRK.A) Buffett is buying so lets look at this one. It think the last one was a Bear Sterns deal?

Wachovia (WB) credit protection costs fell yesterday on rumors Buffett is considering making an investment in the bank. Five-year credit protection costs on Wachovia fell to 193 basis points, or $193,000 a year to protect $10 million of debt, in from about 202 basis points.

"There is unconfirmed speculation that Warren Buffett is considering an investment in Wachovia," said Paul Foster, option strategist at Web information site theflyonthewall.com in Chicago.

Now, Buffett does have consider equity investment in financials in Wells Fargo (WFC), M&T Bank (MTB) and US Bancorp (USB).

Would he consider a purchase in Wachovia? The argument could be made that it is undervalued today based on it's long term potential. We also know that when Buffett invests in banks, the time frame to this point is measure not just in years but decades.

But, Wachovia will not be one of those investments. The reason? Management. Buffett has said repeatedly about Wells Fargo that its management is the "finest at any bank" and M&T and USB have so far shown to have escaped the worst of the current situation through conservative decisions.

This is not to say that what is left at Wachovia management wise is not good, it is just that the situation is unsettled. Buffett, to my knowledge has yet to invest in a company during a time of management transition, especially when the situation has deteriorated as it has at Wachovia. I guess one could argue his investment in Salomon Brothers was one such investment but if we use that as a guide then since he has called it one of his "worst decisions" we can then all but eliminate a Wachovia deal.

What if Buffett did do a deal? If he did then we can only figure that he sees a current valuation so low that even mediocre management at the bank will not mess up the eventual revaluation to normalized levels.

At the end f the day this is nothing more than a rumor but the exercise is always fun..



Disclosure ("none" means no position):Long WB,WFC, none

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Posted by Todd Sullivan at 10:14 AM Links to this post

Thursday's Links

Fat Pitch, Gore, FireFox, Klarman

- Nice work George......

- Why is this news?

- I agree

- Anything he says should be listened to

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Posted by Todd Sullivan at 5:25 AM Links to this post

Thursday's Upgrades and Downgrades


UPGRADES
Amer Italian Pasta (AITP)- DA Davidson Underperform » Buy
Liberty Prop (LRY)- Stifel Nicolaus Hold » Buy
Administaff (ASF)- First Analysis Sec Equal-Weight » Overweight
Kensey Nash (KNSY)- Susquehanna Financial Neutral » Positive
ASM Intl NV (ASMI)- Jefferies & Co Hold » Buy
Endurance Specialty (ENH)- JP Morgan Neutral » Overweight
Mueller Water (MWA)- Robert W. Baird Neutral » Outperform
Borg Warner (BWA)- Lehman Brothers Equal-Weight » Overweight
Smith & Nephew (SNN)- UBS Neutral » Buy

DOWNGRADES
Mentor Graphics (MENT)- DA Davidson Buy » Neutral
Bankunited Fin (BKUNA)- Friedman Billings Mkt Perform » Underperform
Methanex (MEOH)- UBS Buy » Neutral
Bankunited Fin (BKUNA)- Sun Trust Rbsn Humphrey Buy » Neutral
Infosys (INFY)- Susquehanna Financial Positive » Neutral
Platinum Underwriters (PTP)- JP Morgan Neutral » Underweight

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Posted by Todd Sullivan at 12:03 AM Links to this post

Wednesday, June 18, 2008

Macalope: Keep Trying Pal....

So the Macalope is at it again, only this time he is left with little more than a pathetic insult and fact twisting. Actually that is all he had the first time also but why quibble with little things like facts...he doesn't. Thanks to John who emailed me the post.

First, his diatribe:

Now. Where is his pathetic insult? Here:

"Then he threw out the other rotator cuff patting himself on the other shoulder just after the keynote and jacktastically put quotes around "suckers" as if it were something that Jobs actually called people who bought the original iPhone. Quotation marks, Todd. They mean something. You might want to brush up on their proper ironic usage."

Now if we go to the post I wrote and actually read it (apparently the Mac did not) we see the second sentence in says...."By the way...Jobs did not actually say it".........

The he says this "Sadly, Todd's brilliant analysis would hold a little more weight were the iPhone 3G not actually more expensive than the original iPhone"

Ok. Now stop laughing and let's look, really, stop laughing. 1st iPhone came out and was priced for purchasers at $499. New iPhone comes out and I can buy it at $199. In Macland this is more expensive...

Here is where he plays with facts. The phone IS $300 cheaper. But depending on your data usage plan with AT&T, you may end up spending about the same or $100 or so more AFTER TWO YEARS. If you are not a heavy text user, the phone and its plan are CHEAPER. Also Mac, what about the 1/4 to 1/3 of iPhones purchased that are eventually unlocked? Aren't they stunningly cheaper, or are we just ignoring them because they do not fit our argument?

Wasn't the very reason Apple said they lowered the price was to "spur sales"?

Why are Apple (AAPL) folks reduced to playing with the truth? The phone is cheaper...period.

When I wrote the first post I was waiting for a sniveling reply.....got it...

To be honest, I expected a little better, not much ,but a little.

What this all boils down to is people who spent enormous time and effort justifying the $499 price when the phone came out to those of us who laughed and said it would not go mainstream without a huge price cut. Now that we have been proven right by none other than Steve Jobs and Apple, they have nothing left but to resort to questionable recitations of statements and fact.

I was asked by a commenter after the last posts on the subject "to leave Apple fans alone". I replied that I could care less about the phone or the company but do so enjoy getting their blood pumping. The vitriol and threats that spew from them over a phone and a computer is hysterical. It also happens to be even more fun that we were dead on regarding the price......

Anyone own an Apple TV?



Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 4:14 PM Links to this post

More on Western Sizzlin' (WEST)

I have posted here before the work from George over at Fat Pitch regarding Western Sizzlin' (WEST). Now it is Jeff Annello's time to bat...


Annello does a great job in this post. He then follows it with this one.

I do not own shares of WEST but it does look enticing. If you want to wait, the restaurant biz will likely suffer for a bit so you have time...



Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 10:43 AM Links to this post

More on Bond Insurers MBIA (MBI), Ambac (ABK)- Update

Hedge Fund Manager Tom Brown of Second Curve Capital, has recently taken a long position in MBIA’s stock. He recently responded to an email sent by Whitney Tilson.

In looking at this lately, it seems like the Bear argument against the stocks has gone from a strict dissertation of fact to a bit of yelling fire in a crowded theater. Even Ackman has been extremely quiet lately about the subject preferring to talk more about short selling in general vs. just about the insurers. Perhaps this is because he has drastically cut back or totally eliminated his short position in both.

In the post, Brown says:
"Next, Whitney slams the company for changing its plans for the $900 million. He argues the company once said it would downstream the cash, and is outraged it has had a change of heart without (until now) informing investors, customers, the rating agencies, and regulators. He then suggests the company’s actions might constitute fraud and market manipulation.

Say what? That’s as harsh as it is inaccurate. Here are the facts. Management only expressed an intention to downstream the $900 million, and didn’t do so right away so it could receive more clarity on future actions by the rating agencies. The New York State Insurance Commissioner was certainly involved in the discussion of where the money would go, since one of the company’s options under review was (and still is) the possibility of downstreaming the $900 million into a new subsidiary to write new business. So this is not fraud and market manipulation. It’s simple, above-board capital allocation.

Whitney goes on to claim MBIA has denied policyholders money that’s been promised to them so that management can keep their jobs. Policyholders are thus “screwed.” He then ends his tirade with a nice piece of thundering self-righteousness:

MBIA seems to have forgotten that they're a regulated entity and that they're not allowed to balance their "obligations to policyholders with optimizing returns to our shareholders". The deal with any insurance company is that policyholders come first and only if there's money left over does anything go to the holding company, which is why MBIA is [likely to fall further] and why we're still short it.

The good news is that, based on what I've read, NY State Insurance Commissioner Eric Dinallo is on to these guys and I assume won't allow these . . . actions.

Whoa! Can we get back to Insurance 101 for a second? Whitney surely understands the difference between a holding company and an insurance subsidiary. Dinallo regulates the insurance sub; he has no jurisdiction over the holding company. What’s more—and I’m sure Whitney understands this, as well--Jay Brown and the other members of MBIA’s board of directors have a fiduciary obligation to their shareholders. It is very, very simple. "

He then finishes with:
"If the rating agencies don’t rate MBIA’s insurance sub AAA, then the insurance subsidiary (which was overcapitalized even when it was rated triple-A, recall) is extremely overcapitalized at its new rating. The last thing the board should be thinking about, therefore, is sending the unit another $900 million. Especially since, with the company writing little new business, its risk exposure is declining.

Don’t forget, MBIA already exceeded S&P’s stated minimum capital requirements for a triple-A rating by $900 million at the end of the first quarter, and exceeded Moody’s minimum by $2.8 billion.

Despite what vocal shorts like Whitney Tilson have to say, neither MBIA or Ambac have capital or liquidity shortfalls. Interestingly, in eviscerating Jay Brown’s letter to his shareholders this week, Whitney let the following comment stand: “we continue to feel comfortable with our economic loss estimates embodied in the reserve and impairment figures we provided to the market in our last earnings call.”

So the company is manifestly well-capitalized, and continues to be comfortable with its loss estimates.

Whitney, maybe, just maybe, the outlook for MBIA isn’t nearly as bleak as you insist. It might pay to take a harder look! "

Now, I am a fan of Whitney and readers here have known for some time that I am as I regularly post his appearances in and his writing on a variety of subjects. That being said, I think the short story for both monolines is done. The only thing left is insolvency which, NYC Insurance Commissioner Dinallo will not allow. If that is true, then the only way the shorts can influence prices is too scare people more.

I think Whitney may be running the risk of looking a bit like a fear monger on this one....

Read Felix Salmon's take on it here:


Read Whole Post Here:


Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 10:37 AM Links to this post

Phillip Morris (PM) Declares Dividend

The Board of Directors of Philip Morris International Inc. (PM) today declared the company’s inaugural regular quarterly dividend of $0.46 per common share, payable on July 10, 2008, to stockholders of record as of June 30, 2008. The ex-dividend date is June 26, 2008.

“Combined with the $13.0 billion, two-year share repurchase program which began in May this year, our first regular dividend as an independent company reflects our strong commitment to rewarding our shareholders in a generous manner,” said Louis Camilleri, Chairman and Chief Executive Officer.

The dividend gives the stock at today's prices a yield of roughly 3.8%

Read Release Here:



Disclosure ("none" means no position):Long P<

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Posted by Todd Sullivan at 9:05 AM Links to this post

Morgan Stanley's (MS) Results Fall: Your Surprised?

The difference here between Morgan and Citi (C), Lehman (LEH) and Merrill (MER) is that CEO John Mack has not been running his mouth around town telling everyone "all is well".

“Given the turbulent environment this quarter, we stayed close to shore and continued strengthening the Firm’s capital and liquidity positions,” John J. Mack, Morgan Stanley’s chairman and chief executive, said in a statement. “The difficult market conditions and lower levels of client activity impacted our results, particularly in fixed income and asset management.”

See, the things is that no one (or at least no one should have) expected the results to be good. So , why tell everyone they would be.

By being quiet, Mack, at least for now has escaped the fate of all his peer except those at Goldman Sachs (GS) who, it should be noted have also kept their mouths shut.

Morgan's profit, amounting to 95 cents a share, was down from the $2.36 billion it earned last year. Howver, they managed to slightly exceed expectations of 92 cents a share. Revenues from its fixed-income sales and trading unit fell 85% from the same time last year to $414 million, due to losses in mortgage trading and lower revenues in other products.

The firm reported a $519 million loss from loan commitments, including those made to private equity firms. While it lost money on hedges, it saw some gains from marking some holdings to market.

All in all, nothing out of the ordinary, bad, but nothing outlandish. Had Mack been running around telling everyone not to worry, he might be getting nervous about now.

Has anyone learned this lesson yet?????????



Disclosure ("none" means no position):Long C, GS, None

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Posted by Todd Sullivan at 8:57 AM Links to this post

Western Sizzlin Chairman's Letter

Hey, this is a must read. It is an extremely candid and detailed resuscitation of the company, Western Sizzlin (WEST).

Read the letter here:


Disclosure ("none" means no position):none

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Posted by Todd Sullivan at 8:54 AM Links to this post

Sears' "Going Private"? Not So Fast

This has been going around for a long time now so let's take a look because as the price falls and Sears' (SHLD) Chairman Eddie Lampert continues buying shares, some folks are claiming his goal is to take the company private and shareholders, except him, will get "screwed" for lack of a better term.

While Lampert may continue to buy shares and increase his ownership percentage, Sears' is not "going private" for a number of reasons.

From the SEC Website:
"If the transaction is initiated by an affiliate (an insider) of the company, or the company could be deemed to be making an acquisition of its own shares Rule 13e-3 of the Securities Exchange Act of 1934 requires the affiliate and/or the company to file a Schedule 13E-3 with the SEC. When Rule 13e-3 applies, the company is said to be “going private” under SEC rules. While SEC rules don't prevent companies from going private, they do require companies to provide information to shareholders about the transaction that caused the company to go private. The company also may have to file a merger proxy statement or a tender offer document with the SEC.

The filing of a Schedule 13E-3 is also required when issuer-initiated or affiliated transactions result in a company’s publicly held securities no longer being traded on a national securities exchange or an inter-dealer quotation system, such as Nasdaq.

The Schedule 13E-3 requires a discussion of the purposes of the transaction, any alternatives that the company considered, and whether the transaction is fair to all shareholders. The Schedule also discloses whether and why any of its directors disagreed with the transaction or abstained from voting on the transaction and whether a majority of directors who are not company employees approved the transaction.

Going private transactions require shareholders to make difficult decisions. To protect shareholders, some states have adopted corporate takeover statutes that provide shareholders with dissenter's rights. These statutes provide shareholders the opportunity to sell their shares on the terms offered, to challenge the transaction in court, or to hold on to the shares. Once the transaction is concluded, remaining shareholders may find it very difficult to sell their retained shares because of a limited trading market."

So the "Lampert can force a share sale" is erroneous. While he could take the shares off the market by "going private", he cannot force you to sell your shares to him if Sears' decided to go private. You could still opt to retain your ownership percentage. It is different from a merger in which you "exchange shares" from one company for another.

"Fairness of offer". This was a large bone of contention in the failed Sears takeover of Sears Canada. Sears USA owned 53% of the outstanding shares of Sears CA at the time of the offer. The buyout was fought in court by minority shareholders who eventually prevailed. The fact that Lampert has been buying share at prices far above where they sit now, would eliminate any argument he would make that a "going private" price he is offering does NOT violate this element.

Also, current minority shareholder Bill Ackman, who lead the fight against Lampert in his Sears CA bid is now a Sears Holdings shareholder. Ackman bought in at prices well above current valuations and anyone who knows anything about him know he would fight any "going private" bid below the $100 plus a share he paid.

Let's also not forget the conflict of interest here. Using shareholder money to eventually take the company from them for yourself despite public comments to the contrary would spark a wave of lawsuits Lampert has no interest in spending the next 10 years fighting.

That being said, roughly 60% of Sears' shares are held by Lampert, Management and Funds that are value oriented. What is more likely is that Lampert will continue to repurchase shares and shrink the float. Now, consider this, when you subtract short shares (26 million) and shares held by long-termers, it leaves only 27 million shares actively trading or 20% of the total.

At today's prices that means $2.1 billion can buy the remaining trading float and then you create a short squeeze like you have never seen as shorts rush to buy shares that virtually do not exist to cover their positions.

Anyone want to bet this is Lampert real game? Keep buying up what trades and then watch the shorts cut each other throats to cover. It would be justice for him and real profitable for shareholders as the buying without selling would cause share prices to rocket up.

What does Lampert gain buy going private? If the goal is to attain wealth, then isn't having Sears publicly traded the way to go? Won't his wealth climb faster that way than if Sears is privately held? Maybe he takes it private, "fixes" it and then spins it back out for a a nice profit? Well, if that is true, then why not just keep your shares and ride the wave? Either way, if his goal is the same as yours, where is the problem?



Disclosure ("none" means no position): Long SHLD

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Posted by Todd Sullivan at 4:22 AM Links to this post

Wednesday's Links

Trump & Rosie, Dodd, Dimon, Elian

- I could not agree more

- "I was a member of a VIP Club but was unaware it would give me special privileges"???????????? WTF does VIP stand for!!!!!!!! Is there a bigger fraud that Chris Dodd?

- No kidding Jamie

- Can you blame him?

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Posted by Todd Sullivan at 4:19 AM Links to this post

Wednesday's Upgrades and downgrades


UPGRADES
Wyeth (WYE)- Leerink Swann Mkt Perform » Outperform
Worthington (WOR)- Longbow Neutral » Buy
Weingarten Realty (WRI)- Stifel Nicolaus Hold » Buy
Ramco-Gershenson (RPT)- Stifel Nicolaus Hold » Buy
Pennsylvania R.E.I.T. (PEI)- Stifel Nicolaus Hold » Buy
National Retail Properties (NNN)- Stifel Nicolaus Hold » Buy
Capital Lease Funding (LSE)- Stifel Nicolaus Hold » Buy
Kite Realty (KRG)- Stifel Nicolaus Hold » Buy
Glimcher Realty (GRT)- Stifel Nicolaus Hold » Buy
Cedar Shopping Centers (CDR)- Stifel Nicolaus Hold » Buy
CBL & Assoc (CBL)- Stifel Nicolaus Hold » Buy
Xyratex (XRTX)- BMO Capital Markets Market Perform » Outperform
Ormat Tech (ORA)- UBS Neutral » Buy
Elizabeth Arden (RDEN)- Oppenheimer Perform » Outperform
Double Hull Tankers (DHT)- JP Morgan Underweight » Neutral
CME Group (CME)- Citigroup Hold » Buy
Hovnanian Entrpr (HOV)- UBS Sell » Neutral


DOWNGRADES
VeraSun Energy (VSE)- Soleil Hold » Sell
Semtech (SMTC)- Canaccord Adams Buy » Hold
Toreador Royalty (TRGL)- Jefferies & Co Hold » Underperform
Strayer Education (STRA)- Stifel Nicolaus Buy » Hold
Adobe Systems (ADBE)- Kaufman Bros Buy » Hold
America Movil SA (AMX)- Pali Research Neutral » Sell
Columbia Banc (CBBO)- FTN Midwest Neutral » Sell
Calgon Carbon (CCC)- Morgan Joseph Hold » Sell
ACADIA Pharmaceuticals (ACAD)- Jefferies & Co Buy » Hold
ACADIA Pharmaceuticals (ACAD)- Banc of America Sec Buy » Sell
Cinemark (CNK)- Morgan Stanley Overweight » Equal-Weight
Tempur-Pedic (TPX)- Oppenheimer Outperform » Perform
W-H Energy Svcs (WHQ)- Deutsche Securities Buy » Hold
Knightsbridge Tankers Ltd (VLCCF)- JP Morgan Neutral » Underweight
Citrix Systems (CTXS)- Friedman Billings Outperform » Mkt Perform
ACADIA Pharmaceuticals (ACAD)- Friedman Billings Outperform » Mkt Perform

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Posted by Todd Sullivan at 12:37 AM Links to this post

Tuesday, June 17, 2008

Bond Insurer Buying????

There has been some intersting buying in shares of both Ambac (ABK) and MBIA (MBI)

Insiders:
MBIA's Chairman Joseph Brown bought 159,000 shares of stock at $5.91 per share last week, giving him 2,611,456 shares of direct ownership.

Ambac's Chairman and CEO Michael A. Callen bought 10,000 company shares at $2.60 per share. Director Laura Unger disclosed transactions from June 3 for purchases of 103,334 shares at $3.00 in two transactions. Jill Considine, Philip Duff, and Henry Wallace all also each bought 33,334 shares at $3.00 on June 3.

Big Fish:
Martin Whitman added to his holdings in Ambac (ABK) during the 3-months ended 2008-04-30 by 322.07%. He holds 9,707,362 shares as of 2008-04-30. Whitman also added to his holdings in MBIA Inc. (MBI) during the 3-months ended 2008-04-30 by 84.62%. He now holds 23,149,845 shares as of 2008-04-30.

Chris Davis added to his holdings in Ambac(ABK) during the 3-months ended 2008-03-31 by 108.9%. He holds 29,744,503 shares as of 2008-03-31.

Pershing's Bill Ackman has dramatically reduced his short exposure to both insurers.

We first talked about this in early May and the situation for both has improved since then, not worsened. While that seems like a joke, it is the first time in a very long time we can say that.

Guys like Whitman are rarely wrong when it comes to these types of investments. Having insider pony up cash is also a real sign of support and future clarity. These folks are looking through the lenses at what is happening and must see something they like..I think it may be time to dabble soon.






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Posted by Todd Sullivan at 8:46 PM Links to this post

FireFox 3 Now Live

I have been using the beta version for a while now. If you like Internet Explorer, this will blow it away...

Go here to downloads the browser


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Posted by Todd Sullivan at 8:17 PM Links to this post

Some Housekeeping

Back from vacation.....

- Ought to be back to full posting tomorrow

- "Anon" comments. Please take three seconds and get an ID. It is way too time consuming to try to track a conversation of 40 comments when several are "anon". Half the time people do not know who they are talking to or asking the same question ten times. If you want to be replied to, please get an ID. You may still comment as "anon" if you want but do not expect me (or others) to take the time to reply to you unless you get an ID. It really isn't too much to ask...

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Posted by Todd Sullivan at 12:49 PM Links to this post

A Readers Target (TGT) Story

It seems negative stories about Target (TGT) are getting more pervasive...

"I just figured I'd pass along my Target experience from this weekend. I have been looking for a flat panel TV for quite some time now and noticed a price on target.com for a tv which was buy instore only. I called the store down the jersey shore, my location at the time, to ensure availability and indeed it was. The following day, I went to the Target to purchase the TV however it was $160 more than the target.com price, as I was told the ads run Saturday thru Sunday and the sale had expired. I just got off the phone with the Target Customer Service rep who could do nothing for me even though I had the screen print shot of the sale price w/ no dates posted for expiration of the sale. I felt this went along the same line with your blog post related to their ridiculous return policy. Because of this, I went from buying myself a TV at Target, and possibly my father a father's day TV gift (both $830 each + accessories), to buying nothing. So much for retailers wanting our money!"


Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 10:53 AM Links to this post

Tuesday's Links

Tilson, $250, Einhorn, Dykstra

- Whitney does a great job here taking the NY Times to task. The only thing more transparently biased than their political coverage in their business coverage.

- Want to see people in the NE freeze?

- Do they really think he views it as gambling?

- He wasn't even really that good of a baseball player

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Posted by Todd Sullivan at 5:16 AM Links to this post

Monday, June 16, 2008

Monday's Links

Adam's Options, Russert, Russert, Russert

- I do not pretend to know even a fraction of what Adam knows about options but find myself reading him everyday........his stuff is very "visual"

- This is a tragedy

- The takeaway? He cannot be replaced....The MSM has deteriorated so much

- True..........

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Posted by Todd Sullivan at 6:05 AM Links to this post

Borders 10-Q

Some interesting items from Borders (BGP) 10-Q

Inventory:
"During the first quarter of 2008 the Company implemented an initiative to actively reduce inventory in its stores. As a result, the Company significantly reduced inventories in the music category, as well as space allocated to that category. In addition, the Company reduced inventories in book and DVD categories as well, in order to make its inventories more productive. These two factors significantly contributed to the reduction in inventories and generated $88.9 million in cash in the quarter. As a result of the decline in inventories, account payable decreased $56.5 million during the first quarter of 2008. The Company will continue to actively manage inventory levels throughout 2008 to drive inventory productivity and to maximize cash flows."

CapEx:
"The Company expects capital expenditures to be between $80.0 and $85.0 million in 2008, compared to the $142.7 million of capital expenditures in 2007. The Company has critically reviewed all capital expenditures to focus on necessary maintenance spending and projects with very high return on capital. Capital expenditures in 2008 will result primarily from investment in management information systems, the Company’s new e-commerce Web site, as well as a reduced number of new superstore openings. In addition, capital expenditures will result from maintenance spending for existing stores, distribution centers and management information systems. The Company currently plans to open approximately 14 domestic Borders superstores in 2008. Average cash requirements for the opening of a prototype Borders Books and Music superstore are $2.8 million, representing capital expenditures of $1.6 million, inventory requirements (net of related accounts payable) of $1.0 million, and $0.2 million of pre-opening costs. Average cash requirements to open a new airport or outlet mall store range from $0.3 million to $0.8 million, depending on the size and format of the store. Average cash requirements for a major remodel of a Borders superstore are between $0.1 million and $0.5 million. The Company plans to lease new store locations predominantly under operating leases."

The real good news is the level of disclosure prior to the filing. There aren't any "what?" items in the filing. A good measure of this is probably because the book business is not overly complicated and more still is because Ackman is the largest shareholder. CEO George Jones does deserve some credit though, he has been totally upfront up until this point with shareholders.

Good...



Disclosure ("none" means no position):Long BGP

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Posted by Todd Sullivan at 1:22 AM Links to this post

Sunday, June 15, 2008

Cullen and Annello

Here is a nice back and forth between two bloggers I like to read. P

They cover Sears (SHLD), American Home Mortgage (AHM), Primus (PRS) and others

Read it Here:

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Posted by Todd Sullivan at 11:26 PM Links to this post

AIG's Sullivan Latest Casualty & Why The Shorts Are Winning

If you say something is or is not going to happen, you'd better be right...

AIG's (AIG) Martin Sullivan became the latest "we will not need to raise more capital" casualty tonight being replaced by former Citigroup banker Robert Willumstad, who was already AIG chairman, effective immediately..

Sullivan joins Merrill Lynch's (MER) Stanley O'Neal, Citigroup's (C) Charles Prince, Bear Stearns' (BSC) James Cayne, Ambac's (ABK) Robert Genader, MBIA's (MBI) Gary Dunton, Wachovia's (WB) Ken Thompson and Lehman's (LEH) Erin Callan.

We've been having this discussion here for pretty regularly since April and for some reason, the assurances are still being made. Up until just days before she was demoted, Lehman's Callan was still out making assurances about the company I really think only she believed.

We aren't talking about missing EPS targets by by a few percentages, we are talking about saying your capital position is sufficient and then going out and needing to raise the equivalent of 30% of your market cap only weeks later, in the case of Lehman. It just cannot happen.

Why are the shorts winning? Because the actions of the above crew give the inclination that even they do not know how bad the situation of their company is. If those people with the most intimate knowledge cannot get a handle on it, then the people telling us it is really bad must be right. Management keeps telling us things are under control when it clearly isn't. That doubt and the fear it causes on the part of investors will inevitably lead to an negative overreaction in their outlook.

If the bosses tell us it is going to be "x" bad the shorts will have a quick victory but when it turn out to only be "X" bad, that is it, the party for them is over. They will exit the shorts and the longs can start buying in. The longs will not buy in now because they do not believe the bosses and the shorts can keep piling it on.

One final thing. Please stop whining about "short sellers". It is annoying and useless. How about just getting your act together and get a handle on what is going on around you...... novel idea I know but it would actually work.



Disclosure ("none" means no position):Long C,WB, None

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Posted by Todd Sullivan at 10:37 PM Links to this post

Monday's Upgrades and Downgrades


UPGRADES
Invitrogen (IVGN)- First Analysis Sec Equal-Weight » Overweight
Hercules Offshore (HERO)- CapitalOne southcoast Neutral » Add
Apollo Group (APOL)- First Analysis Sec Equal-Weight » Overweight
Yahoo! (YHOO)- Stifel Nicolaus Hold » Buy
Continental Air (CAL)- Soleil Hold » Buy
Partner Comms (PTNR)- UBS Neutral » Buy
Yahoo! (YHOO)- Soleil Sell » Hold
Petro-Canada (PCZ)- Banc of America Sec Neutral » Buy
Old Dominion (ODFL)- Robert W. Baird Neutral » Outperform
Con-way (CNW)- Robert W. Baird Neutral » Outperform
Campbell Soup (CPB)- Lehman Brothers Equal-Weight » Overweight
MeadWestvaco (MWV)- Citigroup Hold » Buy

DOWNGRADES
PDL BioPharma (PDLI)- Credit Suisse Outperform » Neutral
McClatchy (MNI)- Wachovia Mkt Perform » Underperform
Jo-Ann Stores (JAS)- Soleil Buy » Hold
Fifth Third (FITB)- BMO Capital Markets Outperform » Market Perform
Yahoo! (YHOO)- Needham Buy » Hold
NASDAQ (NDAQ)- Credit Suisse Outperform » Neutral
Benihana (BNHN)- KeyBanc Capital Mkts Buy » Hold
Finisar (FNSR)- Piper Jaffray Buy » Neutral
Brasil Telecom Part (BRP)- JP Morgan Neutral » Underweight
Anheuser-Busch (BUD)- UBS Buy » Neutral
Brasil Telecom (BTM)- JP Morgan Neutral » Underweight
Accuray (ARAY)- UBS Neutral » Sell
Applied Bio (ABI)- UBS Buy » Neutral
WD-40 Company (WDFC)- JP Morgan Neutral » Underweight
Universal Health (UHS)- Wachovia Outperform » Mkt Perform

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Posted by Todd Sullivan at 10:34 PM Links to this post

Saturday, June 14, 2008

Weekend Reading

If you are planning to watch a movie this weekend, read this post first.

Perhaps the "college analyst" can have you watching movies just a little differently.



Disclosure ("none" means no position):none

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Posted by Todd Sullivan at 7:42 AM Links to this post

Friday, June 13, 2008

Friday's Links

Icahn, Google, Tilson, Child Porn


- SEC blogger

- Where are all the top employees going?

- Simple rules

- OK, why wasn't this done 10 years ago? Are we supposed to congratulate them?

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Posted by Todd Sullivan at 9:25 AM Links to this post

Message from Andrew Corn

(LEH) Lehman Brothers Discussion on Bloomberg Radio
 
Today at 9:10 am I will be discussing (LEH) Lehman Brothers and the ibanks, (MER), (GS), (MS) specifically. Where the industry now and what is next for the ibanks? I feel the opportunity for taking the high ground of mark to market and setting aside reserves in case the market deteriorates further is long gone. My call for this action along with full disclosure dates back to the fall on both Bloomberg radio and TV.
 
Tune in for the perspective.
 
Disclosure: Mr. Corn is CEO of Clear Asset Management Inc. and Clear Indexes LLC. He does not directly own any of the securities mentioned. Clear Indexes publishes the Clear Global Exchanges, Brokers and Asset Managers Index which is tracked by the ETF (EXB). Mr. Corn owns shares of (EXB).
Thank you,

Todd Sullivan

Sent from my BlackBerry® wireless device
Posted by Todd Sullivan at 8:56 AM Links to this post

Tom Au at Value Investing News

Please let your readers know about the special event at Value Investing News tomorrow at 10:00 AM. We will have a live Q&A session with Thomas Au, author of A Modern Approach to Graham & Dodd Investing
in the VIN Forum. See

http://www.valueinvestingnews.com/blog/value-investing-news/interview-tom-au-friday-10-00-am-est4550


Please post a question for Tom at the end of the interview. Its a great opportunity to pick his brain.

Thank you,

Todd Sullivan

Sent from my BlackBerry® wireless device

Posted by Todd Sullivan at 7:28 AM Links to this post

Thursday, June 12, 2008

Ackman on Short Selling (video)

Youv've got to see this.







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Posted by Todd Sullivan at 10:44 PM Links to this post

Lehman's Callan Out: What About Fuld?

What about the guy at the top? Callan did not get Lehman (LEH) into this trouble.

Erin Callan was demoted at Lehman after only 7 months on the job trying to deal with problem that took year to create. Callan must now know how Christ felt....

The logic here is indefensible. If Fuld did not know the depths of the problems, he should go. If he did, he should go for sending Callan to slaughter.

Admittedly she has been lying to the press and whining about short sellers in a desperate attempt to save Lehman. But, she is doing Fuld's dirt work for him.

If the firm is going down, the CEO ought to be the public face, not the "pretty woman". Was he hoping folks would take it easier on her because she is female? I mean really, step up buddy...

Now, we all knew this was coming but even I expected Fuld to step up a little and at least offer some public support for the troops....guess not

The list will continue to grow

You got no one to blame now Dick



Disclosure ("none" means no position):None

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Posted by Todd Sullivan at 9:56 PM Links to this post

Lampert Now in Excess 40% of AutoNation

In an SEC filing tonight Sears' (SHLD) Eddie Lampert disclosed more purchases of auto retailer AutoNation (AN).

Lampert now has just over 72 million shares or in excess of 40% of the total.





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Posted by Todd Sullivan at 9:47 PM Links to this post

Amazon & Borders: Ackman Stokes Fire

So, I get away and get flooded with email about comments Bill Ackman allegedly made.

Business Week reported Ackman said "Amazon could buy the company for about $400 million to get those locations that would take more than $1 billion to build," he told reporters on the sidelines of a conference in New York. "You have to think of it like how Apple has retail stores across the country."

Now let's just ignore the repeated use of his name as Ackerman. Does anyone really think Ackman would agree to sell the company for a loss? Really? What is more likely is the $400 million price figure is as accurate as the name they gave him. Either it is a misprint or a reporter error. Bill Ackman will not sell for a loss. If that was the plan, why not sell now and make more $$? Think about it.

Now the justification of an Amazon (AMZN) buy makes sense. "One reason that might persuade Amazon is that the company may soon lose its state tax advantage across the nation. Some 18 states are ramping up to require e-commerce businesses to collect sales tax, and about 1,100 online retailers have already volunteered to collect them.

Ackerman said that once Amazon loses its tax advantage that buying retail locations will make sense. He believes customers will benefit from getting same-day delivery that a network of retail stores can provide, and Amazon would also get an opportunity to sell other products not currently carried at Border's locations." According to BW

This makes sense. But, Ackman is more likely just trying to remind Barnes & Noble (BKS) that there will likely be other bidders for the company and that they ought not to delay the process too long. He is also most likely publicly letting them know what the potential competition from Amazon in Borders locations would be without implicitly making the threat.

Everyone just take a breath...........



Disclosure ("none" means no position):Long BGP, None

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Posted by Todd Sullivan at 9:12 PM Links to this post

Thursday's Links

Kuwait, More Kuwait, Ethanol, Ethanol

- Buy a piece of the folks with the oil $$

- Banks are a bargain is you have patience

- Cellulose ethanol, major companies looking at it

- Not really the reason for high food prices

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Posted by Todd Sullivan at 9:03 AM Links to this post

On Vacation............

Off for some much neeed rest with the wife and kiddies.....be back next week

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Posted by Todd Sullivan at 8:51 AM Links to this post

The Complete Andrew Liveris (DOW) Interview by Todd Sullivan

Here is the whole interview...

Hello Mr. Liveris

Andrew:
Hello Todd, nice to finally put a voice to the blog. Todd its been great reading your pieces......you track us very closely.

Todd:
Thank you. In full disclosure, I have been a shareholder for a few years now and quite a bit of my sons educational accounts is in Dow stock so I'm hoping you allow us to send them to the private school of our choice, not forced to a state one.

Andrew:
(laughing) I'm in I'm in. This is one of the nations core issues, but we won't get into that I know we have limited time. You have very thoughtfully put together some questions forward.

Todd:
Yea...let's get started..

Todd:
With the move in production to low cost nations underway, do you see a day when $125 oil and $12 nat gas become earnings drivers for the company as the price increases you are able to push on are in excess of input price increases? For example, say I make finished OJ. If the prices of oranges are going up, so are the prices of finished OJ. But, if I partner with an orange farmer, my input prices do not rise (or if they do, at a fraction of those buying oranges from the farmer), but I am then able to either increase my OJ prices along with other producers, OR become the low cost seller to increase market share. Does the analogy hold for Dow down the road?

Andrew:
It has been an interesting phenomenon as I have watched it rise since I got appointed. I almost feel like it's a job index, you know years in office and years of oil price rises. I don't think I've seen a decline except momentarily early last year.

Nat. gas is a US regional issue but will probably become a world issue but right now its still a US regional issue. Oil though is a world issue, and to your question then, if you have rising oil prices that are global in nature and all of its derivatives and they go up steadily then your point comes true. In essence for us it actually becomes a reason to raise prices but that is only as good as the consumer's ability to take those prices. Unlike the 70s, which was the last time this really all occurred this time around we have the Chinese consumer, and frankly that actually adds some optimism that we should be able to as a globe pay more for these precious resources in the value chain.

Now, you can't do it overnight otherwise you will kill the consumer, but over a period of time steadily rising inputs with strong new demand from places like China and other places (India, Middle East, Europe etc) then I think margin recalibration of a high oil price input all the way through the value chain including our part becomes very, very reasonable. Actually, the margin expansion which happened in the 70's, Dow had a whole philosophy back then if you go back and track it called Reinvestment Pricing. Others used the acronym RIP and they were having fun with us. {laughter} It really was the same scenario but at that time the buoyant demand was more the US and that actually became the big problem as it created inflation and stagflation.

But this time around we have China so there is a chance your scenario will come to pass as long as it is not surging or a surge up and then a surge down which creates volatility.

Todd:
When you make the move to the Kuwait and Saudi ventures, do you see a significant input price drop on Dow's part?

Andrew:
Well the Kuwait venture and the Saudi projects. Yes, I mean look firstly what we do there is we take advantage of natural gas prices way below world price and where you can see from our financials we are already making a lot of money in equity income from that. That is because those countries have said "I want to diversify our economies away from just oil and gas".

We are a great diversification hedge for them, that is why they are prepared to give us low input prices way below world price, way below US price for sure. On oil, OK the key for us there is I'd like to call it the Exxon model. I mean Exxon (XOM), which is almost like nation-state in its own right, they basically take oil at world price or they produce it at cost and when they distribute in their production systems. They are efficient allocators of resource to petro-chemicals to fuels of all sorts not just gasoline and they run their whole machine for profitability which means that net net their input costs of petro-chemicals is lower because they run the whole machine. Now with Kuwait Petroleum and with Saudi Armco that is exactly the model we're building.

We're building a refinery integrated petro-chemical model where the owners of the oil, Kuwait and Saudi Arabia respectively will be able to efficiently allocate the oil within that entire machine and of course we're a half owner the shareholders will benefit from oil integration so two physical hedges the gas one which is the stranded nat. gas with nation states that want to value add the gas vs burn it and second, refinery and oil integration with nation states who have oil who want to diversify away from just exporting the oil or who want to take the oil to places like China and want to participate in refineries and petrochemicals there.

Those are great physical hedges for the Dow Chemical Co. not well understood by the investment community. We're working really hard to make them understand it and you know the icing on the cake is that we got paid $9.5 billion for that privilege.

Todd:
So, you anticipate 2010 is the year those JV's (Kuwait and Saudi Arabia) should be up and running. ?

Andrew:
We are being conservative Todd. My recent investor presentation I showed 2011/2012 because stuff happens you know, TPC contracts capital costs etc. We're pretty good as project managers and so are our partners so conservatively we are saying 2011/2012.

Todd:
US energy policy. I had several questions planned here but you have been all over TV the last week and a half answering them for me..

Andrew:
(Laughing) And I am not done yet, I am determined to shake this all loose because we are just shooting ourselves in the foot very effectively as a nation.

Todd:
There was an "American Energy Production Act" Senate Republicans just introduced recently, have you seen it?

Andrew:
The drilling one right?

Todd:
Yes, they said it would produce an estimated 24 billion barrels of oil a day and 47 trillion cubic feet of nat. gas.

Andrew:
Certainly the bill recognizes the problem. It is a Republican bill and certainly I appreciate Senator Domenici's work on it. However, the country need a bill both Democrats and Republican can support


I was in Washington yesterday and I had meeting after meeting. I actually think I might get deported here eventually [laughter] . You know I'm just screaming from the rooftops to get real with our energy policy.

Todd:
Let's say you left Washington and they said "this guy is right, let's do everything he said we should". Even if they did that and they started at the earliest next spring, after the election, what kind of lag based on your experience is it 2 years, 5 years before anything they do now actually takes hold and excess production comes online.

Andrew:
Well we went through this in 2005 with the Lease Sale 181 in the inter-continental shelf of the US. The US gulf we were told that time and I think this is still very true that there are some known fields of oil and gas that can easily be tapped into current infrastructure especially on the US gulf they could be on the street in 12-18 months. Not as big as the numbers you just quoted, because on the outer edge that would be Anwar and that could be as far away at 4-5 years because of the pipeline.

We take a window and if you said "let's go now" I think the earliest is 18 months and the latest is five years. But something else happens which is very important. The world as speculators look at supply very differently. We have a real supply issue because demand is surging and everyone thinks that there is not enough supply. Supply is bottle-necked in two places. One is availability of actual oil and gas of course in our Country we're not accessing it and it will take 18 months to five years to accomplish that. Overseas its ships and freight and there are not enough ships on the water to get all this oil to everyone to get all this gas to everyone. So that's one bottleneck.

The second bottleneck is refining capacity which as you know this country won't permit refineries. I think the only one under construction today is Valero's (VLO) in Texas. No one wants a refinery in their back yard. So you have this ridiculous situation of Reliance building the world's largest refinery in India and all the products are for exporting to the United States.

So those two bottlenecks will take several years, if you take those two bottlenecks out by passing laws, I think there will be an instantaneous reaction to price.

Todd:
Dow Ag. Roughly a third of earnings in the most recent quarter were Dow Ag. After you sell the commodity business we are looking well in excess of that. I have not been able to find what percent of future earnings you expect them to be and what type of growth and how far out, as right now you are at about 20-25% annual EPS growth at Dow Ag. Going out 2009-2010 and beyond, to me 20% -25% EPS growth there seems sustainable if not surpassable. Accurate or no?

Andrew:
I think you are more accurate than not, remember the current % of Dow earnings is because AG is front loaded. It tends to be a first half year event for all of us because we are in the northern hemisphere and that's whether its Dow (DOW), DuPont (DD) or Monsanto (MON). The whole year happens in the first six months. We have some southern hemisphere exposure notably Brazil and Argentina and my country Australia, but most of it is titled towards the northern hemisphere as a % of total earnings. Those numbers are distorted at this moment, but if you take the whole year and you say in '07 Dow AG earned about 10% to 15% of Dow's earnings but their growth rate was like you said 20 some odd percent for the last five years.

They achieved that through 2 mechanisms one of which will continue to be a big plus that will ultimate if not continue that 20% ramp up it will get very close. The first mechanism is we have been levering Dow's considerable operational efficiencies over to Dow's Agroscience. Even though it is a small co. $3 to $4 billion in revenue it has the power of a $50 billion co. in terms of operational excellence in its manufacturing, plants and supply chain. In its governance and share services it operates with its access to big company infrastructure, that's number one.

That's helped a lot of the cost line. Number two, the most exciting part is its pipeline. I mean, four years ago we made a conscious decision we said,"look, we're never going to be a big seed co. because its too expensive, one of these days we might be able to find an answer on U.S. corn, but between now and then let's rev up the technology engine and frankly not just in bio and seeds and traits in germplasm, but also in crop chemicals." I don't care what people say, GMOs will not replace crop chemicals in totality because growers will always need variety in their toolbox, its about diversity of solution and biotech cannot answer everything.

So we said "let's put R & D in focus on the pipeline that we now have" in crop chemicals in particular things that are not just in corn, but outside of corn, in cotton, rapeoil and canola, in seed ,in soy beans and of course over range and pasture. The crop chemical R & D pipeline we have right now and what we have done in traits and in particular our new traits that we have announced plus the SmartStax agreement with Monsanto, have put us in a tremendous position. By 2010 when SmartStax gets launched, when our new traits get launched and our crop protection pipeline comes through, the R & D engine will yield real margin expansion for Dow AG.

I happen to think that Dow Ag in many ways doesn't need to have big revenues b/c its margins at 16%, 18%, 20% bottom line margins is packing a big punch in terms of its ability to deliver margin despite its size. We're increasing the R & D spending there. Dow Ag has a quarter of the R & D spending as a company which is a phenomenal statement when considering the size of the company we are and out thee in the future Todd we might be able to find rationalization opportunity and I will say out there, we'll find another one. In the meantime keep making that growth story.

Todd:
That was actually the next question. Ag sector valuations are stratospheric just now.

Andrew:
Oh yea, I mean look, what were seeing now of the whole food change now started by corn and ethanol, that whole thing. Having said that, we're seeing China, this whole point about China's surge and as the Chinese eat more protein, eat more animals, those animals have to be nutured on agriculture, agriculture comes from feed, feed comes from corn and you know, there you go.

The food price things is real because of China's assention and I do think that's going to get worse before it get better and I think the world is going to have to address it. I do not know what the systems will be. I do think the poverty side of it is big. The agricultural sector and the commodity boom in agriculture is compelling valuations to stratospheres, I mean Monsanto is the great flag carrier there, they are doing great and it wasn't long ago they were on their knees.

Todd:
So, if there is no value in Ag, and no real value in the Petro- chemical sector now, where do you see value?

Andrew:
Well, great question. Firstly, the US economy, and the housing crisis leading to the credit issues leading to, if you like, the financial sector meltdown interestingly enough has not yet pitched profits in the economy in the main, apart from the banks and financial service companies. Main Street has survived the financial issues and the housing crisis pretty well. That means equity values have not come down so, one, equities are not at 52 week highs but they are roughly 80-85% of 52 week highs. Two, US dollar based companies with the US dollar , oil, interest rate issues, overseas properties become very expensive.

So, first you have Ag expensive, Petro-chemical it is not necessarily a question of price but of quality. Most of them are not high quality properties and are privatized and run for cash. The quality properties we are JV'ing with them, the previous point. So really, if you are on the acquisition trail, US equities have not come down a lot, and overseas properties are expensive.

So, you know where being incredibly, were scutinizing everything in mean I don't quite have a NASA control room here but on my desk in my room I've got stacks and stacks of tracking mechanisms to see when good, quality properties may become afordable enough that we could make more money with them being part of Dow we could make more money with them than their being on their own. Now, whether they are friendly or hostile, that is another whole conversation. The fact that we haven't done any big deal suggests those numbers aren't in target right now. The financial discipline we've put in place here, Todd, is something I am real proud of .

I think, you know, money's not burning a whole in oiur pocket and as I've to investors over and over were making all the deals we ned to make and if we get to the point wher we have too much cash, a great problem to have in this environment, we'll for sure bump up the reward to shareholders and keep increasing our R&D spending so we can do more at Dow Ag and mimic their sucess. We got a ton of R&D projects that are very promising and than do small bolt on acquisitions, we've done 20 in the last 24 months.

At the right moment, maybe equities will come down and on our radar screen are a dozen or so properties than when the time is right, we'll move on. But, you know, methodic, systemic, disciplined really paying a lot of attention to the criteria that matter for success. Creating a winning growth company. I'm really dedicated to putting down the earnings growth profile in a different place and doing it in a very methodical precise way. If I am blessed to have this job for as many years as I possibly could given my age I'll see it through.

I'm not going to knee jerk around to people telling me to do short term things. That is easy to say when you're on the outside. Trying to create long term earnings growth, that's a different story and we'll putting in place the discipline to do that.

Todd:
Yea, just from a personal standpoint I have not been able to understand the media's infatuation with you having to do something. I'd rather do nothing than something stupid.

Andrew:
(Laughing) Unbelievable how the English language causes the media to go to strange places. If I could put your headline on every analyst report, I would.


Todd:

Recently you said that EPS in 2015 would be $10. I believe that presentation was before your recent comments on energy prices and price increases. Now 2015 obviously seven years away. The current situation (oil), does that have any bearing on that estimate?


Andrew:

No, you know, we've estimated margins based on the commodity cycle and on global demand and supply . We take into account higher equity earnings from the joint ventures which will come online between 2011 and 2015, we add a portion of what we expect to get from our R&D programs, plus better quality earnings from our performance business and our continued cost controls. There are no assumptions around the use of the proceeds. The only assumption in there is, 3% average volume growth seven years, 3% is incredibly conservative - but okay.


We will just leave that as an assumption. I think the point that people miss is, yeah, there are recessions to worry about and term issues to worry about but we've positioned the company to get that number, the $3.50 number, and the $10.00 number, we've positioned it already. I don't have to announce anything else - nothing more than we've already announced, that's the bonus to this whole conversation ... and that's the part of the story that people don't get.

And I will tell you this, I'm saying it over and over, I've had over 200 investor meeting in the last three months, you know many of them one on one, in one office with two or three people and what I keep telling them is you stand the risk of missing out the inflection point. You're trying to call bottom on me and yeah, there are lots of things to worry about, the cost of surging oil, but I'm recognizing that case by a 20% increase ... now we are not going to stand here and take surging oil, we're going to pass it on and we are going to take advantage of surging oil, not to be victimized by it . You're going miss the inflection point, you're thinking "this company is going crater like it did in 01-02" and you're waiting for that point, and what we are showing you two mile posts that are saying that between now and 2011-2012 we will reach an inflection point, and if I have anything to do with it, sooner rather than later, 2009 / 2010 right? So answering the earlier question , it will be independent of where oil tracks and it will be somewhat immune to the U.S. economy because of the global economy.


Todd:

When I first saw the $10.00 a share, to me it seemed far below what I would of anticipated, based on the things I see going on, and I assumed I was missing something, "something is just not right" I said. The question that maybe your anticipating oil going to $175 by then or something like that. Now obviously you have the cash coming in, it doesn't seem to me that M&A is imminent. It seems to me like probably it's a couple years off. The little tiny ones are what's most likely, but anything significant based on the direction your going with AG and current valuation there. It would seem a wiser use of the cash is either more of the petrochemical joint ventures, share repurchase or increasing dividend, accurate?


Andrew:

Yes


Todd:

Ok, now, any breakdown between what you anticipate going between dividends or repurchases?


Andrew:

No, we haven't, we've got target values but we haven't declared them . I get asked that question a lot AS you can imagine.


Todd:

Yeah, I'm sure you do.


Andrew:

What I keep saying over and over is capital structure matters, dividend consistency matters. Dow has never had dividend consistency. You can rest assured that as we get confident about our extremes, we just went through a whole discussion on that, the dividend increase is definitely something the demand is paying out ratios of 40% or more and then additional repurchases. We've bought 6% already of outstanding shares over the last two years. We have the opportunity with the Kuwait cash, depending on what share price you want to use of buying 20-25% of the company back if we want to. That might limit our planning and it might limit our opportunity so we probably wouldn't do all that. But even half that number, if it happens, it surely a big number. You know I will tell you that most likely we are going to address that as the next quarter goes by and give some answers. Also we'll return some cash to R&D to do what we have to do and some on the M&A side. As I've said to the world, I do think that share repurchases and dividend increase in some construct is very likely in the next six months.


Todd:

I mean, to me, I don't see a problem sitting there with $3 or $4 billion in cash waiting for the perfect deal to come down the road in a couple years.


Andrew:

Yeah, many people say that to me and I agree with them. One more time, that tells me why I have enjoyed reading your stuff, it's very logical and you know people they're trying to intervene. I don't play games with my language, I actually say it.


Todd:

No, I think people try to interpret what you say instead of just listening.


Andrew:

Thank you for saying that, I really appreciate that. You know it is logical what you just said, and that's exactly the way we are thinking. We don't have to make this a mystery and I think keeping the cash makes sense and frankly the company's earned the right to grow in as many ways it can, organically and through M&A - and of course organic can also mean investing in share purchases in itself.


Todd:

If you were to pick what area of the company that just, you just can't talk enough about because your so excited about it, which one would it be?


Andrew:

Well you know, that's a great question and I don't think I've been asked that, so you get originality, and you know I'm not going to cop out on you, that would be out of my character. I would have to say the whole AG Bio space, not just AG space.


Todd:

Me too.


Andrew:

We are under promising and over delivering there and we've got some neat stuff going on in the world of bio technology, alternative energy, alternative feed stocks and I can't wait until to investors day because we will be making a lot more noise about this. You may have noticed, even today I think, AG made some additional announcements.


Todd:

I saw that, I saw that.


Andrew:

We have whole slue of things that we are literally just dropping out there. And just calling it Dow Ag is actually limited, we are leveraging over into polyurethanes, epoxy resins, polyestyrene, etc, there is a bunch of other uses that we are putting IT into. Some of the neat stuff we are doing in new technology developments around energy efficiency comes n a very close #2. For example, the new diesel filter that's launching and also the Building Integrated Photovoltaics program we are working on for our Dow Building Solutions. So energy efficiency as a whole. I've launched these four mega trends to give everyone a sense of where we are focusing our efforts and you may have noticed all the examples I've given are in two of the four, health and nutrition and energy, those two.







Disclosure ("none" means no position):Long Dow

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Posted by Todd Sullivan at 1:12 AM Links to this post

Thursday's Upgrades and Downgrades


UPGRADES
Activision (ATVI)- Wedbush Morgan Buy » Strong Buy
Nova Biosource Fuels (NBF)- Ardour Capital Accumulate » Buy
Cameco (CCJ)- UBS Neutral » Buy
PETsMART (PETM)- JP Morgan Neutral » Overweight
Boyd Gaming (BYD)- Banc of America Sec Sell » Neutral
Xerium Tech (XRM)- Citigroup Hold » Buy
Telefonos de Mex (TMX)- Deutsche Securities Hold » Buy
Banco de Chile (BCH)- Deutsche Securities Hold » Buy

DOWNGRADES
Central Garden (CENT)- Sun Trust Rbsn Humphrey Buy » Neutral
Fresenius Medical (FMS)- UBS Buy » Neutral
Alcoa (AA)- JP Morgan Overweight » Neutral
Microchip (MCHP)- JP Morgan Overweight » Neutral
Annaly Mortgage (NLY)- JP Morgan Overweight » Neutral
Steris (STE)- Soleil Hold » Sell
Hill-Rom (HRC)- Soleil Hold » Sell
Banco Santander (SAN)- Deutsche Securities Buy » Hold
Arris (ARRS)- Oppenheimer Outperform » Perform

Todd Sullivan's- ValuePlays

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Posted by Todd Sullivan at 12:36 AM Links to this post

Wednesday, June 11, 2008

"FastMoney" for Thursday


THURSDAY'S PICKS
Guy Adami thinks National Semiconductor (NSM) $22.71 is a buy.

Pete Najarian recommends getting long FPL Group (FPL) $64.16

Karen Finerman changes her mind about a former trade and reveals that she’s now sold her entire position in J. Crew (JCG) $33.2

WEDNESDAY'S RESULTS
Jeff Macke likes Disney (DIS) $33.83 and thinks it could go to $40 by this time next year.CLOSE $33.27 LOSS

Guy Adami prefers Deere (DE) $81.66. CLOSE $79 LOSS

Karen Finerman recommends buying puts on the SPDR S&P Metals and Mining (XME) $89.1 CLOSE $888.47 LOSS

Tim Seymour suggests being a seller of Tenaris (TS) $63.23 CLOSE $62.98 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 45-38-1
Tim Seymore= 17-16
Guy Adami= 48-38
Pete Najarian= 43-40
Karen Finerman= 42-34-1
Joe Terrenova= 1-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%

Todd Sullivan's- ValuePlays

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Posted by Todd Sullivan at 8:11 PM Links to this post

More of Icahn on Yahoo (video)

Yahoo's (YHOO) Jerry Yang must realize that he is out of his league on this one tights?





Disclosure ("none" means no position):none

Todd Sullivan's- ValuePlays

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Posted by Todd Sullivan at 1:55 PM Links to this post

Wednesday's Links

Ackman, iPhone, Fuld, Klarmen

- Some very