Protracted fight hurts share price
Short window to buy
Showing posts with label special situation. Show all posts
Showing posts with label special situation. Show all posts
Sunday, September 24, 2023
Tuesday, December 08, 2015
Tuesday, April 17, 2012
Musings On Taxable Year 2011
Today was the last day for American citizens to file their federal tax returns for tax year 2011. This calls for some reflection. This year's tax filing deadline happily coincides with Tax Freedom Day for the first time I can recall (not that I paid attention in years past, but I'm not the one responsible for the calculation).
I learned a couple of things from reviewing my filing documents for 2011. My realized short-term capital gains were lower in 2011 than they had been in 2010 because I didn't pursue as much event-driven investing, particularly M&A activity. I tracked a flurry of mergers in the fall of 2011 but chose not to act on them because of the precarious nature of this bull market in equities. I simply do not know when the bottom will fall out. I was thus unwilling to risk going long-equity or short-put with stocks that were M&A targets because I did not want to risk holding something if a market crash forced a merger to unwind. Stuff like that does happen.
I also learned that my tolerance for buying outstanding municipal bonds at a premium had some beneficial effects. The premiums I paid, small though they often were, helped negate the capital gains I realized from selling equities and writing covered calls. The net effect was to reduce the taxable amount of some of my gains while I collect the tax-free interest payments from the munis. The only drawback was the negative effect of the accrued interest I had to pay out on bonds that were outstanding issues held by my brokerage on behalf of the underwriter. It wasn't too much of a big deal because I always hold bonds to maturity, so the next coupon pays me back. After that, the rest of the tax-free cash flow keeps rolling in.
I have no reason to be smug about using muni bonds this way in the near future. I'm not buying any more fixed income instruments due to the severe threat of hyperinflation in the U.S. My remaining California muni bonds will mature this summer and I will not replace them. Some combination of TIPS and their ETFs, foreign currency ETFs, and hard assets (oil/gas/pipeline) MLPs and their ETFs will replace them in my asset allocation strategy. I have convinced myself that those things will more effectively preserve my purchasing power and generate more yield than traditional fixed-income instruments in a high-inflation scenario. The next year or two will determine whether I am making the right choice.
I learned a couple of things from reviewing my filing documents for 2011. My realized short-term capital gains were lower in 2011 than they had been in 2010 because I didn't pursue as much event-driven investing, particularly M&A activity. I tracked a flurry of mergers in the fall of 2011 but chose not to act on them because of the precarious nature of this bull market in equities. I simply do not know when the bottom will fall out. I was thus unwilling to risk going long-equity or short-put with stocks that were M&A targets because I did not want to risk holding something if a market crash forced a merger to unwind. Stuff like that does happen.
I also learned that my tolerance for buying outstanding municipal bonds at a premium had some beneficial effects. The premiums I paid, small though they often were, helped negate the capital gains I realized from selling equities and writing covered calls. The net effect was to reduce the taxable amount of some of my gains while I collect the tax-free interest payments from the munis. The only drawback was the negative effect of the accrued interest I had to pay out on bonds that were outstanding issues held by my brokerage on behalf of the underwriter. It wasn't too much of a big deal because I always hold bonds to maturity, so the next coupon pays me back. After that, the rest of the tax-free cash flow keeps rolling in.
I have no reason to be smug about using muni bonds this way in the near future. I'm not buying any more fixed income instruments due to the severe threat of hyperinflation in the U.S. My remaining California muni bonds will mature this summer and I will not replace them. Some combination of TIPS and their ETFs, foreign currency ETFs, and hard assets (oil/gas/pipeline) MLPs and their ETFs will replace them in my asset allocation strategy. I have convinced myself that those things will more effectively preserve my purchasing power and generate more yield than traditional fixed-income instruments in a high-inflation scenario. The next year or two will determine whether I am making the right choice.
Monday, June 27, 2011
Williams Fights Energy Transfer Equity For Southern Union
Energy Transfer Equity's (ETE) bid for Southern Union (SUG) should have been a done deal when it was announced. Some acquisition targets are just too juicy to ignore. Now Williams (WMB) is jumping into the fray with an all-cash $39/share bid for SUG. Merger fights make life interesting. The benefit to SUG investors is the enhanced price discovery from competing bids. The problem is that the boards of both ETE and SUG have already approved their merger, so now a costly proxy fight among SUG shareholders is likely.
This action might make for a good merger arbitrage play as long as Williams doesn't withdraw its bid. I might have more to say in a few days once I have a chance to compare all three companies' financial statements.
This action might make for a good merger arbitrage play as long as Williams doesn't withdraw its bid. I might have more to say in a few days once I have a chance to compare all three companies' financial statements.
Friday, March 25, 2011
Schwab Buys optionsXpress In Bid For Discount Investors
Sometimes it pays to pay even when you're used to chasing discounts. Charles Schwab, one of America's leading discount brokerages, is offering $1B in stock for optionsXpress. Thumbnail sketches are in order.
This is an all-stock deal, with 60mm new SCHW shares going to OXPS holders. SCHW shareholders will experience dilution of about 5%, which isn't bad considering they're getting a huge options brokerage's market position. OXPS's ROE of 25% is unbelievably healthy, although its three straight years of declining net income is a cause for concern. OXPS's accounts payable and long-term debt are manageable loads for SCHW's balance sheet to bear.
Writing puts under OXPS would be tempting if this were a cash deal, but the all-stock characteristic would make such a move very vulnerable to market volatility. That is a huge risk to take with OXPS's P/E over 20 and SCHW's over 47.
Schwab is probably making the right long-term move here, but the risk factors above take the joy out of any short-term special situation strategy for investors.
Full disclosure: No position in SCHW or OXPS.
This is an all-stock deal, with 60mm new SCHW shares going to OXPS holders. SCHW shareholders will experience dilution of about 5%, which isn't bad considering they're getting a huge options brokerage's market position. OXPS's ROE of 25% is unbelievably healthy, although its three straight years of declining net income is a cause for concern. OXPS's accounts payable and long-term debt are manageable loads for SCHW's balance sheet to bear.
Writing puts under OXPS would be tempting if this were a cash deal, but the all-stock characteristic would make such a move very vulnerable to market volatility. That is a huge risk to take with OXPS's P/E over 20 and SCHW's over 47.
Schwab is probably making the right long-term move here, but the risk factors above take the joy out of any short-term special situation strategy for investors.
Full disclosure: No position in SCHW or OXPS.
Monday, March 14, 2011
Significance Of The Lubrizol Buyout
Today's big dealmaking news is Berkshire Hathaway's purchase of Lubrizol for $9B in cash. The appeal of LZ's fundamentals is clear. The 34% ROE and long term debt less than two times net income are hallmarks of the Warren Buffett criterion. The less obvious attraction here is Lubrizol's sector.
LZ makes specialty lubricants with wide applications in petroleum drilling and refining. Like BNSF's position astride desirable rail lines, LZ's position in a specialty sector is tough to dislodge. Railroads and energy services are bulk carriers of the kinds of commodities that advanced economies use with abandon.
Niche servicers of the energy production sector are long-term bets on the world economy's demand for energy. If Mr. Buffett doesn't believe in commodity scarcity, he's certainly doing a darn good imitation of a Peak Oiler.
Full disclosure: No positions in LZ or BRK-A at this time.
LZ makes specialty lubricants with wide applications in petroleum drilling and refining. Like BNSF's position astride desirable rail lines, LZ's position in a specialty sector is tough to dislodge. Railroads and energy services are bulk carriers of the kinds of commodities that advanced economies use with abandon.
Niche servicers of the energy production sector are long-term bets on the world economy's demand for energy. If Mr. Buffett doesn't believe in commodity scarcity, he's certainly doing a darn good imitation of a Peak Oiler.
Full disclosure: No positions in LZ or BRK-A at this time.
Thursday, January 06, 2011
Atheros Communications: A Special Situation
Qualcomm (QCOM) announced that it will acquire Atheros Communications (ATHR) for $45/share in cash, expected to close in the first half of 2011. This presents one of the most straightforward merger arbitrage opportunities I've seen in a while. Details immediately below.
Full disclosure: Long ATHR with covered calls and cash-covered short puts. No position in QCOM.
Full disclosure: Long ATHR with covered calls and cash-covered short puts. No position in QCOM.
Monday, September 27, 2010
Three Big Deals Make It Merger Mania Monday!
Wow, there's plenty of deal action to blog about today.
Wal-Mart wants to buy Massmart for $4.25B. Let's run some basic numbers on Massmart (MMRTY.PK). ROE is a whopping 36%, holy canole, and quarterly growth is an eye-popping 27%. Unfortunately the P/E is 28, astronomical for a retailer. Wal-Mart (WMT) is looking to shove their global supply chain into African wallets.
Unilever wants to buy Alberto Culver for $3.7B. Funny, I've never heard of Alberto Culver (ACV). Let's see what they're all about. Their P/E of 25 is almost at Massmart's nosebleed altitude. Are they worth such a premium? Their ROE of around 12% is less than the 15% I'd prefer. At least their net income is steady and healthy, and big kudos to them for whittling their long-term debt down to under half a million dollars. That's unheard of for a company with a market cap in the billions. Unilever (UL) likes what it sees, so this may be a halfway decent deal if they can get that ROE up after some serious cost-cutting.
Southwest wants to buy AirTran for $1.4B in cash and stock. Well, what's so desirable about AirTran (AAI) all of a sudden? Their ROE is a paltry 6.26%, which must look good to Southwest (LUV) whose own ROE is an even more lousy 4.15%. Southwest is assuming AirTran's debt, which could jeopardize its long run of profitability if a renewed recession hurts air travel. Finally, AirTran's P/E has climbed into thin air at almost 44. I wouldn't pay $44 for dollar's worth of earnings anywhere, certainly not up in the wild blue yonder.
All of these deals have something in common. The acquirers seem to be paying a premium for market share in mature industries driven by consumer spending. That is not at all a smart move if the world economy is headed for zero growth or a double-dip.
Full disclosure: No positions in any company mentioned at the time this post was published.
Wal-Mart wants to buy Massmart for $4.25B. Let's run some basic numbers on Massmart (MMRTY.PK). ROE is a whopping 36%, holy canole, and quarterly growth is an eye-popping 27%. Unfortunately the P/E is 28, astronomical for a retailer. Wal-Mart (WMT) is looking to shove their global supply chain into African wallets.
Unilever wants to buy Alberto Culver for $3.7B. Funny, I've never heard of Alberto Culver (ACV). Let's see what they're all about. Their P/E of 25 is almost at Massmart's nosebleed altitude. Are they worth such a premium? Their ROE of around 12% is less than the 15% I'd prefer. At least their net income is steady and healthy, and big kudos to them for whittling their long-term debt down to under half a million dollars. That's unheard of for a company with a market cap in the billions. Unilever (UL) likes what it sees, so this may be a halfway decent deal if they can get that ROE up after some serious cost-cutting.
Southwest wants to buy AirTran for $1.4B in cash and stock. Well, what's so desirable about AirTran (AAI) all of a sudden? Their ROE is a paltry 6.26%, which must look good to Southwest (LUV) whose own ROE is an even more lousy 4.15%. Southwest is assuming AirTran's debt, which could jeopardize its long run of profitability if a renewed recession hurts air travel. Finally, AirTran's P/E has climbed into thin air at almost 44. I wouldn't pay $44 for dollar's worth of earnings anywhere, certainly not up in the wild blue yonder.
All of these deals have something in common. The acquirers seem to be paying a premium for market share in mature industries driven by consumer spending. That is not at all a smart move if the world economy is headed for zero growth or a double-dip.
Full disclosure: No positions in any company mentioned at the time this post was published.
Thursday, September 02, 2010
Sunday, August 29, 2010
Sanofi Offers To Buy Genzyme
I guess general economic worries aren't slowing down merger mania, at least not yet. There's big action coming in Big Pharma:
Cash bids are always nice to see. Paying $69 per share for GENZ isn't much of a premium over last Friday's closing price of $67.62, so perhaps Sanofi-Aventis isn't expecting any competing bidders.
A quick glance at GENZ's stats shows an enterprise value very close to its market value. Bidders often go for a target whose enterprise value is far below its market cap. Its ROE and EPS are both currently negative, so Sanofi-Aventis may see some hidden value here that's lost in the fundamentals. Paying 20x EPS is a heck of a premium when your earnings have gone negative for two quarters. Does GENZ have something in its pipeline that can help Sanofi regain ground lost to generics? Time will tell.
Full disclosure: Anthony J. Alfidi has no position in any company discussed in this post.
Sanofi-Aventis SA said it is offering to buy Genzyme Corp. for $69 a share, or about $18.5 billion in cash.
Cash bids are always nice to see. Paying $69 per share for GENZ isn't much of a premium over last Friday's closing price of $67.62, so perhaps Sanofi-Aventis isn't expecting any competing bidders.
A quick glance at GENZ's stats shows an enterprise value very close to its market value. Bidders often go for a target whose enterprise value is far below its market cap. Its ROE and EPS are both currently negative, so Sanofi-Aventis may see some hidden value here that's lost in the fundamentals. Paying 20x EPS is a heck of a premium when your earnings have gone negative for two quarters. Does GENZ have something in its pipeline that can help Sanofi regain ground lost to generics? Time will tell.
Full disclosure: Anthony J. Alfidi has no position in any company discussed in this post.
Thursday, August 26, 2010
Wednesday, June 02, 2010
Is BP A Good Buy?
Today I got an email inquiry from a fellow private investor and longtime reader of my blog. He wanted my opinion on whether BP is a good buy given its current troubles. Here's my reply in its entirety.
I don't mind admitting that my business hasn't reached its breakeven point yet. I'm well aware that it will take a very long time for me to earn an income from my online presence.
Hey! You've definitely got the right mindset. Buying a beaten-down stock is often a winning play but I just don't know enough about BP's other operations to say whether this is true. Looking at some stats on Reuters for BP . . .
5yr EPS growth is abysmally low - bad
Cap spending growth exceeds industry average - bad
ROE 5yr ave is 23% - good
And from Yahoo Finance . . .
Long-term debt less than 2X net income, thus manageable - good
Free cash flow is positive - good
I wouldn't buy BP given the two bad items above. I also haven't read their annual report and thus I'm not sure what their total reserves or extraction costs look like. Those are the two most important factors in estimating a commodity producer's future profitability.
BTW, thanks for giving me my blog post for today. I'm still not profitable yet but I'll wait as long as that takes.
I don't mind admitting that my business hasn't reached its breakeven point yet. I'm well aware that it will take a very long time for me to earn an income from my online presence.
Monday, May 03, 2010
United And Continental Will Face Peak Oil Together
Peak Oil theorists allege that airlines are like a canary in a coal mine. Their health provides early warning of energy shortages as they must pay a premium for fuel. The merger of United Airlines and Continental will put this proposition to the test:
The good news for investors is that an airline with global reach and over $7B in cash can withstand plenty of economic turbulence. The bad news is their focus on business travelers. I still believe the global economy will experience a second phase of its Great Recession. Businesses facing declining earnings will cut back on nonessential expenses like business travel. Furthermore, the declining availability of cheap petroleum (Peak Cheap Oil) will put a permanent floor under fuel prices this decade, permanently raising variable costs across the entire transportation sector.
Don't forget that United has already been through a bankruptcy this decade in the aftermath of 9-11. This industry isn't exactly immune to shocks whether they're endogenous (crashes, hijackings) or exogenous (fuel costs).
Feel free to take a chance on playing this merger if you understand the airline industry. I'll pass and wait for clearer skies.
Full disclosure: No position in UAUA or CAL.
United Airlines has agreed to buy Continental in a $3 billion-plus deal that would create the world's largest carrier with a commanding position in several top U.S. cities.
The new United would surpass Delta Air Lines in size, which should help it attract more high-fare business travelers. It will fly to 370 destinations in 59 countries.
The good news for investors is that an airline with global reach and over $7B in cash can withstand plenty of economic turbulence. The bad news is their focus on business travelers. I still believe the global economy will experience a second phase of its Great Recession. Businesses facing declining earnings will cut back on nonessential expenses like business travel. Furthermore, the declining availability of cheap petroleum (Peak Cheap Oil) will put a permanent floor under fuel prices this decade, permanently raising variable costs across the entire transportation sector.
Don't forget that United has already been through a bankruptcy this decade in the aftermath of 9-11. This industry isn't exactly immune to shocks whether they're endogenous (crashes, hijackings) or exogenous (fuel costs).
Feel free to take a chance on playing this merger if you understand the airline industry. I'll pass and wait for clearer skies.
Full disclosure: No position in UAUA or CAL.
Friday, April 09, 2010
SandRidge's Pursuit of Arena Resources Masks Deeper Problems
SandRidge Energy (SD) wants to buy oil and gas producer Arena Resources (ARD) for 4.7771 shares of SD plus $2.50 for each share of ARD. Is this deal worth doing?
Here are the pros. SD expands its existing reach in the Permian Basin with ARD's reserves of 69.5mm BOE. Recent natural gas discoveries in North America will keep a ceiling on that commodity's price, so diversifying into a scarcer resource makes some sense.
Now for the cons. The dilutive effect on existing SD shareholders (after issuing 185.3mm new SD shares brings the total shares outstanding to 395.71mm) is 53%. Existing shareholders are asked to surrender 47% of the combined company's earnings per share. SD earned -$1.776B in 2009 and ARD earned $42.29mm; this equates to an underwhelming -$4.38 EPS combined after dilution. Compared to SD's current EPS of a whopping -$10.20, that's hardly worth cheering. This is at best a superficial improvement, as SD in its current form has experienced massively negative free cash flow for two years and has increased its long term debt for three years running, all while its net income turned severely negative. SD is therefore betting that the acquisition of a minor oil producer will mask its own operational difficulties long enough to try to put its own house in order. ARD shareholders are asked to surrender ownership in a marginally profitable oil driller for shares in a larger company where cash flow, net income, and retained earnings are all negative.
The market will gradually come to grips with these risk factors. SD closed at $7.85 on Apr. 1, before announcing this acquisition, and has closed below that price every day since then while its daily trading volume has spiked by 200% to 500%. It's hard not to believe that SD is largely in the hands of arbitrageurs looking for a quick buck. It's just as hard to see how SD plans to work its way out of its own operational problems. It's very hard to ask ARD owners to part with what they have in hand now.
Nota bene: Anthony J. Alfidi holds no position in SD or ARD at the time this post was published.
Here are the pros. SD expands its existing reach in the Permian Basin with ARD's reserves of 69.5mm BOE. Recent natural gas discoveries in North America will keep a ceiling on that commodity's price, so diversifying into a scarcer resource makes some sense.
Now for the cons. The dilutive effect on existing SD shareholders (after issuing 185.3mm new SD shares brings the total shares outstanding to 395.71mm) is 53%. Existing shareholders are asked to surrender 47% of the combined company's earnings per share. SD earned -$1.776B in 2009 and ARD earned $42.29mm; this equates to an underwhelming -$4.38 EPS combined after dilution. Compared to SD's current EPS of a whopping -$10.20, that's hardly worth cheering. This is at best a superficial improvement, as SD in its current form has experienced massively negative free cash flow for two years and has increased its long term debt for three years running, all while its net income turned severely negative. SD is therefore betting that the acquisition of a minor oil producer will mask its own operational difficulties long enough to try to put its own house in order. ARD shareholders are asked to surrender ownership in a marginally profitable oil driller for shares in a larger company where cash flow, net income, and retained earnings are all negative.
The market will gradually come to grips with these risk factors. SD closed at $7.85 on Apr. 1, before announcing this acquisition, and has closed below that price every day since then while its daily trading volume has spiked by 200% to 500%. It's hard not to believe that SD is largely in the hands of arbitrageurs looking for a quick buck. It's just as hard to see how SD plans to work its way out of its own operational problems. It's very hard to ask ARD owners to part with what they have in hand now.
Nota bene: Anthony J. Alfidi holds no position in SD or ARD at the time this post was published.
Thursday, April 01, 2010
A Brief Word On Biting Into CKE Restaurants
Carl's Jr. has always served some pretty good burgers. I've been a fan of their Western Bacon Cheeseburger for decades. Their Six-Dollar Burger started the trend of mega-sized burgers that other chains started copying. I'm not as fond of the Hardee's chain, which Carl's Jr. bought years ago to extend their menu and brand worldwide. The combined entity, known as CKE Restaurants (CKR), is one big juicy hunk of grilled beef.
It looks like I'm not the only one who wants to bite into what CKR has to offer. A private equity firm named THL Partners offered to buy them recently, and their only realistic competition for the bid is about to drop out:
CKR is still accepting competing bids until April 6, but this is probably the end of the acquisition dance. Thus, $11.05 is all CKR shareholders will get. They should feel grateful given the poor condition of CKR's balance sheet; negative retained earnings for three years straight is very bad even though the trend is back to positive territory thanks to positive contributions from net income. It will take a long time for CKR to get its share price back up over $20 at this rate, so a buyout is probably the least bad choice.
Nota bene: Anthony J. Alfidi holds no position in CKR at the time this post was published.
It looks like I'm not the only one who wants to bite into what CKR has to offer. A private equity firm named THL Partners offered to buy them recently, and their only realistic competition for the bid is about to drop out:
Investor Nelson Peltz has reportedly lost interest in making a bid for CKE Restaurants , which is parent to the Hardees and Carls Jr. burger chains.
The New York Post reports that a source close to the process said that while Peltz whose investment firm owns Wendys/Arbys Group - had considered a making a bid to rival THL Partners, he has decided to pass after conducting due diligence.
CKR is still accepting competing bids until April 6, but this is probably the end of the acquisition dance. Thus, $11.05 is all CKR shareholders will get. They should feel grateful given the poor condition of CKR's balance sheet; negative retained earnings for three years straight is very bad even though the trend is back to positive territory thanks to positive contributions from net income. It will take a long time for CKR to get its share price back up over $20 at this rate, so a buyout is probably the least bad choice.
Nota bene: Anthony J. Alfidi holds no position in CKR at the time this post was published.
Friday, March 19, 2010
Icahn Bids For Lions Gate, Offering Potential For Special Situation Play
Carl Icahn is taking a calculated risk in going after Lions Gate:
He's offering $6 per share in the hope that Lions Gate (LGF) shareholders will force their management to back away from their proposed buyout of Metro-Goldwyn-Mayer, which we should note is not the same company as casino operator MGM Mirage. Icahn doesn't want MGM Studios and doesn't want to pay the $12 per share that purchasing a combined Lions Gate-MGM would probably require .
Betting against a buyout king like Carl Icahn is hard to do, but for now I'll pass. The deal isn't a sure thing and given LGF's rejection of Icahn's last offer they're likely to put up a good fight. The deal bears watching, but that's all I'm doing until I see some certainty.
Icahn is offering $6 a share, unchanged from his partial tender offer for 13.2 million shares, according to an e-mailed statement today. He extended the deadline for tendering to April 30. As of Feb. 1, the company had 117.8 million shares outstanding, according to Bloomberg data.
The move coincides with today’s bidding deadline for Metro- Goldwyn-Mayer Inc., which has fallen behind on interest payments. Lions Gate, run from Santa Monica, California, and based in Vancouver, is among the suitors, people close to the situation said last month. Icahn, Lions Gate’s second-largest shareholder with about 19 percent, opposes the acquisition.
He's offering $6 per share in the hope that Lions Gate (LGF) shareholders will force their management to back away from their proposed buyout of Metro-Goldwyn-Mayer, which we should note is not the same company as casino operator MGM Mirage. Icahn doesn't want MGM Studios and doesn't want to pay the $12 per share that purchasing a combined Lions Gate-MGM would probably require .
Betting against a buyout king like Carl Icahn is hard to do, but for now I'll pass. The deal isn't a sure thing and given LGF's rejection of Icahn's last offer they're likely to put up a good fight. The deal bears watching, but that's all I'm doing until I see some certainty.
Wednesday, March 17, 2010
LTL Shakeout Ahead?
I continue to be intrigued by the long haul trucking industry. LTL trucking in particular is a commoditized industry, with carriers increasingly forced to compete on price. Smaller carriers have a tough time competing against the big truckers:
So who among the big carriers might be looking to acquire? Probably not YRC Worldwide (YRCW), as they are preoccupied with mere survival given their ongoing losses.
How about Arkansas Best Corporation (ABFS)? That would be a big stretch right now. They'll have a lot more flexibility if the Teamsters agree to modify their National Master Freight Agreement with their ABF Freight System subsidiary, and they'll need that legroom if they continue to lose money (net income was negative $128mm in 2009).
I've still got my eye on Landstar (LSTR). They've got $85mm in cash on the balance sheet, enough to buy smaller carriers, but with their stock near its 52-week high an all-stock acquisition would make sense.
Nota bene: Anthony J. Alfid has no positions in YRCW, ABFS, or LSTR at this time.
The owners of one in four truckload carriers say they may sell their company and leave the industry over the next 18 months, according to a survey by Transport Capital Partners.
(snip)
Larger truckload carriers are on the lookout for companies to acquire, the survey found. That would increase their own trucking capacity without adding to overall industry capacity.
So who among the big carriers might be looking to acquire? Probably not YRC Worldwide (YRCW), as they are preoccupied with mere survival given their ongoing losses.
How about Arkansas Best Corporation (ABFS)? That would be a big stretch right now. They'll have a lot more flexibility if the Teamsters agree to modify their National Master Freight Agreement with their ABF Freight System subsidiary, and they'll need that legroom if they continue to lose money (net income was negative $128mm in 2009).
I've still got my eye on Landstar (LSTR). They've got $85mm in cash on the balance sheet, enough to buy smaller carriers, but with their stock near its 52-week high an all-stock acquisition would make sense.
Nota bene: Anthony J. Alfid has no positions in YRCW, ABFS, or LSTR at this time.
Monday, March 08, 2010
Terra Industries Buyout Approaching Endgame
Terra Industries (TRA) has been a takeover target since last fall when CF Industries (CF) made its initial offer of $24.50 (net of a proposed special dividend) per share. That offer was later superseded by an offer from Norway's Yara for about $41.10 per share. CF raised its offer last week to the equivalent of over $47 per share in what appears to be its final play for TRA.
The best time to execute a merger arb trade on TRA would have been last week before CF's latest offer. Now TRA trades at over $45 on speculation that they will abandon their agreement with Yara and seriously consider the new CF offer. That is unlikely, as the appeal of CF's bid is contingent on CF's stock remaining high (one tenth of a CF share is part of the offer for each TRA share). IMHO the speculation on a new deal is unfounded. TRA will likely go with the "bird in hand" and stick with its agreement to sell itself to Yara. Any investor buying TRA over 41 is probably throwing money away.
Nota bene: Anthony J. Alfidi has no holdings in TRA, CF, or Yara at this time.
The best time to execute a merger arb trade on TRA would have been last week before CF's latest offer. Now TRA trades at over $45 on speculation that they will abandon their agreement with Yara and seriously consider the new CF offer. That is unlikely, as the appeal of CF's bid is contingent on CF's stock remaining high (one tenth of a CF share is part of the offer for each TRA share). IMHO the speculation on a new deal is unfounded. TRA will likely go with the "bird in hand" and stick with its agreement to sell itself to Yara. Any investor buying TRA over 41 is probably throwing money away.
Nota bene: Anthony J. Alfidi has no holdings in TRA, CF, or Yara at this time.
Thursday, March 04, 2010
Merck KGaA Makes Merger Maneuver With Millipore
Merck KGaA (that's the original German Merck, not to be confused with the U.S.-based Merck trading as MRK) has offered $107 cash per share for Millipore (MIL) to beef up its life sciences product line. MIL currently trades at a P/E over 33, which looks expensive until you compare it to the average P/E of 37 for the entire medical instruments and supplies industry. MIL's results also look better than average: its ROE of 12.73% beats the industry's 9.8%, and its net profit margin of 10.31% surpasses the industry's 8.4%.
However, MIL trades far in excess of P/Es of direct competitors like Alcon (ACL) at 24, Baxter International (BAX) at 16, or Covidian (COV) at 27. Merck is paying this premium to earnings presumably because MIL's product line fits its own strategy well. Would other acquisition targets be superior fits for Merck KGaA? The firms named above have far larger market caps, so Merck KGaA is playing within its league by acquiring MIL.
Nota bene: Anthony J. Alfidi has no position in MIL, MRK, Merck KGaA, or any other company mentioned at the time this post was published.
However, MIL trades far in excess of P/Es of direct competitors like Alcon (ACL) at 24, Baxter International (BAX) at 16, or Covidian (COV) at 27. Merck is paying this premium to earnings presumably because MIL's product line fits its own strategy well. Would other acquisition targets be superior fits for Merck KGaA? The firms named above have far larger market caps, so Merck KGaA is playing within its league by acquiring MIL.
Nota bene: Anthony J. Alfidi has no position in MIL, MRK, Merck KGaA, or any other company mentioned at the time this post was published.
Coca-Cola Plans Sweet Combination With CCE
Coca-Cola (KO) and its largest bottler, Coca-Cola Enterprises (CCE), are planning a complicated merger. CCE's current shareholders will receive a $10 cash payment per share in exchange for new shares in the part of CCE that will retain control of its European bottling operations. If CCE's price remains near $25, as it has in recent days, the $10 payment will result in an ex-dividend adjusted share price around $15 for the "new" CCE after the transaction closes. Shareholders should find this acceptable provided CCE can successfully institute its planned $1B share repurchase and proposed $0.50 annual dividend (an increase from the current $0.36 dividend). Note that the transaction's announcement qualifies this plan by making it subject to funding from continuing operations.
Furthermore, KO's assumption of $8.9B worth of CCE debt and $0.6B in unfunded pension obligations relieves CCE of a significant financial burden. Subtracting this consideration from CCE's enterprise value of $20.68B leaves the new CCE (before new debt issuance) with a notional enterprise value of $11.18B, a discount to its present market cap of over $12B. KO probably believes structuring the transaction this way is a bargain compared to an outright takeover of CCE followed by a separate sale of its European business units. This looks like a very smart, efficient deal for both KO and CCE shareholders.
Nota bene: Anthony J. Alfidi has no position in KO or CCE at the time this post was published.
Furthermore, KO's assumption of $8.9B worth of CCE debt and $0.6B in unfunded pension obligations relieves CCE of a significant financial burden. Subtracting this consideration from CCE's enterprise value of $20.68B leaves the new CCE (before new debt issuance) with a notional enterprise value of $11.18B, a discount to its present market cap of over $12B. KO probably believes structuring the transaction this way is a bargain compared to an outright takeover of CCE followed by a separate sale of its European business units. This looks like a very smart, efficient deal for both KO and CCE shareholders.
Nota bene: Anthony J. Alfidi has no position in KO or CCE at the time this post was published.
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