Drexel’s former “Bond King” Micheal Milken on Charlie Rose. I could get a whole hour of Milken…
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Micheal Milken on Charlie Rose
Month: October 2008
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Thursday’s Links
MSNBC, Donations, Derivatives, Tilson, Lay-offs
– Dems and Repubs call the network “out of control”
– Does who you give to say anything about your belief’s?
– A 101 Course
– Tilson has a nice comment about fear…
– Lindzon is great here
Disclosure (“none” means no position):
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Robert Shiller Talks SubPrime (video)
Shiller predicted the 2000 market plunge and the subprime mess. What he says bears some listening to..
Here is his book, “Irrational Exuberance”
Disclosure (“none” means no position):
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Dow Chemical Insiders Buy More Shares
I said yesterday there was more buying to come…
After yesterday’s insider buying announcement, today VP Greg Freiwald disclosed he purchased 16,000 at $23 a share on Tuesday spending $368k of his own money. He now holds over 103K shares directly.
That brings the two day total to almost $700k of insider money buying shares so far this week. I said yesterday “I would expect more purchases in the coming days”.
I still do… When Berkshire’s (BRK.A) Buffett sees the value and management is ponying up cash to buy shares…one might want to take a look..no?
Oh yea….and a 7% dividend..
Disclosure (“none” means no position):Long Dow
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PershIng Settles Longs Drug Swaps
Bill Ackman has settled his Longs Drug (LDG) total return swaps with the CVS (CVS) biuyout complete.
From the filing:
“In connection with the successful tender offer by Blue MergerSub Corp., an indirect wholly-owned subsidiary of CVS Caremark Corporation, to purchase all outstanding shares of common stock of the Issuer, certain counterparties to Pershing Square’s Swaps have terminated certain of the Swaps. As a result, these Swaps were settled in cash between such parties relating to 2,054,100 notional shares (the “Settled Swaps”). In accordance with the terms of the Settled Swaps, the applicable counterparty was obligated to pay to the applicable Pershing Square Fund any positive price difference between the initial reference price (ranging from $53.41 and $70.36) and the final valuation price ($71.50). As a result of the termination of the Settled Swaps, the Reporting Persons no longer have long economic exposure to an aggregate of 2,054,100 shares. As cash-settled total return swaps, the Reporting Persons had no discretion over the issue of any extraordinary event like a tender offer. Consistent with the International Swaps and Derivatives Association’s (“ISDA”) protocols, as the calculation agents for extraordinary events, the counterparties exercise the discretion afforded to them as calculation agents, in accordance with the ISDA definitions for equity derivatives and in good faith and in a commercially reasonable manner.”
Swap Trading Data
FULL SEC FILING
Disclosure (“none” means no position):NONE
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Owens Corning Net Rises 71%
Funny what a few hurricanes will do.
Owens Corning (NYSE: OC) reported today that consolidated net sales increased 28 percent to $1.6 billion during the third quarter, compared with $1.3 billion in the third quarter of 2007. Third-quarter sales were up due to strong performance in
the Roofing and Asphalt and Composites businesses.
Excluding comparability items, Owens Corning’s adjusted earnings from continuing operations were $94 million, or $0.72 per adjusted diluted share, compared with $56 million, or $0.42 per adjusted diluted share during the third quarter last year
“I’m pleased with the quarter as the results are in line with our objectives for the year,” said Mike Thaman, chairman and chief executive officer. “The integration of our composites acquisition is on track. We are exceeding our year-one synergy goals. Our Roofing and Asphalt business has improved performance with a streamlined asset base, significant productivity and an improved product mix. Our Insulation business will be profitable for the year in a very difficult U.S. housing market. We’ve
maintained a strong balance sheet and are benefiting from a solid capital structure that provides more than adequate liquidity.”
Owens Corning continues to estimate that 2008 adjusted EBIT will be at least $265 million. The company previously announced that strength in Roofing and Asphalt performance creates an additional upside of up to 10 percent in that adjusted EBIT guidance. The company excludes from this estimate items impacting comparability.
During the first quarter of 2007, Owens Corning announced a share buy-back program under which the company was authorized to repurchase up to 5 percent of Owens Corning’s outstanding common stock. During the third quarter, the company repurchased 1.9 million shares at an average price of $22.23 per share. For the nine-month period ending September 30, 2008, the company repurchased 2.9 million shares at an average price of $22.70 per share. On September 30, 2008, the company had 128.8 million shares outstanding and approximately 3.6 million shares remaining
available for repurchase under the current program.
We have been saying this for a while now, after two years of no storm activity in the US, even a few moderate storms would be a boom for Owens Corning. We got a couple this year and the results reflect that.
If you look at the business of OC, they have hit a “perfect storm” (pun intended) the last couple years. Housing activity ground to a halt and there were no storms to boost the repair business. The argument can be made that OC earnings bottomed last year and early this one. It is hard to imagine the same or worse scenario happening again in the near future.
If that is true then earnings for OC have bottomed and ought to continue to rise from here..
Disclosure (“none” means no position):Long OC
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Wednesday’s Links
Short Sears, Derivatives, Refiners, T. Boone
– It seems the bears are getting out
– 60 minutes did a great piece
– Why a winfall tax won’t work…they’ll just produce less
– T. Boone is a great interview
Disclosure (“none” means no position):
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Why Did Citi Turn Down Goldman?
So, on Monday I wondered why Citi (C) has so little interest in a Goldman Sachs (GS) deal. Hint: It starts with a “D” and Goldman does not have them.
On the last earnings call CFO Gary Crittendon said regarding potential uses for the TARP funds, “And it does present, then, the possibility of our taking advantages of opportunities that otherwise might have [inaudible] to us. Now, as we think about that, the way we approach it is in the same disciplined manner that we’ve approached these other opportunities over the last few weeks. So I think in total now we have looked in detail at the possibility of acquiring three institutions, two of which you’re aware (Wachovia (WB) and Washington Mutual (WM)) of and one that we haven’t talked about publicly in any way.
And as we approached that, we did it with a very well-defined set of parameters. There is only a certain set of circumstances which made sense for us to do that. We will think about the use of this capital in the same way. It is an attractively priced amount of equity capital, and as you correctly said, an attractively priced amount of fixed income, that can match with that.”
In response to another question about the “next opportunity” he replied:
“Here is what I think we would say internally, what we are saying to ourselves. Basically we had a strategy that we outlined at Citi Day that had us focused on growing five businesses. Two of those are asset businesses, our Card business and our markets and banking business; and three of those are liability gathering businesses, deposit gathering businesses. That is our Wealth Management business, our Consumer retail business, and our GTS business.
Our focus is behind those businesses; and that remains exactly as it was before. In order to fund those businesses, we have the program underway that you just talked about. We are cutting our expenses; we are showing good traction on that. We are moving assets out of categories that don’t fit with that profile. We have been selling businesses that didn’t match there. We have carefully managed down our headcount.
So we have worked very hard to execute against that strategy — and that is our strategy. Now opportunistically, we had the chance, obviously, to acquire Wachovia. For all of the reasons you are aware of, that is not going to happen.
But the net result of that is not a change in our strategy.”
So, the question then becomes. Where does Goldman fit? Answer? It doesn’t. Citi wants deposits and neither Goldman nor Merrill (MER) have any. Sources at Citi indicated to me if it does a deal it will be with a depository institution that has minimal branch over lap with current operations, not a broker.
So, then the next, obvious question is “who fits the bill”? In order to figure that out, let’s look at what Citi was trying to accomplish with the Wachovia deal. The following image has the Red (Citi) and Blue (Wachovia) branch coverage post then proposed merger.
Who then, could give Citi this type of coverage?
With 1600 branches throughout DC, Alabama, Tennessee, Virginia, Florida, Georgia, Maryland, Arkansas, Mississippi, N. & S. Carolina, Ohio and West Virginia SunTrust Banks (STI) looks to fit the bill.
SunTrust is fresh off a $3.5B Treasury infusion. Last Thursday it reported that Q3 profit fell 25 percent, hurt by the effects of the credit environment. Net income fell to $307.3 million, or 88 cents per share, from $412.6 million, or $1.18 a share, a year earlier. Revenue rose 20.7 percent to $2.46 billion. SunTrust set aside $503.7 million for loan losses, up from $147 million a year earlier.
Earlier this year, SunTrust announced plans to dispose of its 43.6-million-share stake in Coca-Cola (KO), worth roughly $2 billion to bolster capital. It has held the soft drink maker’s shares since 1919. That move would make it more appealing to a potential suitor.
Citi seems intent on doing something, Suntrust may just be the best of what is still out there..
Disclosure (“none” means no position):Long GS, C, none
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Housing’s Head Fake
One month does not make a trend…
I am finding it real hard to believe that we may be bear the bottom of this housing mess.
I am solidly in the camp that it does not turn until the end of 1009 at the earliest. I have put the reasoning in this post from the Value Investing Congress.
Since then we have seen the employment picture deteriorate and banks like JP Morgan (JPM), Bank of America (BAC) and Wells Fargo (WFC) have tightened LTV levels down to 65% in many of the hardest hit markets. How does any of the situations, far from dictating a housing rebound, not infer more damage ahead?
It just doesn’t add up….at all…
But, like I said before, if you are looking for that summer house, 2009 will be a great buying opportunity..
Disclosure (“none” means no position):Long WFC, none
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Jeremy Grantham: S&P To Go Lower (video)
According to Money Manager Jeremy Grantham, S&P (.INX) to Fall Below Fair Value.
He is buying though. He is focused on companies with “strong balance sheets”. That seems to be the overwhelming refrain from people who are buying in the market now. A companys’s balance sheet will matter more than ever.
Disclosure (“none” means no position):none
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Dow Chemical Insiders Buying Shares
Recent SEC filings today show Dow Chemical (DOW) insiders purchasing shares.
EVP Hienz Haller bought 10,000 shares Monday bringing his direct holding to just under 86K shares.
EVP Charles Kahlil bought 3,200 shares the same day bringing his direct holdings to 122k shares.
The executives spent in excess of $310k of their own money buying the shares in the first insider purchase since August. I would expect more to be filed in the coming days. I also recognize these are not huge purchases but again, I would expect more executives to step up to the plate soon.
Now Dow has the endorsement of Berkshire’s (BRK.A) Warren Buffett becoming the largest individual shareholder and it executives are, as Warren likes to say “eating their own cooking”.
Disclosure (“none” means no position):Long Dow, none
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Berkshire and Dow Chemical Complete Deal
Here are the final details and full SEC filing between Berkshire Hathaway (BRK.A) and Dow Chemical (DOW).
Purchase.
On the terms and subject to the conditions set forth herein, the Investor agrees that upon the furnishing of a written notice to it by the Company as set forth in Section 1.2(a) it will purchase, or will (upon giving written notice thereof to the Company) cause one or more direct or indirect subsidiaries of the Investor of which the Investor beneficially owns at least 80% of the equity interests (measured by both voting rights and value) (each, a “Permitted Transferee”) to purchase, from the Company an aggregate of 3,000,000 shares of the Company’s Cumulative Convertible Perpetual Preferred Stock, Series A (the “Convertible Preferred Stock”) convertible into shares of the common stock of the Company, par value $2.50 per share (the “Common Stock”), and having the powers, preferences and rights, and the qualifications, limitations and restrictions, as specified in the Certificate of Designations in the exact form attached hereto as Annex A (the “Certificate of Designations”), at a price per share of $1,000 (an aggregate price of $3,000,000,000).
Purchase for Investment.
The Investor acknowledges that the shares of Convertible Preferred Stock and the shares of Common Stock into which they are convertible (the “Securities”) have not been registered under the Securities Act or under any state securities laws. The Investor and each Purchasing Permitted Transferee (1) is acquiring the Securities pursuant to an exemption from registration under the Securities Act solely for investment with no present intention to distribute any of the Securities to any person in violation of the Securities Act, (2) will not sell or otherwise dispose of any of the Securities, except in compliance with the registration requirements or exemption provisions of the Securities Act and any other applicable securities laws, (3) has such knowledge and experience in financial and business matters and in investments of this type that it is capable of evaluating the merits and risks of its investment in the Securities and of making an informed investment decision, and has conducted an independent review and analysis of the business and affairs of the Company that it considers sufficient and reasonable for purposes of its making its investment in the Securities, and (4) is an Accredited Investor (as that term is defined by Rule 501 of the Securities Act).
Lock-up Agreement.
Until the earlier of (i) the fifth anniversary of the Closing Date or (ii) the announcement of a Make-Whole Acquisition involving the Company, the Investor shall not, without the prior written consent of the Company, directly or indirectly (x) offer, transfer, hypothecate, sell, contract to sell (including any short sale), grant any option to purchase or otherwise dispose of the Convertible Preferred Stock, any Common Stock received upon conversion of the Convertible Preferred Stock or its economic exposure to the Common Stock (“Lock-up Securities”), (y) enter into any Hedging Transaction (as defined below) involving Lock-up Securities, or (z) publicly announce any intention to do any of the foregoing. The foregoing restrictions shall not apply to any (m) transfer by the Investor and its Permitted Transferees of the Lock-Up Securities among themselves or (n) any offer, transfer, hypothecation, sale, contract to sell (including any short sale), grant of any option to purchase or other disposal of any Common Stock received in the form of dividends on the Convertible Preferred Stock or received in lieu of cash for Past Due Dividends in the event of Conversion at the Option of the Holder pursuant to Section 7 of the Certificate of Designations. “Hedging Transaction”, with respect to any Lock-Up Security, means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including any put or call option, swap or other derivative transaction whether settled in cash or securities) to obtain a “short” or “put equivalent position” with respect to the Common Stock, or any other agreement or transaction that reduces, in whole or in part, directly or indirectly, the economic consequence of ownership of such Lock-Up Security. For the avoidance of doubt, a Hedging Transaction shall not include a transaction that is deemed to reduce the economic consequence of ownership of a Lock-Up Security only because the Investor is acquired by, or merges with or into, or transfers all or substantially all of its assets to, another person pursuant to such transaction.
Misc.
● The Company will pay dividends on the Convertible Preferred Stock, quarterly in arrears, at a rate of 8.5% per annum, in either cash, shares of Common Stock, or any combination thereof, at the option of the Company.
● Holders of Convertible Preferred Stock may convert all or any portion of the Convertible Preferred Stock, at their option, at any time at the conversion rate of 24.2010 shares of Common Stock for each share of Convertible Preferred Stock, subject to anti-dilution adjustments as specified in the Certificate of Designations. In addition, if holders of Convertible Preferred Stock elect to convert the Convertible Preferred Stock in connection with the occurrence of certain changes in the ownership of the Company (as specified in the Certificate of Designations), they will be entitled to receive additional shares of Common Stock upon conversion under certain circumstances as further described in the Certificate of Designations.
Each preferred share has a value of $1000. At the conversion rate it equates to a $41.32 share price for Dow.
Simply put, let’s compare a buyer of the stock today vs Buffett. For the example lets say in 4 years Buffett convert and the stock site at $42.
Warren has earned 8.5% per year on his yield and today’s common buyer has earned 7.3% (assuming no dividend growth for 4 years, which has ever happened in almost 100 years). Warren now holds common shares that have appreciated 1%, the buyer of the common today has seen his holding appreciate 86%.
Risk?
The common share price falls. In this case the holder of the common suffers a loss and Buffett keep his 8.5%. But, Buffett is sitting on dead money in the conversion price. At this much of a discount, the common holders buying today have a far better risk reward than Buffett. Even if the common only rallies 50% from here, Buffett is still sitting on a conversion loss and the common holder is far better off.
FULL FILING
Disclosure (“none” means no position):Long Dow , None
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Ackman to Present on Target Tomorrow
Pershing’s Bill Ackman has a new plan for Target (TGT). His will present it tomorrow at 1:30. I will be on the presentation and comment accordingly.
New York, NY, October 28, 2008 – Pershing Square Capital Management, L.P. announced today that it will host a public presentation on Wednesday, October 29, 2008 where it will detail a potential transaction that Pershing Square believes will build long-term value for Target Corporation (NYSE: TGT) and all of its stakeholders. All parties are welcome to attend the presentation, which will be of particular interest to investors and analysts focused on retail, real estate, fixed income and credit.
Pershing Square is a long-term investor in Target. Since acquiring its initial stake in April 2007, Pershing Square has beneficially acquired slightly less than 10% of the company’s outstanding common stock.
Target’s thoughtful and constructive approach with shareholders has been instrumental to Pershing Square’s work in developing a potential transaction. Pershing Square believes that the insights gained by sharing the potential transaction in a public forum will benefit Target and all of its stakeholders.
The presentation will be based solely on publicly available information, as well as assumptions, estimates and projections of Pershing Square.
If anyone has any questions, I will try to ask them. Just leave them in the comments
Disclosure (“none” means no position):
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Interesting Chart
Reader Ryan sent this to me..
Check out both the huge volume and sell-offs at the end of the day recently.
You can view it here
The lesson? Until we get a string of days that do not nosedive at the close on huge volume, buyers might want to be cautious. Now is not the time to select index funds in the S&P (.INX) or Dow (.DJI) as they will plummet along with the market.
Now is the time for stock selection.
Disclosure (“none” means no position):None
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Tuesday’s Links
Obama on Radio calling for “redistribution of wealth” and the Constitution’s “fundamental flaw”