Author: ToddSullivan

Carl Icahn filed an amended 13-D on XO Holdings (XO) tonight.

From the Filing:
“As of the close of business on March 14, 2008, the Filing Persons may be deemed to beneficially own in the aggregate 129,466,420 Shares constituting approximately 58.95% of the outstanding Shares (based upon (i) the 182,075,035 Shares stated to be issued and outstanding by Issuer, (ii) the 91,913,269 Shares beneficially held by the Filing Persons, (iii) the 10,041,858 Shares issuable upon exercise of the Warrants beneficially held by the Filing Persons and (iv) the 27,511,293 Shares issuable upon conversion of the 2,075,000 Convertible Preferred Shares beneficially held by the Filing Persons. The 27,511,293 Shares issuable upon conversion of the 2,075,000 Convertible Preferred Shares reflect an increase of 807,134 Shares, in the aggregate, since July 2, 2007, the date on which the Filing Persons filed Amendment No. 9 to the Original 13D, as a result of the liquidation preference on the Convertible Preferred Shares which accretes quarterly at a rate of 1.5%.”

Also:,

“On March 13, 2008, Arnos Corp., an entity affiliated with Mr. Icahn (“Arnos”), entered into a Note Purchase Agreement (the “Note Purchase Agreement) with XO Communications, LLC (“XOC”), pursuant to which Arnos purchased from XOC $75,000,000, aggregate principal amount of XOC’s Senior Unsecured Notes due April 15, 2009 (the “Notes”). The Notes bear interest at the rate of 11.5% per annum, which amounts will be capitalized and added to the principal amount of the Notes on April 15, 2008 and quarterly thereafter on July 15, 2008, October 15, 2008, January 15, 2009 and April 15, 2009 or, at the election of XOC, following approval by a majority of the Issuer’s disinterested independent directors, interest on the unpaid principal amount of the Notes may be paid on a cash basis, in which case such interest shall accrue from the preceding interest payment date, at the rate of 9.5% per annum, and shall be payable on April 15, 2008 and quarterly in arrears thereafter on July 15, 2008, October 15, 2008, January 15, 2009 and April 15, 2009. The obligations of XOC under the Note Purchase Agreement and the Notes are jointly and severally guaranteed by the Issuer and certain subsidiaries of XOC pursuant to a Guaranty Agreement, dated as of March 13, 2008 (the “Guaranty Agreement”). Copies of the Note Purchase Agreement and the Guaranty Agreement are filed as Exhibit 1 and Exhibit 2 hereto, respectively, and are incorporated herein by reference. Any descriptions herein of the Note Purchase Agreement or the Guaranty Agreement are qualified in their entirety by reference to the Note Purchase Agreement and the Guaranty Agreement filed herewith, respectively. “

The release coincides with the earnings release today from XO.

Disclosure (“None” means no interest): None

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We have all heard of “mark to market” accounting. In short, you value an asset based on its market value. But, what if there is no market?

This is what is happening with the current situation. Banks and lenders are basing values of assets, not on the performance of them, but on the “perceived value”. This is causing huge write-downs of the assets, that then forces the institutions to raise capital. How? A forced selling of these performing assets. Since everyone else is on the same boat, no one wants to buy them. If there are no buyers, there is no market. When I took Economics 100, a market was defined as a “place where buyer and sellers of good or services meet”. Unless that definition changed in the last 21 years, we should not force holders or these instruments to “mark to no market”.

When the market knows a seller has to dump an asset, the last thing it will get for that asset is a fair price. Now, the question is, are the assets really performing?

Since this all centers around mortgages, lets look. According to the FDIC, 98% of all real estate loans are current as of 12/31. Now, admittedly there has been some deterioration of this metric since then but it is nowhere near the level that would cause the pricing of mortgage backed assets today.

It is not a question of performance but of complexity. How can you value a CDO that you cannot understand the revenue stream from. When in doubt, in times like this, investors flee.

Thus we have the current environment. So, what happens? Intense pain the followed by a surge in the opposite direction. Think of it this way.

You live in a home and have a job. The value of your home has fallen and thus your “net worth” along with it. Has this “net worth” decline had any real effect on your day to day life? Is your EPS (income) affected by it? No. But, if you are a bank, you have to account for the decline in your home as a “loss” in your EPS. Now, assuming you are the bank, because the value of your home has fallen, and perhaps you have a home equity loan on it you have a problem. The holder of your home equity loan tells you that you have to liquidate assets in order to keep a “ratio” of assets to liabilities that they want.

Now you have a problem. You have to sell something and fast to raise $$ or reduce debt. It is a fire sale. Since you cannot sell more “shares” of yourself (like the bank can) to raise cash, you have to sell the home to the first bidder to reduce debt and raise cash. Problem, everyone looking at the home knows you have to do this. How low are those offers going to be below the fair value of the home? Way below….

As you start getting offers in for the home the banks sees them and now we have a problem because the money you will raise from the sale is much less than what everyone previously thought you would get. Your “net worth” or EPS if you were a bank would fall further because your new net worth would be based on this artificially low new estimate. Now you may have to sell the car also to meet their “asset levels”.

Now, out of the blue Grandpa comes in and gives you the money you need to restore your “asset levels” with the bank. Now, all of a sudden the home sale is not necessary and you can value your house at a fair market value and your net worth rises.

But, did anything actually happen? No. It was a mystical market driven event that turned into a very real problem for you. Were you late on a payment? No. Did you lose your job or revenue stream? No. Did you actually have to sell them home? No. Was the “quality” of the loans you had out less based on your payment results? No. But your “net worth” fell and rose and thus the above actions took place.

Had the value of you, the loan payer, been based on your performance on the loan, none of the above would have happened.

When the forced dumping by irresponsible holders of these mortgage assets stops, the value of what is left will rise, rapidly. When is does, the holders of what is left will then do the reverse of what they are going now. They will announce “write-ups” of the assets and EPS will surge and many of the institutions.

Thus is the current financial institutions situation.

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In a press release, H&R Block (HRB) announced it is selling it Option One Mortgage Servicing Business to Wilbur Ross for $1.1 billion.

In the release, HRB said “based on the balance sheet as it existed on January 31, 2008, the Buyer would have assumed approximately $1.07 billion in servicing advances made by OOMC on behalf of mortgage security holders at a formula price of $0.97 per $1.00 of outstanding servicing advances. Thus, at January 31 the Buyer would have paid approximately $1.04 billion to acquire such advances, less a retained receivable. However, the Company expects the amount of outstanding servicing advances to grow during the period between January 31 and closing, and the actual price to be paid by the Buyer for the assumption of servicing advances will be based on the formula price.”

This is Ross’s second billion dollar foray into the currently troubled financial sector in as many weeks. Last week he disclosed a billion dollar investment in municipal bond insurer Assured Guarantee (AGO).

Disclosure (“none” means no position):None

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So, $2 a share for Bear Sterns (BSC). Jamie Dimon just pulled off potentially the bargain of the decade at JP Morgan (JPM). Let’s look….

JPM is paying $236 million (in stock) for Bear. The CFO at Bear estimated its book value at $80 a share just a week ago.

Let’s assume he is way off. The fun thing about the market now is that we can assume anything we want. Since there is no market for the instruments being written off, we are in a “your guess is as good as mine” scenario.

Assume he was off and it was $40 a share. Eventually, the instruments will trade at a value and the Bear Stern portion of JPM will trade at its book value. That being said, the value of JPM’s investment in Bear is now worth $4.7 billion. That alone would add almost 4% to the value of JPM. That is dramatic when you consider JPM is paying .1% (that is one tenth of one percent) of its value for Bear. It is pocket change.

If he is right, and the true book value is $80, the value of Bear to JPM is now $9.4 billion or an additional 7.6% of JPM’s value. The same current risk applies.

The true value is somewhere in the middle. In an orderly sale, estimates today are running a value of Bear of about $7 billion. Look at it this way, the building that Bear Sterns owns and houses its operations is valued at over $1 billion. JPM essentially got all of Bears Sterns operations and assets for the cost of less than 1/3 of the building they sit in… stunning

No matter how you slice this, JPM shareholders ought to consider dropping Chase from the name and adding Dimon.

One potential issue… Bear employees own over 30% of the companies stock. Investor Joe Lewis has lost $1 billion on his investment and owns another 9.4%. Will the deal get approved by shareholders? Bear employees are understandable very angry, let not assume this is a done deal. At this price, how many other bidder might appear? Even at $10 a share, it is a steal…

Disclosure (“none” means no position):None

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Upgrades
Union Drilling (UDRL)- BMO Capital Markets Market Perform » Outperform
Salem Comms (SALM)- Barrington Research Mkt Perform » Outperform
FLIR Systems (FLIR)- AmTech Research Sell » Neutral
Carter Holdings (CRI)- Sterne Agee Hold » Buy
Warner Music Group (WMG)- Pali Research Sell » Neutral
Dexcom (DXCM)- Lazard Capital Sell » Hold
Hecla Mining (HL)- RBC Capital Mkts Sector Perform » Outperform
Quicksilver Gas (KGS)- JP Morgan Neutral » Overweight
Exxon Mobil (XOM)- Credit Suisse Neutral » Outperform
WuXi PharmaTech (WX )- Jefferies & Co Hold » Buy
Global Industries (GLBL)- Oppenheimer Perform » Outperform
Eastman Kodak (EK)- Citigroup Sell » Hold
Mylan Labs (MYL)- Citigroup Hold » Buy
Orient-Express (OEH)- UBS Neutral » Buy
Omniture (OMTR)- Robert W. Baird Neutral » Outperform

Downgrades
Newcastle Investment (NCT)- Friedman Billings Outperform » Mkt Perform
CollaGenex Pharm (CGPI)- Lazard Capital Buy » Hold
ICX Technolgies (ICXT)- Morgan Keegan Outperform » Mkt Perform
RadNet (RDNT)- Morgan Keegan Outperform » Mkt Perform
Technology Investmt Cap (TICC)- Friedman Billings Outperform » Mkt Perform
UCBH Holdings (UCBH)- Friedman Billings Outperform » Mkt Perform
National Atlantic Holdings (NAHC)- Citigroup Buy » Hold
Teva Pharm (TEVA)- Citigroup Buy » Hold
Goodrich Petroleum (GDP)- Sun Trust Rbsn Humphrey Buy » Neutral

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Also announced Sunday night……

“The Federal Reserve on Sunday announced two initiatives designed to bolster market liquidity and promote orderly market functioning. Liquid, well-functioning markets are essential for the promotion of economic growth.

First, the Federal Reserve Board voted unanimously to authorize the Federal Reserve Bank of New York to create a lending facility to improve the ability of primary dealers to provide financing to participants in securitization markets. This facility will be available for business on Monday, March 17. It will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities. The interest rate charged on such credit will be the same as the primary credit rate, or discount rate, at the Federal Reserve Bank of New York.”

In short, they are preempting another Bear Sterns…

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Bear (BSC) for $2 a share and now a quarter point rate cut…..tomorrow will be interseting..

http://online.wsj.com/article/SB120571194513840285.html??mod=djemalertNEWS

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In reviewing Whitney Tilson’s 75 page presentation of the current crisis, one page jumped out at me. They say a picture says a thousand words?

If you want to know what happened to housing and mortgages, this slide tells it all.

In reviewing Whitney Tilson’s 75 page presentation of the current crisis, one page jumped out at me. They say a picture says a thousand words?

You can download the presentation here or email me and I will send it to you.
Disclosure (“none” means no position):Tilson fan,

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Watching Kudlow & Company the other night and saw this..

Don Luskin and Larry have a great discussion on Bear Sterns (BSC) and the current liquidity situation.

Disclosure (“none” means no position):None

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Monday’s Picks

None

Friday’s Results
Joe Terranova recommends Calpine Corp. (CPN) $17.54 Close $17.22 LOSS

Guy Adami prefers Home Depot (HD) $26.48 Close $25.75 LOSS

Karen Finerman likes Goldman Sachs (GS) $165.44 Close $156.86 LOSS

Pete Najarian thinks Genentech (DNA) $81.43 is a buy. Close $78.83 LOSS

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 0-1
Jon Najarian= 4-1
Jeff Macke= 17-13
Tim Seymore= 9-6
Guy Adami= 18-19
Pete Najarian= 17-16
Karen Finerman= 16-20-1
Joe Terrenova= 0-1
2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%

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Through his control of “The Lion Fund” Western Sizzlin’ (WEST) CEO Biglari disclosed that on 3/12 he acquired interest in 2.4 million shares of Steak n’ Shake (SNS)

From the SEC filing:

1. Mr. Biglari, as Chief Executive Officer of Biglari Capital Corp., the General Partner of The Lion Fund, L.P. (“Lion Fund”), may be deemed to beneficially own the securities of the Issuer beneficially owned by the Lion Fund. Mr. Biglari disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
2. Mr. Biglari, as a member of a Section 13(d) group with respect to the securities of the Issuer with Philip L. Cooley, may be deemed to beneficially own an additional 15,300 shares of the Issuer beneficially owned by Mr. Cooley. Mr. Biglari disclaims beneficial ownership of such shares.
3. Mr. Biglari, as Chief Executive Officer of Western Acquisitions L.P. (“Western Acquisitions”), may be deemed to beneficially own the securities of the Issuer beneficially owned by Western Acquisitions. Mr. Biglari disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

So who is Biglari and what is Western Sizzlin’?

George, over at Fat Pitch Financials has done the most extensive work on the Western Sizzlin (WEST) to date. I suggest you read his reasoning for buying it here and here.

Regarding Bilgari and Steak n’ Shake, George addresses that in his most recent post on the subject.

Biglari has done some very interesting things at Western and his action are worth a closer look. I am going to look closer at this in the future.

Disclosure (“none” means no position):None

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This list get larger every week…

Cabela S Inc (CAB)-$7,654,000
Aquila Inc New (ILA)-$4,053,000
XTL Biopharmaceuticals Ltd (XTLB)-$3,881,000
Lions Gate Entertainment Corp (LGF)-$3,448,000
Enterprise Products Partners LP (EPD)- $2,623,000
Stereotaxis Inc (STXS)-$2,053,000
General Electric Co (GE )-$2,042,000
Ntelos Holdings Corp (NTLS)-$1,748,000
Builders Firstsource Inc (BLDR)-$1,706,000
Citadel Broadcasting Corp (CDL)-$1,690,000
New York Community Bancorp Inc (NYB)-$1,590,000
WebMD Health Corp (WBMD)- $1,524,000
La Jolla Pharmaceutical Co (LJPC)-$1,168,000
M & F Worldwide Corp (MFW)-$1,157,000
PSB Holdings Inc New (PSBH)- $1,019,000
Psychiatric Solutions Inc New (PSYS)-$1,019,000
Weis Markets Inc (WMK )- $1,005,000
Silverleaf Resorts Inc (SVLF)-$1,004,000

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Carl Icahn filed a 13D regarding his stake in Enzon Pharmaceuticals (ENZN) today.

Icahn now may be deemed to beneficially own, in the aggregate, 3,072,103 Shares, representing approximately 6.93% of Enzon’s outstanding Shares (based upon the 44,322,923 Shares

Also,

“The Reporting Persons have entered into a number of derivative agreements, commonly known as Total Return Swaps, with counterparties, which agreements provide that the profit to the Reporting Persons shall be based upon the increase in value of the Shares and the loss to the Reporting Persons shall be based upon the decrease in the value of the Shares, during the period from inception of the applicable agreement to its termination. The agreements provide that they settle in cash. In addition to the Shares which they beneficially own as shown in Item 5 above, the Reporting Persons currently have long economic exposure to an aggregate of 3,552,897 Shares through such agreements.”

Enzon:
Enzon Pharmaceuticals, Inc. (Enzon) is a biopharmaceutical company focused on the development, manufacturing and commercialization of medicines for patients with cancer and other life-threatening conditions. The Company has a portfolio of four marketed products: Oncaspar, DepoCyt, Abelcet and Adagen. Enzon’s drug development programs utilize several approaches, including its PEGylation technology platform. The PEGylation technology was used to develop two of Enzon’s products, Oncaspar and Adagen, and has created a royalty revenue stream from licensing partnerships for other products developed using the technology. The Company is also engaged in contract manufacturing for several pharmaceutical companies.

Why the interest?
“The Reporting Persons acquired their positions in the Shares in the belief that they were undervalued. The Reporting Persons have had conversations with members of the Issuer’s management during which the Reporting Persons expressed their concern with the current Share price. In addition, during these conversations, the Reporting Persons indicated that management should conduct a comprehensive review of strategic transactions that could enhance shareholder value, including a spinoff or other monetization of certain assets, such as royalty streams and products with limited market potential; or a sale of the entire company. No agreement, arrangement or understanding was reached between the Reporting Persons and management. The Reporting Persons intend to seek to have further conversations with management.”

Disclosure (“none” means no position):None

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