You all know how I feel about CEO’s who make guarantees. Dow Chemical’s (DOW) Andrew Liveris has done it. Here is the thing, based on his track record, there is absolutely no reason to doubt it will be accomplished.
Says Liveris: “We will deliver on these synergies, we will deliver on our new earnings profile. We have walked our talk with every single step we have taken. This is not yesterday’s Dow Chemical, it is tomorrow’s Dow Chemical, an advanced technology – high margin company that is now in pace with the Rohm & Haas deal. So frankly, a great opportunity at these numbers (Liveris was referring to the stock price).
Watch the video:
What to think? Liveris is as straight to the point as they come. There are few people out there with a BS radar as good as Buffett’s. The fact that Buffett wanted to do a deal (without having anything specific in front of him) after meeting Liveris can’t speak large enough volumes to the type of people Liveris is.
That being said it is time for value investors to start getting into Dow.
You all know how I feel about CEO’s who make guarantees. Dow Chemical’s (DOW) Andrew Liveris has done it. Here is the thing, based on his track record, there is absolutely no reason to doubt it will be accomplished.
Says Liveris: “We will deliver on these synergies, we will deliver on our new earnings profile. We have walked our talk with every single step we have taken. This is not yesterday’s Dow Chemical, it is tomorrow’s Dow Chemical, an advanced technology – high margin company that is now in pace with the Rohm & Haas deal. So frankly, a great opportunity at these numbers (Liveris was referring to the stock price).
Watch the video:
What to think? Liveris is as straight to the point as they come. There are few people out there with a BS radar as good as Buffett’s. The fact that Buffett wanted to do a deal (without having anything specific in front of him) after meeting Liveris can’t speak large enough volumes to the type of people Liveris is.
That being said it is time for value investors to start getting into Dow.
From the SEC 8-K Filing regarding Berkshire Hathaway (BRK.A) and Dow Chemical (DOW).
“On July 7, 2008 and July 8, 2008, respectively, the Company entered into equity commitment letters (the “Equity Commitment Letters”) with Berkshire Hathaway Inc. (“BHI”) and the Kuwait Investment Authority (“KIA” and, together with BHI, the “Commitment Parties”) pursuant to which the Commitment Parties agreed to acquire 3,000,000 and 1,000,000 shares, respectively, of cumulative convertible perpetual preferred stock of the Company, having a liquidation preference $1,000 per share (the “Convertible Preferred Stock”), for an aggregate consideration of $4.0 billion. These commitments are conditioned upon the closing of the Merger and are subject to other customary conditions precedent.
Under the Equity Commitment Letters, each share of the Convertible Preferred Stock may be converted at any time, at the option of the holder, into 24.2010 shares of the Company’s common stock, subject to customary antidilution adjustments and certain other adjustments, which represents an initial conversion price of approximately $41.32 per share. The conversion price reflects a premium of 20% over the average of the daily volume weighted average price per share of the Company’s common stock for the period from July 7, 2008 through July 9, 2008. On or after five years from the date on which the Convertible Preferred Stock is issued, the Company may, at its option, at any time or from time to time, cause some or all of the Convertible Preferred Stock to be converted into shares of the Company’s common stock at the then applicable conversion rate if, for 20 trading days within any period of 30 consecutive trading days ending on the trading day preceding the date the Company gives notice of conversion at its option, the closing price of the Company’s common stock exceeds 130% of the then-applicable conversion price. Dividends on the Convertible Preferred Stock are payable at the rate of 8.5% per annum, in either cash, common stock or a combination of both, at the option of the Company.
Under the Equity Commitment Letters, each Commitment Party has agreed to be subject to certain standstill provisions and not to transfer, hypothecate, sell or hedge the Convertible Preferred Stock, any common stock of the Company received upon conversion of the Convertible Preferred Stock, or its exposure to the common stock of the Company for a period of five years following the closing of the Merger, subject to certain exceptions.”
GE (GE) must be getting low ball offers for the unit.
GE said it continues to explore all options for the consumer and industrial operations, but believes it makes the most sense to spin off the entire unit to existing shareholders, keeping its leadership teams and employees intact. The company hopes to complete the move next year.
“As we explored our options for appliances, it became clear that the fastest, most efficient step we could take in completing the transformation of our industrial portfolio would be to focus on a possible spin-off of the entire unit,” General Electric Co. Chairman and Chief Executive Jeff Immelt said in a statement. “This is consistent with the strategy we have been executing to transform the GE portfolio for long-term growth and makes sense for GE shareholders.”
The spin-off would create a separate publicly traded company owner by GE shareholders.
Immelt is between a rock and a very hard place. He made a promise and failed to deliver. He has shareholders that have been frustrated since the turn of the century. He is “the guy who followed the guy (Jack Welch)”, and that is never a good place to be. In short, he now has to do something very drastic is a market that is very poor for sellers.
This is the best move for him to make now for shareholders but, it is not the move he wanted to make…
If I am being honest, I was pulling for JP Morgan’s (JPM) Jamie Dimon to be the new head of the bank.
Wachovia (WB) introduce CEO Robert Steel but the bank provided no details about its future direction other than to call “silly” the rumors that it will sell itself to its recently hired advisor, Goldman Sachs Group(GS). Steel suggested he would provided more details about the bank’s direction on July 22, when Wachovia fully reports and explains its second-quarter earnings results.
During a conference call presentation, Chairman Lanty Smith said banking regulators are “delighted” with the choice of Steel, a 28 year Goldman alumnus who left his position as under secretary of the U.S. Treasury to take the helm of the bank.
Steel has decades of experience in the banking industry, as both a banker and regulator but has no experience running a large commercial bank. Smith said during the presentation that finding a leader with extensive experience running retail banking operations, Wachovia’s main business, wasn’t a priority for Wachovia, which has lately found itself in the middle of both regulators and Department of Justice probes.
It would seem that possibly political and industry connection were at this point the priority.
Consider at the Treasury Department, he worked with lawmakers on legislation to strengthen the agency that regulates mortgage companies Fannie Mae (FNM) and Freddie Mac (FRE). Steel was also involved in JPMorgan Chase (JPM) spring bailout of the investment bank Bear Stearns (BSC).
If that was not enough,bank also said it has set aside $4.2 billion pretax to cover bad loans for the quarter, leading to an estimated second-quarter loss of about $2.6 billion to $2.8 billion.
The quarterly loss will equal $1.23 to $1.33 per share, excluding an expected write-down of goodwill and the bank declined to offer specifics on whether it needs more capital or might again cut its dividend
All in all, it is a mess but they got a guy connected enough to fix it. Time will tell
Disclosure (“none” means no position):Long WB,None
So, Credit Suisse (CS) today had a piece on Sears today that left me shaking my head. Thanks to Jud for the tip..
The post said: “CS: SEARS ISN’T AUTOZONE Sears Holdings (SHLD) has been trading like a retailer with a pulse lately, something that its fundamentals have argued against. Despite steadily declining sales and continued investor frustration with the merchandising initiatives at the retailer – Credit Suisse called it ”one of the most vulnerable companies in the sector” Wednesday – the stock has traded up about 2% over the last month, a period in which the average retail stock has fallen about 8%. Credit Suisse suggested the outperformance reflected some misplaced expectation on the part of investors that majority holder Eddie Lampert would clone the successful strategy of another of his retail holdings – AutoZone (AZO) – and graft that onto the Sears’ frame. AutoZone recently announced plans to leverage itself up to bolster its balance sheet, while increasing its share repurchase plan. However, Credit Suisse poo-poohed the idea that Sears would follow suit. Sears’ business is much more seasonal than AutoZone’s – with the bulk of sales hitting in the fourth quarter of the year – to make such a balance-sheet move functional. Investors have been disabused of the real-estate plays that could be engineered at Sears, which owns many of the sites where its stores are located. However, the waning value of the real estate market has made the property holdings less attractive. Sears has traded down about 2%.”
Okay. I think we pretty much know that Sears isn’t Autozone (AZO). Although, Sears Automotive, well, pretty much is but lets not dwell on that.
I think CS just felt the need to write about Sears. I mean Sears trades either up or down 2% on almost every trading day so the fact it has done that in the past month doesn’t even qualify as noteworthy much less newsworthy.
The AutoZone / Sears talk has nothing to do about Sears following the Autozone lead in leveraging up the balance sheet. It has to do with the majority shareholder of both, Eddie Lampert. The buzz is perhaps Sears Auto and Autozone get into biz together in some form. If one looks at that, there is a tremendous possibility and synergies. Lampert wants to expand his brand presence and maybe we find DieHard batteries and Craftsmen tools in Autozone? Maybe AutoZone expands by taking over some Sears Auto locations?
To be honest, I have yet to hear anyone talk about what CS claimed (Sears following Autozone by leveraging). I have heard a bunch about the auto synergies and that does make sense.
Chalk it up to a slow day at Credit Suisse?
Disclosure (“none” means no position):Long Sears, None
Let’s look closer at the Dow Chemical (DOW), Rohm & Haas (RHM) deal
First the video’s. Dow CEO Andrew Liveris on CNBC
Part 1:
Part 2:
Important things to note:
– Buffett wanted an investment in Dow Chemical BEFORE this deal came to the table after meeting Liveris and hearing about what is happening at Dow. – The $3 billion convertible Berkshire (BRK.A) converts in 5 years. – The deal, in keeping with Liveris’s stated acquisition criteria is accredive withing two years.
Rohm & Hass (ROH): Is the world’s largest producer of acrylic paint ingredients and also makes chemicals used in adhesives, packaging materials and personal-care products. Dow said the unit that will include Rohm & Haas’s business will have annual revenue of about $13 billion. Dow had $53.5 billion in sales last year.
The purchase will have pretax cost synergies of at least $800 million per year from increased purchasing power for raw materials, supply chain improvements and the elimination of redundant corporate services and governance, Dow said.
With the collective impact of these two deals, performance products and advanced materials will represent 69 percent of Dow’s total sales, on a 2007 pro forma basis, compared with 51 percent prior to these transactions. EDBITDA will change from 51% performance to 62%.
Debt to equity will remain under 40% after the deal. Note: Some of the proceed from the Kuwait deal will pay off initial debt used for the transaction so the 40% number is a post both transactions number. Dow has $1.6 billion in cash as of the last quarter and $9.5 billion coming. $4 billion will come from Berkshire and Kuwait meaning even without any additional pure (convertible aside) debt, Dow would retain $1 billion in cash on its books post deal.
Bottom line, Dow retains tremendous financial flexibility post deal. Look at it this way, do we really think Buffett would pony up $3 billion for a convertible that would convert flat or at a loss? Would he put up the cash of he thought the deal would cripple Dow or its earning power? Think about it… Clearly Buffett sees tremendous upside for both a Dow with and without Rohm & Hass.
“Berkshire’s (BRK.A) Warren Buffett has always said that “price is what you pay, value is what you get”. It is one of my personal favorites because it reminds us that the price of a stock and what you are getting for that price are not always commensurate. There are times you pay in excess of what you are receiving in value and times you pay far less.
This is one of those times.
I have no idea what the price of Dow’s stock will be in the future. I do know that, buying the stock at its current levels, yielding a growing 4.5% is a wise move long term. With earnings expectations above $3.50 for 2010 (the next expected trough), Dow currently sits at about 10 times those earnings. Should Liveris’s “well north” mean $3.90 a share or higher, then we have a 4.5% yielding company sitting at 8 to 9 times earnings…
All this does not take into account the endless possibilities of $9.5 billion coming into the bank this year….”
It would appear Warren agrees….
Now, much is being said today about the premium Dow is paying. Let’s look closer. The deal is only a 47.9% premium to Rohm and Haas 60-day average price and a 28.7% premium to its 2008 closing high. Liveris did point out the the share price of Rohm dropped 16% during the month the deal came together. If it had just stayed flat, the “premium wretching” we have been hearing about would be nil. With Rohm & Haas, Dow is now committing to industry trough (2010-2011) EPS of $4 a share, up 14% from the previous $3.50 a share announced earlier this year. Let’s not forget the EPS for the trough is an “in the bag” estimate, expect superior results.
Let’s look closer at the Dow Chemical (DOW), Rohm & Haas (RHM) deal
First the video’s. Dow CEO Andrew Liveris on CNBC
Part 1:
Part 2:
Important things to note:
– Buffett wanted an investment in Dow Chemical BEFORE this deal came to the table after meeting Liveris and hearing about what is happening at Dow. – The $3 billion convertible Berkshire (BRK.A) converts in 5 years. – The deal, in keeping with Liveris’s stated acquisition criteria is accredive withing two years.
Rohm & Hass (ROH): Is the world’s largest producer of acrylic paint ingredients and also makes chemicals used in adhesives, packaging materials and personal-care products. Dow said the unit that will include Rohm & Haas’s business will have annual revenue of about $13 billion. Dow had $53.5 billion in sales last year.
The purchase will have pretax cost synergies of at least $800 million per year from increased purchasing power for raw materials, supply chain improvements and the elimination of redundant corporate services and governance, Dow said.
With the collective impact of these two deals, performance products and advanced materials will represent 69 percent of Dow’s total sales, on a 2007 pro forma basis, compared with 51 percent prior to these transactions. EDBITDA will change from 51% performance to 62%.
Debt to equity will remain under 40% after the deal. Note: Some of the proceed from the Kuwait deal will pay off initial debt used for the transaction so the 40% number is a post both transactions number. Dow has $1.6 billion in cash as of the last quarter and $9.5 billion coming. $4 billion will come from Berkshire and Kuwait meaning even without any additional pure (convertible aside) debt, Dow would retain $1 billion in cash on its books post deal.
Bottom line, Dow retains tremendous financial flexibility post deal. Look at it this way, do we really think Buffett would pony up $3 billion for a convertible that would convert flat or at a loss? Would he put up the cash of he thought the deal would cripple Dow or its earning power? Think about it… Clearly Buffett sees tremendous upside for both a Dow with and without Rohm & Hass.
“Berkshire’s (BRK.A) Warren Buffett has always said that “price is what you pay, value is what you get”. It is one of my personal favorites because it reminds us that the price of a stock and what you are getting for that price are not always commensurate. There are times you pay in excess of what you are receiving in value and times you pay far less.
This is one of those times.
I have no idea what the price of Dow’s stock will be in the future. I do know that, buying the stock at its current levels, yielding a growing 4.5% is a wise move long term. With earnings expectations above $3.50 for 2010 (the next expected trough), Dow currently sits at about 10 times those earnings. Should Liveris’s “well north” mean $3.90 a share or higher, then we have a 4.5% yielding company sitting at 8 to 9 times earnings…
All this does not take into account the endless possibilities of $9.5 billion coming into the bank this year….”
It would appear Warren agrees….
Now, much is being said today about the premium Dow is paying. Let’s look closer. The deal is only a 47.9% premium to Rohm and Haas 60-day average price and a 28.7% premium to its 2008 closing high. Liveris did point out the the share price of Rohm dropped 16% during the month the deal came together. If it had just stayed flat, the “premium wretching” we have been hearing about would be nil. With Rohm & Haas, Dow is now committing to industry trough (2010-2011) EPS of $4 a share, up 14% from the previous $3.50 a share announced earlier this year. Let’s not forget the EPS for the trough is an “in the bag” estimate, expect superior results.
Berkshire’s (BRK.A) Warren Buffett finally sees the light!!!
Dow Chemical (DOW) said today that it has agreed to buy Rohm and Haas (ROH), the specialty chemical maker, for about $18.8 billion in cash with the help of Buffett.
Dow will pay $78 a share in cash, a 74 percent premium over Rohm and Haas’s closing price on Wednesday. Rohm and Haas will continue to do business under its own name, and it will maintain its headquarters in Philadelphia.
The new company will be the nation’s largest makers of specialty chemicals, and helps both companies gain scale at a time when commodities prices are still rising.
The deal is an all-cash one. In addition to debt financing from Citigroup (C), Merrill Lynch (MER) and Morgan Stanley (MS),Dow received an equity investment from Berkshire Hathaway and the Kuwait Investment Authority paid $3 billion and $1 billion respectively for convertible preferred securities.
“The acquisition of Rohm and Haas is a defining step in our transformational strategy to shape the ‘Dow of Tomorrow’ – a high value, diversified chemicals and materials company, creating the largest specialty chemicals company in the United States with a leading global position in performance products and advanced materials,” Andrew N. Liveris, Dow’s chairman and chief executive, said in a statement.
More on this later…
Disclosure (“none” means no position):long Dow,C, none
Boy, the rumor mill is working overtime on Sears Holdings (SHLD) in recent weeks… Let’s look again.
The NY Times is reporting: “The company’s management (Steve & Barry’s) held discussions over the Fourth of July weekend with Sears Holdings Corporation about a possible bailout or an acquisition of some of its labels, according to people briefed on the talks.
Sears and its Kmart unit, under the ownership of Edward S. Lampert, were said to remain interested in some of the labels, but that company was struggling as well. Steve & Barry’s, which is privately owned, had been one of the fastest-growing retailers in the country, opening hundreds of stores selling clothes under the names of Sarah Jessica Parker, Venus Williams and Stephon Marbury.”
It continued: “Steve & Barry’s merchandise might actually excite the Kmart customer, but it could be very complicated to do this without paying G.E. a lot of money,” said Howard Davidowitz, the chairman of Davidowitz & Associates, a retail consulting and investment banking firm. He contrasted the situation to the bargain-priced acquisition of the struggling Fortunoff chain by the owner of Lord & Taylor in March. Steve & Barry’s does not own the celebrity brands, but licenses their names, so Ms. Parker and others will retain some control.”
Now, I think it is safe to say we can rule out an acquisition or a cash infusion of the company by Sears. It really just does not seem to jive with what Lampert is doing at Sears.
What I think does make sense and would fit perfectly with Lampert’s current strategy would be either selling the brands in Kmart or an outright acquisition of the rights for some of them. It would be a way to draw shoppers into Kmart without the hassle of establishing a new brand.
Let’s not forget that Steve & Barry’s really kind of got themselves into this mess by operating as though the good times for the economy would never end. As long as it was chugging along, they were fine. But, as soon as it hiccuped, they had no cushion for themselves. The brands are still selling at the stores, it is just that management operated as though landlord concessions would continue infinitely, when they didn’t, ooops..
One also has to consider the online presence Sears has and the additional revenues that can be added through the brand sales there.
Watch the video on the announcement:
So, the brands have tremendous value for a chain looking to lure shoppers. Steve & Barry have to do something and one would think, contrary to what Davidowitz says, GE would be more than willing to make a few concession rather than right off another investment.
