Not for nothing but Bloomberg does the best interviews. They actually let a person talk and do not interrupt every ten seconds.
Read a review and buy Taleb’s book “The Black Swan” here.
Disclosure (“none” means no position):
Categories
Thursday’s Links
Banks, GM, DUI, Intimidation, Lead Paint
– Walking away from foreclosures
– Read this article from 2006 on GM, has anything changed?
– DUI on a bar stool?
– This is juvenile
– Just when we thought these suits were finally over
Disclosure (“none” means no position):
Categories
Borders Files 8-K: Debt Reduced 39%
Borders filed its 8-K for Q4 this am.
Highlights:
• On a full-year basis, cash flow from operations improved by $128.6 million at year-end as SG&A expenses were reduced by $96.5 million and inventory was reduced by $326.8 million.
• Debt at year-end was reduced by $217.8 million to $336.2 million—a 39.3% reduction.
• Total consolidated 2008 sales were $3.2 billion, down 8.8% from 2007. For the fourth quarter, total consolidated sales were $1.1 billion, down 12.9% from a year ago.
• Comparable store sales for the fourth quarter at Borders superstores declined by 15.3% and declined by 4.7% at Waldenbooks Specialty Retail stores. For the full year, same-store sales declined by 10.8% at Borders and declined by 5.1% at Waldenbooks.
• On an operating basis, the company generated fourth-quarter income from continuing operations of $63.8 million or $1.05 per share compared to income of $74.3 million or $1.26 cents per share for the same period a year ago. On a GAAP basis, including non-operating charges, fourth quarter income from continuing operations was $28.9 million or $0.48 per share compared to income of $67.3 million or $1.14 per share a year ago.
“Our top priority is getting our financial house in order by continuing to reduce expenses, pay down debt and improve cash flow,” said Borders Group Chief Executive Officer Ron Marshall. “We are working with vendors and others to enhance cooperation and are pleased to have the continued support of our largest shareholder with the recently announced extension of our financing agreement with Pershing Square. At the same time, we are focused on driving sales through improved execution and by re-engaging with our customers. Borders is a strong brand with millions of loyal customers. I am confident that by shoring up our financial foundation and reclaiming our position as the bookseller for serious readers, we will ultimately secure a viable future.”
Fourth quarter consolidated sales were $1.1 billion, down 12.9% from a year ago. For the full year, consolidated sales were $3.2 billion, an 8.8% decrease from 2007. On an operating basis, Borders Group generated fourth-quarter income of $63.8 million or $1.05 per share compared to income of $74.3 million or $1.26 per share for the same period last year. On a GAAP basis, fourth-quarter income was $28.9 million or $0.48 per share compared to GAAP income of $67.3 million or $1.14 per share a year ago. The fourth quarter GAAP income includes non-operating charges—primarily non-cash—totaling $34.9 million. For the full year, on an operating basis, the company posted a consolidated loss of $16.2 million or $0.27 per share in 2008 compared to a loss of $0.4 million or $0.01 per share in 2007. On a GAAP basis, the full-year loss was $184.7 million or $3.07 per share, compared to a loss of $19.9 million or $0.34 per share in 2007. The GAAP full-year loss includes an after-tax, non-operating charge of $168.5 million, also primarily non-cash.
Excluding non-operating charges, SG&A as a percent of sales improved in the fourth quarter by 1.8% from 20.7% to 18.9% due to the company’s aggressive expense reduction initiatives, which were offset by de-leveraging due to negative sales trends. Expense reduction initiatives helped reduce SG&A dollar expenses by $52.1 million in the quarter. On a GAAP basis, SG&A as a percent of sales decreased in the fourth quarter by 0.3% from 20.6% to 20.3%. For the full year, SG&A as a percent of sales on an operating basis improved by 0.6% from 25.4% to 24.8% due to expense reductions, which drove an SG&A dollar decline of $96.5 million. On a GAAP basis, SG&A as a percent of sales for the full year increased by 0.4% to 25.9% compared to 25.5% in 2007.
Operating cash flow improved in the fourth quarter by $18.3 million to $219.6 million compared to $201.3 million for the period in the prior year. For the full-year, operating cash flow improved by $128.6 million to $233.6 million from $105.0 million in 2007.
Full-year capital expenditures were $79.9 million compared to $131.3 million in 2007 as management took aggressive action to reduce capital expenditures. In the fourth quarter, capital expenditures totaled $6.2 million and further reduction is planned. Year-end debt totaled $336.2 million compared to debt at the end of 2007 of $554.0 million, a decrease of 39.3%. Inventory productivity improved as the company reduced its 2008 year-end inventory investment to $915.2 million compared to 2007 year-end inventory of $1.24 billion, a 26.3% reduction.
Borders Superstores
Total sales at Borders superstores in the fourth quarter were $816.1 million, down 14.8% from a year ago. For the full year, total sales were $2.6 billion, down 9.4% from 2007. In the fourth quarter, comparable store-sales decreased by 15.3% at Borders superstores with books generating same-store sales of -11.7% and non-book categories generating same store sales of -21.1% for the period. For the full year, comparable store sales at Borders stores decreased by 10.8% with books generating same-store sales of -8.2% and non-book categories generating same store-sales of -16.1%. Borders.com sales were $26.4 million in the fourth quarter and $45.7 million for 2008, which included eight months of operation.
Operating income on an operating basis in the fourth quarter was $86.5 million compared to $102.1 million for the same period a year ago. On a GAAP basis, operating income in the fourth quarter was $17.1 million compared to $87.4 million the prior year. For the full year, operating income on an operating basis was $17.7 million compared to $56.9 million in 2007. On a GAAP basis, there was an operating loss of $100.9 million compared to income of $30.6 million in 2007.
The company opened one new Borders superstore in the U.S. during the fourth quarter and closed five, ending fiscal 2008 with a total of 515 superstore locations.
Waldenbooks Specialty Retail
Total sales in the fourth quarter at Waldenbooks Specialty Retail stores were $195.6 million, a 14.3% decline compared to the same period in 2007. For the full-year, total segment sales were $480 million, a decline of 14.7% from the prior year. Comparable store sales in the fourth quarter decreased by 4.7% and decreased by 5.1% for the full year.
In the fourth quarter, on an operating basis, operating income was $16.0 million compared to operating income of $26.5 million for the same period in 2007. On a GAAP basis, operating income was $11.5 million compared to $25.5 million for the same period in 2007. For the full year, on an operating basis, the operating loss was $16.7 million compared to an operating loss of $17.3 million for the same period in 2007. On a GAAP basis, the full year operating loss was $27.5 million compared to an operating loss of $21.4 million for the same period in 2007.
The company closed 84 Waldenbooks Specialty Retail locations in the fourth quarter, bringing the fiscal 2008 closure total to 112. Borders Group ended fiscal 2008 with a total of 386 locations in this segment.
International
Total sales within the International segment (which consists primarily of Paperchase) totaled $43.2 million in the fourth quarter, which is down by 21.7% compared to a year ago. Excluding the impact of foreign currency translation, segment sales would have increased by 0.2% for the period. For the full-year, International sales were $136.7 million, down by 5.8% compared to 2007. Excluding the impact of foreign currency translation, sales would have increased by 4.7% for the year.
On an operating basis, operating income for the fourth quarter was $6.0 million compared to income of $7.0 million a year ago. On a GAAP basis, operating income in the fourth quarter was $5.5 million compared to income of $6.6 million the prior year. For the full-year, operating income on an operating basis was $4.5 million compared to $8.4 million in 2007. On a GAAP basis, full-year operating income was $3.7 million compared to $8.0 million in 2007.
When you look the results, it makes sense for Borders to keep Paperchase rather than put it to Ackman as was agreed to yesterday. It is a stable and profitable segment.
Yesterday I said I was looking for increased cash flow and cost cutting.debt reduction. All three have been accomplished and when one consider the environment out there, the near 40% reduction in debt and quite impressive.
Borders is on its way. Engineering a turnaround in the worst economic climate in 30 years in not easy. Clear progress is being made. It won’t happen overnight, but, when the economy does rebound, a very lean and a far less debt laden Borders will turn results quickly.
Disclosure (“none” means no position):Long BGP
Categories
Lampert Ups Sears Canada Stake to 74%
This makes perfect sense and goes to a post I wrote 3/18 on the subject.
Sears Holdings, the giant retailer controlled by Mr. Lampert’s hedge fund, ESL Investments, bought 400,000 shares of Sears Canada on Monday, people with knowledge of the transaction told DealBook.
Add that to stock purchases made in December and early March, totaling 60,000 shares, and Sears now owns about 74 percent of its Canadian counterpart.
So what’s Mr. Lampert up to? He won’t say, and a spokesman declined to comment. But analysts and investors believe Sears could soon try to buy the remaining shares of Sears Canada that it doesn’t already own.
In the past year, Sears has been hurt by falling consumer spending. And the retailer faces the expiration next March of a $4 billion revolving credit facility it uses to pay suppliers and fund other working capital needs. Securing a new loan of that size could carry a hefty interest rate, given Sears’ already leveraged balance sheet, the ongoing credit squeeze and a continued drop in the company’s earnings.
But acquiring Sears Canada would actually reduce the company’s overall debt-to-earnings ratio and, therefore make it much cheaper to obtain a new multi-billion dollar loan. What’s more, it would cost Mr. Lampert and Sears virtually nothing.
Analysts point out that Sears Canada has more than $630 million in cash on its balance sheet and swaths of valuable real estate. Mr. Lampert could easily use Sears Canada’s own cash to finance a deal, or he could use Sears’ stock, which would be even cheaper.
According to a recent analysis by RBC Capital Markets, Sears could buy the remaining shares of Sears Canada for 23.38 Canadian dollars per share — an 18 percent premium to the current stock price — and still have cash that leftover that can be consolidated onto its balance sheet.
Sears Canada is also performing better than its American counterpart and any deal would be accretive to the combined company’s earnings.
Still, Mr. Lampert will have to deal with an old nemesis: fellow activist investor William A. Ackman, whose Pershing Square Capital Management owns 17.2 percent of Sears Canada and would likely to demand a big premium for its shares.
Under Canadian law, Sears must get the approval of all minority shareholders before making a deal for the whole company. That could lead to a showdown with Mr. Ackman, who isn’t shy about demanding a higher price.
Over two years ago, Mr. Ackman led a group of shareholders that rejected Sears’ first offer for Sears Canada. The price, $18 a share, or $792 million, was deemed too low by Pershing Square and other investors who voted down the deal. Mr. Lampert decided to walk away.
Mr. Ackman seems to believe another bid could be coming soon — Pershing purchased over a million shares of the thinly traded company in the last quarter. With the $4 billion revolver coming due next year, Mr. Lampert may not be so quick to walk away this time.
Lampert can effectively run his stake up to 83% before he is forced to deal with Ackman. At that point, he can simply just let his stake sit. Ackman has said in the past he want to avoid situations in which he cannot be a majority shareholder as he has no power to effect change.
It will come down to a test of patience. Lampert wants Sears Canada for it cash, Ackman owns shares for the buyout premium he thinks he’ll get from Lampert. Can Lampert wait longer for the cash than Ackman will wait to find a better use for the money he has invested in Canada shares?
One must also assume not much will happen on either front for a while. Lampert will probably just keep buying what is on the open market until he is only forced to deal with Ackman.
Either way it will make for a fun spectator sport this summer/fall
Disclosure (“none” means no position):Long SHLD
Something just has not been sitting well with me about the budget numbers being thrown around. I went and did dome digging and what I found was just scary…..really scary.
First things first. Here is the analysis of the proposed budget:
CBO Analysis of Obama Budget
Here are the main assumptions (click to enlarge):
Note: I excluded anything past 2012 because projections over a year or two are rarely accurate much less 5 or more.
Those numbers, just do not add up to me, for instance:
1- Rising unemployment and a sharp increase in GDP
– Since 1950 (as far back as CBO numbers go) there have been 18 instances in which unemployment rose year over year. In only 5 of those 18 did GDP also rise that year. The average GDP swing was 1.9% vs the 5.3% predicted by the CBO for 2009/2010. Of those 5, only two featured years in which the base year was a negative number. 1974-74 rose from -.5% to -.2% and 1991-91 rose from -.2% to 3.3%.
Put another way, the dramatic GDP increase the CBO predicts will happen in 2009/2010 in spite of rising unemployment has no actual prescedent in the past 60 years.
2- Inflation:
– The CBO projects inflation to run at an annual average rate of .725% from 2009-2012. Again, since 1950, we have only experienced a single 4 year span of inflation averaging anywhere close to this number. That was 1953 to 1956 when it averaged .57%. Good news? Not really. The 1953-58 period also featured GDP falling from 5.9% to 1.3% while unemployment rose from 2.9% to 6.8%. Both of these scenarios run counter to current CBO projections of increasing GDP and decreasing unemployment over the same span.
Note: It is extremely important to note the 1950’s and 1960’s had very low inflation as a rule due to the US being on the gold standard. Government could not “print” money the way they do now. Since the US went off the gold standard in 1971, inflation has averaged 4.4%. So despite an unprecedented and almost unfathomable increase in the money supply (inflationary) from the Federal Reserve and US Treasury in the past 6 months, the CBO predicts inflation to run 17% of its historical average. Almost defies logic.
Historically low inflation cannot accompany abnormal GDP growth. The most recent Kiplinger Report forecasts inflation in excess of 4% in 2010-11. That number seems more attune with historical prescedent.
Other possible issues. Foreigners are already balking as buying US debt due to the non-existant interest rates is now pays. That will force the Fed to raise rates to fund that massive deficit. The result will increase mortgage rates, consumer loan and business credit rates, slowing growth. Warren Buffett has called the current US Treasury market the “mother of all bubbles”. When it pops (they always do) the Fed will have no option but to rapidly raise interest rates to stop the selling and entice buyers. That will be a severe drag on any recovery
The CBO deficit projections rely on assumptions that run counter to modern economic history the last 60 years. The CBO seems to be relying on an almost”perfect world” where GDP grows, unemployment rises then falls rapidly and somehow inflation stays well under historical averages despite unprescedented inflationary activity by central bankers. If any one of those assumptions are off, the whole house of cards comes tumbling down.
Logic tells us we should assume the actual GDP numbers come in below the projection which means a deficit for 2009 of in excess of $2 TRILLION is not only possible, but very likely.
Disclosure (“none” means no position):
Categories
Wednesday’s Links
Oil, AIG, Skype, Options
– Time to start looking at this again
– The government scam for bank profits
– Coming to Blackberries and iPhone
– Do 90% really expire worthless?
Disclosure (“none” means no position):
This eliminated any liquidity concerns for at least the next year.
NN ARBOR, Mich., March 30 /PRNewswire-FirstCall/ — Borders Group, Inc. (NYSE: BGP) and Pershing Square Capital Management, L.P. today announced a one-year extension of the $42.5 million senior secured term loan from April 15, 2009 until April 1, 2010. The loan will be extended on its current terms, including an interest rate of 9.8%, which is substantially below market for comparable financing. At the same time, Borders Group is resetting the strike price on Pershing Square’s 14.7 million warrants to $0.65 per share, and the company will allow its option to “put” its U.K. based Paperchase gifts and stationery business to Pershing Square to expire.
“We are pleased to have the continued support of our largest shareholder as we focus on getting our company’s financial house in order,” said Borders Group Chief Executive Officer Ron Marshall. “The extension of the loan gives us some necessary breathing room, which is important in the current economic environment. We are also pleased to retain Paperchase, which is a successful and important business throughout the U.K. and other markets as well as in our Borders superstores throughout the U.S.”
Pershing Square currently owns 10.6 million shares of Borders common stock, or 18% of the shares outstanding. If Pershing executes its 14.7 million warrants, it would own 25.3 million shares, or 33.6% of the total.
Borders (BGP) is scheduled to release result today at 4pm (Central time?). Do not expect aq miracle. What you want to see is expenses falling, debt falling and sales at least stabilized. after what has happened the last 6 months, accomplishing that would be a huge boost.
Disclosure (“none” means no position): Long BGP
It is clear Bill Ackman has plans for Target. It is also clear in public he has been very complimentary of Target’s (TGT) management. It is also clear that he has avoided a direct confrontation with them for over year, until now. It is also clear that management has no intention of even listening to their largest shareholder who has made investors billions doing what he is proposing Target do, unlock value.
What does it all mean? Management at Target does not have a clue that the landscape is changing out there and being outright dismissive of shareholders while sales crater and the stock languishes, is well, not a very good idea.
Ackman has an interest in 8% of Targets shares. If you are a shareholder, you should want to know, if management says his idea are bad for shareholders, how many shares do they own. The answer? .31%. Not 31, not 3.1 but POINT .31% or less than 1%. Now that includes the Board all management. All of them.
So, what are they more concerned about really? Their jobs maybe? Ackman has an interest in 25 times more stock than they do. If you are a shareholder, wouldn’t that mean to you that he probably has a rather large vested interest in the health of the stock? Maybe management is truly more concern with their nice salaries & perks than the share price?
This is not to say that they do not care about it, just that their pay and benefits trump stock price.
Here is the most recent pay figures:
Now, it is nice to see them taking the free shares from the company. But, one has to ask, “how many shares are they actually using their own money to buy?. The answer? None. In the past year only Chairman Seinhafel made a singe purchase and that was the exercise of an option that he did not turn around and sell.
Meanwhile, Ackman, his investors and anyone else who bought shares did so with their hard earned money.
Changes on the Board would probably mean changes in management as Target sought to be managed by those with more experience in those area such as food, real estate etc.
I think it is pretty clear that managements actions are about “protecting our jobs”, not “maximizing shareholder value”.
If you are a shareholder, who are you going to want to hear from? Are you wondering why the blanket dismissal? Are you wondering, “well, what is management going to do other than sit wait for the economy to turn?”
To Our Shareholders:
You are cordially invited to attend Target Corporation’s 2009 Annual Meeting of Shareholders. The Annual Meeting will be held at 1:00 p.m., Central Daylight Time, on Thursday, May 28, 2009 at the Target Store located at 1250 West Sunset Drive, Waukesha, Wisconsin. Details regarding admission to the Annual Meeting and the business to be conducted are more fully described in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement.
At this year’s Annual Meeting, you will be asked to determine that the number of directors constituting our Board of Directors shall be 12, to elect the Class III directors to our Board of Directors for three-year terms, to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm, to approve the performance measures available under the Target Corporation Long-Term Incentive Plan, and to act on the shareholder proposal in the Proxy Statement, if presented at the Annual Meeting.
We hope you will be able to attend the Annual Meeting, but if you cannot do so, it is important that your shares be represented. We urge you to read the proxy statement carefully, and to use the WHITE proxy card to vote for the Board of Director’s nominees by telephone or Internet, or by signing, dating, and returning the enclosed WHITE proxy card in the postage-paid envelope provided, whether or not you plan to attend the Annual Meeting. Instructions are provided on the WHITE proxy card.
You should know that Pershing Square Capital Management, L.P. and certain affiliated entities, a group of hedge funds led by William Ackman that own Target shares and derivative securities (“Pershing Square”), have stated their intention to propose alternative director nominees for election at the Annual Meeting in opposition to the Board’s recommended nominees.
We strongly urge you to vote for the nominees proposed by the Board by using the enclosed WHITE proxy card and not to return any proxy card sent to you by Pershing Square. If you vote using a proxy card sent to you by Pershing Square, you can subsequently revoke it by using the WHITE proxy card to vote by telephone or Internet, or by signing, dating and returning the WHITE proxy card in the postage-paid envelope provided. Only your last-dated proxy will count—any proxy may be revoked at any time prior to its exercise at the Annual Meeting as described in the Proxy Statement.
Thank you for your continued support.
Disclosure (“none” means no position):None
AutoNation’s (AN) Jackson is clearly the class of this industry. Here he responds to yesterday’s news on GM (GM) and Chrysler.
On CNBC:
On FOX Biz:
From the dealership side, Mr. Jackson went on to say that the industry has stabilized now at about 9 million units, and with the emergence of the TALF this month and GM and Chrysler’s reorganization finally being materially addressed the future, over time, should improve.
“Credit is still the key and is beginning to improve, but leasing programs still need to be revived. Floor plan financing is still difficult to acquire as well.”
Mr. Jackson reiterated. “However, there is no question there may be a risk of a downward spiral with an uncontrolled bankruptcy of General Motors and Chrysler, but if the government will provide material support and direction, this will provide the necessary stability that should allow the companies to come back with a new future.”
Disclosure (“none” means no position):Long AN, none
Categories
Stunning Changes at Sears.com
Just three weeks ago I was complaining about Sears Holdings (SHLD) websites:
What is Lampert doing? Well ,first of all he basically bought the CEO to become VP of Sears. Lampert had made no secret in desire to increase Sears web presence. Currently it is a bit unorganized. You have Sears.com, Kmart.com, Sears2go — a mobile commerce Web site, Partsdirect.com (you can find almost any part for anything there), Landsend.com, managemyhome.com and Service Live (allows people to bid improvement projects out) and a few others.
Sears has valuable online brands, their Sears and Kmart site are some of the most visited retail site (although far behind #1 Amazon (AMZN)). What Sears needs is a way to consolidate the various properties in a cohesive site that could be very powerful. For instance. If I am on Sears.com and do a search for “home improvement”, I get a listing of dvd’s from Tim Allen’s sitcom by that name. I do not get choices for managemyhome.com or thegreatindoors.com. Just the dvd. Sears is not maximizing its properties with its search feature. In a way Sears has its online stores almost standing alone rather than under Amazon.com type umbrella.
Lampert has expressed in the past his desire to sell more direct to customers and expand Sears online presence. My thought is this move is a way for Sears to rapidly increase progress there.
“Ask and ye’ shall receive”
Sears has released a beta version of it’s new website and it is nothing short of fantastic.
It tackles my main complaint that I had to travel back and forth from the Sears to Kmart sites to check product availability. Sears now has the inventory combined.
Other features:
– Easy site to store pickup
– The ability to post products easily to Facebook, Twitter and other social networking sites.
– Extensive and easy to use inventory navigation to make search easier
– Easily usable “profile” section that contains address book, saved payment methods, order history, wishlists, registries, and “save for later”.
– A “virtual shopping” assistant
– Each product listing notifies the buyer if it is available for in-store pickup, site to store and if there are any special offers attached to it.
Now it has been no secret Lampert has been investing in Sears online presence for the past two years. It would appears the fruits of that labor may finally come to fruition.
Now from the “Irony” department. Just yesterday I posted and speculated of the now 7 week surge in Sears online traffic vs. other retailers. I have yet to get confirmation when the beta site went live, but when I do I will post.
I’d have a hard time believing the two events did not coincide…
Disclosure (“none” means no position):Long SHLD
This is the most backwards thing you’ll ever see. It also gives more confidence of the equity surviving even should they be forced to file.
But a bankruptcy filing isn’t imminent for the mall giant, according to people familiar with the matter, and General Growth’s (GGP) ability to remain out of bankruptcy shows the unusual dynamic between lenders and distressed companies in the recession-ravaged commercial-real-estate market.
Bondholders have refrained from forcing mall owner General Growth Properties into bankruptcy court, despite lack of a deal on a debt extension.
Under normal circumstances a company with as much past-due debt as General Growth would have been forced into Chapter 11 bankruptcy protection by now. Creditors so far have been willing to let deadlines pass because they believe there is little to be gained and much to be lost through a bankruptcy. General Growth’s mall operations are stable and many bondholders hope for a greater recovery outside of bankruptcy court.
“This is really rare,” said Kevin Starke, an analyst at CRT Capital Group LLC, a research company that tracks distressed securities. “It is corporate-bond limbo like I’ve never seen before.”
This piggybacks on the thesis laid out here recently that lenders want to avoid a Chapter 11 here at almost all costs.
It continues:
Many creditors say that General Growth’s management is doing a good job running the company. Its 200 U.S. malls, a portfolio second in size only to Simon Property Group Inc., generate enough cash to cover interest on the debt. But its properties are overleveraged and it lacks the borrowing capacity to retire those debts as their principal comes due.
“There’s no question that General Growth is a liquidity issue,” said Jeff Spector, an analyst with UBS AG. “The properties, for the most part, aren’t broken.”
General Growth, based in Chicago, isn’t the only real-estate borrower that is getting a reprieve from its lenders these days. Hundreds of property owners have had loans come due without a repayment made in recent months. But most lenders have agreed to extend loan terms, hoping that the credit market will improve.
For those who did not see it previously, here is the legal basis should it go into bankruptcy for the equity staying in tact. The point that cannot be forgotten here is the company is technically solvent and that alone separates this Chapter 11, should it occur, from 99% of all other Chapter 11’s when the companies entering them are insolvent.
It continues:
A person familiar with the bondholder talks said that, while some creditors are angry, none appears ready to insist on an involuntary bankruptcy petition yet. It is possible that bondholders didn’t go along with the consent solicitation primarily because they feared that making such a pledge would reduce the value of their bonds.
General Growth has told lenders that they’ll have more influence over the outcome if it restructures outside of bankruptcy court, according to people familiar with the talks. A bankruptcy filing could force the company to liquidate its assets for less than the whole company would be worth if it remained a single entity for the long term, these people said.
Another deterrent to an involuntary petition is that bankruptcy wouldn’t bring immediate payment of General Growth’s debts. “It’s such a large company that the bankruptcy would definitely last at least a couple of years,” said Heidi Sorvino, a lawyer leading the bankruptcy practice of law firm Smith, Gambrell & Russell LLP.
The timeframe could be shorter if General Growth did a prepackaged bankruptcy in which the creditors agree to terms prior to the company entering bankruptcy, Ms. Sorvino added. But wrangling so many creditors without the threat of a judge making and enforcing decisions is “almost impossible,” she said.
This is the classic “everyone wins” or “everyone loses”scenario. Banks facing liquidity issues cannot have billions tied up in a Chapter 11 proceeding for years. The viability of common equity, while in my opinion is safe in an 11, can never be assured once the courts get involved. By restructuring out of court and now, everyone wins…
Boilerplate ending for this investment:
Now as usual, a warning. I know people have been following into this investment. If you do, you must be prepared to lose all of it. There is no guarantee of the above outcome. Buying this stock now is essentially buying a call option on the company’s survival. It is hits, you win big, very big. If not, what you invested is worth nothing. I believe the above scenario plays out, I am also not going to be broke should it not.
Disclosure (“none” means no position):Long GGP
Categories
Tuesday’s Links
Lead Paint, CDS, Shareholders, Blowing up Wall St.
– Can we just stop this insanity?
– How to manipulate stock prices
– If nothing else comes of this crisis, more shareholder activism would be welcomed
– This is a sobering article
Disclosure (“none” means no position):
Some interesting trends have emerged since February. Remember when looking at these numbers that Circuit City began the liquidation process in late January.
Here is the full month of February 2009 (click to enlarge):
Week ending 3/7: (click to enlarge)
Week ending 3/14: (click to enlarge)
Here is the most recent weeks data from 3/21 (click to enlarge):
Let’s look at numbers 2 and 3, Wal-Mart (WMT) and Target (TGT). They have remained stable since February with very little fluctuation in numbers. Best Buy (BBY), Amazon (AMZN) and Sears (SHLD) is where it gets interesting. Sears has seen a 14% jump in traffic since February, growing each week. Now, my first thought was that this is coming at the expense of Sears’ other owned site, Kmart. A quick check there however shows that Kmart has also seen growth since February albeit less at 6%.
Best Buy has seen traffic fall 15% and Amazon has seen a 22% fall in traffic.
Why?
Now, Best Buy recently reported better than expected numbers for the quarter ending Jan. 2008.
From CNN Money:
In a forecast that seemed to lift investor spirits, the company said it expects to earn $2.50 to $2.90 a share for fiscal 2010. Analysts have forecast a profit of $2.45 a share, according to FactSet.
U.S. sales of mobile phones and accessories saw a triple-digit comparable- store gain while computer repair business saw a low double-digit increase and warranty sales, a low single-digit increase as Best Buy rolled out a premium Geek Squad protection plan. They were among categories that are more profitable for the company, helping to offset less profitable products such as notebook computers, analysts have said.
While the recession, rising job losses and decreased access to credit have all hurt Best Buy, the retailer is expected to gain further market share after its smaller electronics-chain rival Circuit City Stores Inc. filed for bankruptcy protection and liquidated its stores.
It should be noted that the Circuit City liquidation would not be baked into these numbers as it began in earnest after the reported quarters numbers were finished. So, where did the Circuit City web traffic go? The general consensus of the investing community as stated in the above quote was that Best Buy and Amazon would be the main beneficiaries of the Circuit City liquidation.
Based on the above charts, it appears shoppers may have skipped Amazon and Best Buy and gone to Sears. Let’s look closer:
Now, Sears has probably garnered increased internet traffic from it recent appliance push (coupled with people getting tax return money back to buy them) but one cannot escape the oddity of the timing of its traffic increase coupled with the dramatic decreases at both electronics competitors while Wal-Mart and Target held constant.
One also could assume that lawn and garden played a role as both Lowes (LOW) and Home Depot (HD) saw gains. While some of this is surely in the numbers, Sears would not expect to see the same surge as a Home Depot or Lowes because lawn season is coming around. Sears is not as large a player in the field and have smaller offerings than they do, especially when it comes to plants and yard items. The numbers here also show Sears/Kmart outpaced both home Depot and Lowes, not what one would expect unless there was a another reason.
That still leaves us with Sears’ large gain (+20% Sears/Kmart combined) corresponding to the large declines at both Amazon (-22%) and Best Buy (-15%) that cannot be explained away easily. Had they both kept share close or above previous levels, then the Sears gain could be said to be purely appliance/lawn and garden. But they didn’t, so we can’t explain it that way. Sears must be making gains in electronics traffic.
We have essentially 7 weeks of data in these results and no definitive conclusions can be drawn from it. But, the results do seem to be running contrary to what people were expecting to happen when Circuit City finally closed the door and does mean it requires close monitoring.
Now, this all means very little if Sears is not converting this traffic into sales and we will not know this until May as Sears does not report monthly numbers. This trend does bear very close attention. Should it continue, it is is very good news for Sears shareholders as it means the effort Lampert and the rest of the folks there have put into the internet properties may be paying off.
Last weeks data will be out soon and we can check back then …
Data from Hitwise
Disclosure (“none” means no position):Long WMT, SHLD, none
Categories
Cramer on Sears Holdings
Okay, saw what you want about Jim Cramer but he makes some very good points here about Sears Holdings.
For those inclined to skip the video, here are the main points:
1- Sears is levered to housing. When that stabilizes, Sears turns. Read this from 2007 on the subject
2- Great brands. More on that here
3- Naked shorts. Read more about that here
As an aside, I so much prefer the thoughtful Cramer to the character he plays on his nightly show…
Lampert’s recently released 2009 shareholder letter:
Disclosure (“none” means no position):Long SHLD
Categories
Mondays Links
Options, Biden’s Daughter, Coup, Sheila Blair
– If you are thinking about or so trade options, your daily reading ought to start with Adam
– So, should we expect the same press coverage Jena Bush got for drinking a gin and tonic or Palin’s daughter? Or is it “hands off” now it is a Democrat’s kid?
– Bronte makes some very salient points.
Disclosure (“none” means no position):