Blackberry, “Fairness”, Stimulus, Inventory, Spinal Tap
– Which one is best?
– So, would this be censorship?
– Sad state when China is the one doing it right
– Are they really at all-time highs?
– A new interview……hilarious
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This is about as transparent as it gets…But, it could lead to something..
The Kuwait Investment Authority would consider increasing its support for Dow Chemical’s (DOW) disputed takeover of Rohm and Haas (ROH) if the terms of the deal were changed to account for the downturn, a person familiar with the matter says.
Dow failed to complete the $15bn (€11.5bn) deal after the collapse of a joint venture between Dow and PIC – an arm of the Kuwaiti Petroleum Corporation – that was supposed to contribute $7.5bn to help pay for the acquisition. Warren Buffett has agreed to contribute $3bn and the KIA was to have added $1bn. According to a person with direct knowledge of the matter, the KIA would consider putting up more money if there were new terms.
“Today, it is very difficult to complete this deal on the old terms,” this person added. “There would have to be a new price and new terms. The environment has changed so much and chemical companies are losing so much money.”
Rohm and Haas underlined the brutal conditions faced by the sector, reporting an 81 per cent fall in fourth quarter earnings from continuing operations.
The figures make it harder for Dow to justify paying its original price for the company. Rohm shares fell more than 1 per cent to $55.70 at midday in New York, well below the $78 per share Dow agreed to pay last year.
The KIA had not approached Dow to discuss increasing its investment in the deal, Dow said. It is also highly unlikely that KIA on its own would put in anything like the $7bn to $8bn Dow would need to close the Rohm deal.
However, an increased investment by the KIA strikes many analysts as an elegant solution to the break-up of the Dow-PIC joint venture.
“There is a concern as to Kuwait’s reputation for direct foreign investment,” says Ahmed Barakat, managing partner with Al-Sarraf & Al-Ruwayeh in Kuwait City who is not directly involved in the matter. “KIA could salvage that reputation.”
Initial talks between the Kuwaitis and Dow began in 2007. In November 2008, the deal was renegotiated to reduce the Kuwaiti contribution to $7.5bn from $9bn in recognition of the deterioration in the economy.
Even the revised terms, however, met with criticism in the Kuwaiti parliament, where questions were raised about the price tag and a $2.5bn break-up fee.
Dow has until July to take advantage of its one-year bridge loan for the deal. It reported a $1.55bn fourth quarter loss.
What do we really have? Kuwait has finally realized the obvious to everyone else. They have done irreparable harm to their reputation as a business partner. At all cost, they want to avoid the coming legal confrontation with Dow. Why? Discovery will lead to disclosure on internal communication with Dow and their deception will be laid bare for the world to see.
Recent accusation from Kuwait of bribery from Dow officials and “reviewing” other upcoming ventures only served to further cast doubt on the country as a business partner in the international community.
This “offer to help” is an olive branch to Dow. What will happen is Kuwait will commit more funding for the Rohm deal and in return, Dow will drop its seeking $2.5 billion in damages. Despite what Kuwait has done, they are still a valuable partner for Dow although Kuwait must now see that Dow does have options as it has been confirmed they are talking to Sabic (Saudi Basic Industies) to purchase to commodity businesses Kuwait had been scheduled to buy. One must come to the conclusion the Kuwaiti’s thought they were the only dance partner Dow had.
Dow dropping the lawsuit lets Kuwait off the hook and clears the way for future collaborations, a positive for both parties.
Like I have said all along, this will all get worked out…in due time…
Disclosure (“none” means no position):Long DOW. none
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I have been all over Starbucks (SBUX) for over 2 years now, someday they’ll listen. After two years of scoffing, dismissing and mocking those who would suggest the notion of discounting, calling it “diluting the brand”, Starbucks is chasing McDonalds (MCD) and Dunkin Donuts down the food chain (pun intended).
Today’s Memo from Howard Schultz.
To: All Partners
Date: February 9, 2009
Subject: Value and Everyday Affordability – The Starbucks WayPartners,
During these tough times, customers need to know they’re making a smart choice when they come to Starbucks. That they’re getting the world’s finest coffee, delicious food made with quality ingredients, and an experience they can’t get anywhere else. But they also need to know we’re listening to them, and that we’re helping them by making Starbucks an affordable, everyday value. We have taken some time to understand how Starbucks can deliver more value in a way that is both consistent with who we are, and relevant to the day-to-day realities consumers are facing. It was time well spent. We have tested concepts, conducted research, and most important, listened to our customers. I am very pleased to report that we have arrived at a value strategy that will appeal to customers without compromising our commitment to quality.
On March 3, we will introduce a selection of new pairings at $3.95. They combine our most popular beverages with our most popular breakfast items – and we’ve added a few new ones as well. Our pairings lead with our hand-crafted beverages. They offer our customers more affordability at breakfast time – not a free extra they wouldn’t have ordered anyway. And they come with the Starbucks Experience each and every day.
This move is the right thing to do for our customers. And we can do it while maintaining our high standards in sourcing, buying and roasting the finest coffee in the world. Starbucks success over the years has been in delivering a level of taste, quality and authenticity based on the coffee beans we start with and the experience created by our partners. The majority of our customers are coffee lovers and we need to trust them to find value and quality at Starbucks over and above fast food purveyors and other coffee companies.
At the same time, we will do more to tell our story. I talked to a Partner recently who was frustrated by the persistent misperceptions about our value. He was urging the company to be more aggressive in responding to the mythical claims about the $4 latte. With your help, that is exactly what we are going to do.
Did you know, for example, that ounce for ounce; our brewed coffee is competitively priced vs. others in most markets, and in some cases, is lower priced? And did you know that the average price customers paid for beverages for all of 2008 was under $3? We will be providing you more facts like these over the coming weeks, so you have the ammunition to dispel the myth — with customers and friends, online and in conversation. We’ll also be adding new offers over time that combine everyday affordability with an emphasis on why Starbucks is a smart choice for customers – in tough times and in good times.
I look forward to sharing more with you about the value we bring to customers, and I thank you in advance for playing a critical role in telling the story.
Onward,
Howard
Problem? Yeah, it is now an admission that everyone who has said they were too expensive were right. Had they done this last summer they could have played it as a “helping out the consumer” motive. Now it just smacks of desperation as sales plummet and customers continue the two year exodus to the “competition” Schultz & Crew always denied existed.
How is the competition doing?
Yeah….good thing they aren’t competition for Ole’ Howard. Will the price drop help? NO. Why? Starbucks is in reactionary mode and has no direction and no soul. They no longer know who they are and what they stand for.
Until they figure it out, shareholders will suffer. What really needs to happen is for Schultz to go. Since the firing of Jim Donald last year, the return of Schultz has not lead to any better leadership or decision making.
Schultz returned promising a return to what made the brand great and almost every decision he has made since then has been counter to what Starbucks once stood for. Because of that, the brand is in shambles…
A fresh face is needed….or at least an original idea…
Disclosure (“none” means no position):Loing MCD, none
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Ackman feels that like Wendy’s (WEN) and McDonalds (MCD) he will eventually prevail in Target (TGT)
Pershing Square IV Letter to Investors
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Brian Westbury makes some great points in this video..
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Ackman has taken it on the chin over Target (TGT) but is not giving up.
From the filing:
As of February 6, 2009, as reflected in this Amendment No. 4, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 72,890,835 shares of Common Stock (approximately 9.7% of the outstanding shares of Common Stock), which include shares of Common Stock and shares subject to certain stock-settled American-style call options. The Reporting Persons also have economic exposure to approximately 6,050,766 notional shares of Common Stock subject to certain cash settled call options, bringing their total economic exposure to 78,941,601 shares of Common Stock (approximately 10.5% of the outstanding shares of Common Stock).
Here is the trading data:
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So, there is a chart and a story going around regarding Berkshire’s (BRK.A) Warren Buffett that just does not jive to me. Hat Tip to “Davidson” for pointing bringing it to my attention..
First, here is the chart:
Here is the story that follows:
Fortune Magazine) — Is it time to buy U.S. stocks?
According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy – its GNP.
Fortune first ran a version of this chart in late 2001 (see “Warren Buffett on the stock market“). Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.
But he visualized a moment when purchases might make sense, saying, “If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you.”
Well, that’s where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham’s statement about the stock market: “In the short run it’s a voting machine, but in the long run it’s a weighing machine.”
Not just liking the chart’s message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing (outside of Berkshire Hathaway (BRKB) stock) but U.S. government bonds.
He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling – the Dow Jones industrials have dropped by about 10% since Oct. 17 – so presumably Buffett kept buying. Alas for all curious investors, he isn’t saying what he bought.
To examine this we need to go back the beginning.
One must remember that in the late 1960 Buffett closed the “Buffett Partnership” because at that time he felt “there were no values” in the general stock market. Yet, according to both the chart above and the story, Buffett would have been buying at this time.
If we fast forward to the mid 1970’s, a time when Buffett said he felt like “a guy in a whorehouse with a suitcase of cash” because stocks we so cheap, we see the above charts value level was actually below 50%. In fact, most of the largest positions in Berkshire’s portfolio, American Express (AXP), Coke (K), Gillette now PG (PG) and The Washington Post (WPO) were accumulted during this time. In fact, Buffett’s buying continued through the 1980’s and until the mid 1990’s when he then found equity values were overpriced, refrained from buying during the tech bubble and was called “out of touch” (he was later proven very right).
Again, looking at the chart we see during that at this time frame the chart values had crept back to the 75% level of the mid 1960’s when Buffett was a seller.
What is inmportant to note and what has been lost in the “Buffett is buying rhetoric” is that Warren’s three largest recent investments, totaling roughly $10 billion, Dow Chemical (DOW), GE (GE) and Goldman Sachs (GS) were NOT stocks purchases, they were preferred investments.
Essentially Buffett is betting their share prices will all rise, in the next 3 to 5 years, when the convertibles convert to common stock. Until then, he has a bond paying 10%. With Treasuries paying essentially nothing, Buffett has found a vehicle that pays 10% to park his cash.
Did Buffett pen the link article above? Yes. To be sure Warren is buying an interest in US companies as witnessed above, just not their common stocks (except Burlington Northern (BNI)).
Buffett’s preferred purchases are not an endorsement of cheap US equities, if anything it says he would rather be a bondholder than an equity one……for now.
Disclosure (“none” means no position):Long Dow, GE, none
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Gartman, Autos, “Get your Treasuries”, Solar, Climate change
– Sell dollars and buy loonies
– Just print it baby
– When Gregor speaks……listen
– Actual logic on the subject
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My readers, named “Davidson” by me has submitted the following piece…
He writes:
The panic in Obama’s recent speeches as he attempts to railroad the Democratic spending bill is without thoughtful analysis. Unfortunately, this reflects the misunderstandings of his advisors who believe that throwing spending at the lack of liquidity is the solution.
How wrong can so many people be!!!
The issue is that Mark-to-Market is providing a false view of the value of assets. Brian Wesbury and others have suggested a “Cash Flow” methodology, i.e. if the debt security is paying its interest and principal streams then it should be valued according to the risk of non-payment along bonds that are paying. This is a simple model and one that can be trusted as it is based on the realities of commerce.
This does not require another $800bil of spending. This requires 20min of discussion and a flip of the accounting switch. We may need a few guarantees as well.
Just where do we get people who cannot see the simplicity of this! It is Mark-to-Market that has caused many $billions of write offs. These need to be reversed and then let the market pricing mechanism get to work.
It is frustrating to watch so much intelligence go to waste and even do great damage because they are panicked.
For more on mark-to-market, here is a post I wrote in March 2008.
Here is a bit of a rant I wrote on it in May of 2008
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Spoke Friday with sources who have insight into the litigation between Dow Chemical (DOW) and Rohm & Hass (ROH). Some notes
– Delaware courts are “courts of equity”. Simply put, the Judge has a broad array of remedies short of forcing a merger. He could rule for or against “specific performance” and either force the merger or not and then decide on damages. Should he rule against Dow, they would have the option of an appeal.
– He also has the option to order specific performance but at a later date.
– The Judge did seem to recognize and agree that specific performance was a remedy of equity and that because he is in a court of equity, he won’t simply ignore certain realities outside of the contract.
– Dow is trying to impress on the court that those at Rohm & Haas who are fighting to close now, have no interest in the health or outcome of the company after the merger and that the well-being of the near 60,000 employees should be taken into account by the court.
For instance, the family of company founder Otto Haas, would receive $5 billion, Raj Gupta, the chief executive officer of Rohm & Haas would receive over $100 million and Paulson & Co. Inc., second-largest holder of Rohm & Haas stock, the value would be $1.5 billion. In short 3 groups receive nearly 50% of the proceeds of the sale.
Recently, David Bernick, an attorney for Dow, said the Haas family and other shareholders cared only about the huge payout, even more than the future of the company and its employees. “The Haas family apparently has no interest in the health of Rohm & Haas,” he said last week.
This is illustrated by the unwillingness of management to work with Dow at all on the closing date. What happens to the combined entity after the closing is of no interest to management.
– Paulson’s letter was self indulgent and old news. Dow has already considered (and publicly said so) and investigated the remedies he put forth in the letter. His offer to put money into an offering was gratuitous.
Separately, I was informed later in the day Friday (from other sources) that:
– Dow is in very active conversations with parties regarding the commodity business. The source said they believe that the primary party was Sabic or the Saudi Basic Industries Corp. You’ll remember they were the buyer for GE’s(GE) plastic business
More on this as I get more information..
Disclosure (“none” means no position):Long DOW
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The classics are always contemporary
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This is the latest 6th edition of the book with a forward from Seth Klarman & James Grant
Security Analysis , Sixth Edition
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Tom Russo, an excellent Buffett Style investor and a hell of a nice guy talks about last year..
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Quite possibly the greatest political speech ever given….
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Nancy? there only 300 million Americans…
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