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Phillip Morris Issues $1.25 Billion in Notes

Post author By ToddSullivan
Post date November 17, 2008
2 Comments on Phillip Morris Issues $1.25 Billion in Notes

What credit crunch?

From Phillip Morris International’s (PM) SEC Filing:

On November 17, 2008, Philip Morris International Inc. (the “Company”) issued $1,250,000,000 aggregate principal amount of its 6.875% Notes due 2014 (the “Notes”). The Notes were issued pursuant to an Indenture (the “Indenture”), dated as of April 25, 2008, by and between the Company and HSBC Bank USA, National Association, as trustee (the “Trustee”).

In connection with the issuance of the Notes, on November 12, 2008, the Company entered into a Terms Agreement (the “Terms Agreement”) with Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Goldman, Sachs & Co., as representatives of the several underwriters named therein (the “Underwriters”), pursuant to which the Company agreed to issue and sell the Notes to the Underwriters. The provisions of an Underwriting Agreement, dated as of April 25, 2008 (the “Underwriting Agreement”), are incorporated by reference in the Terms Agreement.

The Company has filed with the Securities and Exchange Commission a Prospectus, dated April 25, 2008, and a Prospectus Supplement (the “Prospectus Supplement”), dated November 12, 2008 (Registration No. 333-150449), in connection with the public offering of the Notes.

The Notes are subject to certain customary covenants, including limitations on the Company’s ability, with significant exceptions, to incur debt secured by liens and engage in sale and leaseback transactions. The Company may redeem all, but not part, of the Notes upon the occurrence of specified tax events as described in the Prospectus Supplement.

Interest on the Notes is payable semiannually on March 17 and September 17, commencing March 17, 2009, to holders of record on the preceding March 2 or September 2, as the case may be. Interest on the Notes will be computed on the basis of a 360-day year consisting of twelve 30-day months. The Notes will mature on March 17, 2014.

The Notes will be the Company’s senior unsecured obligations and will rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness.

For a complete description of the terms and conditions of the Underwriting Agreement, the Terms Agreement and the Notes, please refer to such agreements and the form of Notes, each of which is incorporated herein by reference and attached to this report as Exhibits 1.1, 1.2 and 4.1, respectively.

The big deal here is the rate, 6.8%. In this environment that is fantastic. It also speaks volumes about the balance sheet of the company. Bigger still is the fact the notes are unsecured.

Disclosure (“none” means no position):Long PM
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Merry Christmas, Your’re Fired: Jerry Yang

Post author By ToddSullivan
Post date November 17, 2008

If this is true, not only is he a truly incompetent CEO, he is also just an awful person..

Silicon Alley Insider Reports:

Yahoo (YHOO) will drop the axe on December 10, Kara Swisher says, smack in the middle of the holidays (earlier, Jerry said Thanksgiving).

The company is still reportedly planning to can about 1,500 Yahoos. A cut of that size would only roll the company’s workforce back to Q2 levels, and, in our opinion, it would leave Yahoo in a position where it might have to make further cuts next year. This is not the way to set the company up for a clean, fresh start.

In better news, Yahoo and AOL are reportedly far apart on price in their merger negotiations: AOL’s at $6 billion, Yahoo’s at $3 billion. Given how little interest either side has in doing this deal, it would almost certainly be a disaster if they did it, so better to just let it go. (If Yahoo can get AOL for $3-$4 billion, however, it should take it).

So, with shares at $10, does the $33 a share offer from Microsoft (MSFT) seem so insulting now? I already documented some firsthand information about the mental state of Yahoo employees as they have watch Jerry wash their saving away in some bizarre line in the sand stand, now they have the specter of wondering if they are the ones to go before the Holidays. Nice work Jerry.

Carl Icahn and several other investors who owned shares during the Microsoft talks all have said the same thing. Upper management and the Board at Yahoo are by far the worst bunch out there. It is hard to argue this is anything but a willing destruction of shareholder value or delusional thinking…too close to call.

Every piece of subsequent news to come out since then has only reinforced that…

Disclosure (“none” means no position):None
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The Fed Is A Trader?

Post author By ToddSullivan
Post date November 17, 2008

What id the Fed was not an “interest rate trader”?

I was reading the following article at the CATO Institute

The incoming administration must think about that possibility because the timing of boom and bust cycles seems to be shortening. The next bust could come five or six years from now — or about in the middle of an Obama second term. Should that happen, Mr. Obama would be unable to blame Republicans for the mess and would be tagged as the second coming of Jimmy Charter.

To avoid such a fate, Mr. Obama needs to stop the next asset bubble from being inflated by imposing a commodity standard on the Fed. A commodity standard (such as a gold standard) imposes discipline on a central bank because it forces it to acquire commodity reserves in order to increase the money supply. Today the government can inflate asset bubbles without paying a cost for it because the currency isn’t linked to the price of a commodity.

With a commodity standard in place, the government would also have price signals that would alert it to the formation of a bubble. Why? Because the price of the commodity would be continuously traded in spot and futures markets. Excessive easing by the Fed would be signaled by rising prices for the commodity. In recent years, Fed officials have claimed that they cannot know when an asset bubble is developing. With a commodity standard in place, it would be clear to anyone watching spot markets whether a bubble is forming. What’s more, if Fed officials ignored price signals, outflows of commodity reserves would force them to act against the bubble.

The point is not to deflate asset bubbles, but to avoid them in the first place. Imposing a commodity standard is a practical response to the repeated failures of central banks to maintain sound money and financial stability. What would be impractical is to believe that the next time central banks will get it right on their own.

It got me to thinking…

So, isn’t the Fed essentially a trader now? Just about once a month (assuming no inter-meeting action) they make a “trade” on interest rates (raise, lower, hold) based on the current information. The decisions they then make set the country on an economic course.

But, what if the time frame is just too short between meetings? We know based on all evidence the shorter the time frame we make between a decision the more likely that decision is going to be flawed. Yes, I know the Fed is filled with a bunch of smart folks with PH.D’s but history also tells us the number of letters following a name has no correlation to the ability to avoid making spectacular mistakes, only the ability to explain them away after (Mr. Greenspan?).

What if the Fed was only allowed to meet and make rate decisions quarterly? Berkshire’s (BRK.A) Warren Buffett has famously said that if an investor was only allowed to make ten investing decision in their lifetime, he was confident the overwhelming number of them would make far better decisions and be successful. One could say that perhaps because investors now know the Fed can almost be bullied into making inter-meeting decisions, they create the conditions needed to force it.

If that ability was taken away, then would we see less volatility? I’m becoming convinced the huge volatility we have seen for the past decade and the increasing activity of the Fed during that time span not totally correlated. It is a chicken vs egg scenario. Is the Fed activity a reaction to events, OR, are the events a reaction to Fed activity? I am leaning towards the latter.

Why are we to believe that the Fed making an almost monthly interest rate decision is any better for the economy that if they were only allowed to do it quarterly? It would place far less emphasis on “today’s” news. It would also lengthen the myopic focus of the market of what the Fed will do next week.

This is especially true when most of the actions from the Fed have no real effect on the economy for many months down the road. This means the Fed is then making another decision without any actual evidence whether or not the first decision was the correct one. Actually, they then make SEVERAL more decisions without knowing if #1 was correct.

We then have the scenario where the investing public in mass starts speculating on the effect of all the current decisions on the economy will be. Again, all this happens with no empirical evidence of whether or not any of the decisions were correct or not. That leads to a mass mentality and the boom/bust cycles we seem to be jumping in and out of.

I’m not sure a commodity peg would solve the problem either, but I’m pretty sure no one can make “long term decisions” on a monthly basis without any quantifiable feedback…

I do think we need to make some changes though as the booms and busts differ, but Fed activism remains the same..

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Ackman Discusses Sears Sale

Post author By ToddSullivan
Post date November 17, 2008
7 Comments on Ackman Discusses Sears Sale

From Pershing’s Q3 letter.

The reason for the post is I have gotten many email over the past few weeks asking “should I sell my Sears”. I have have said no, and it appears that Ackman agrees based on what was said above.

I sale reason was interesting. At the Value Investing Congress I attended at Ackman’s press briefing he said in a question regarding Sears (SHLD) and any potential activism on his part, “I think when we invest in a company with a controlling shareholder it is their activism we are dependent on”.

In short, Ackman has decided he does not want to invest in situations in which he is powerless to enact the change he wants in the time frame he wants it. Notice he did not say they were bad investments, just that he essentially did not want to NOT be the activist.

Disclosure (“none” means no position):Long SHLD
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Pershings Q3 Letter

Post author By ToddSullivan
Post date November 17, 2008

From Bill Ackman..

Pershing Square Q3 2008 Investor Letter

Get your own at Scribd or explore others: Business pershing square capi william ackman

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Jim Rogers: "We are all Doomed" (video)

Post author By ToddSullivan
Post date November 17, 2008

Not actually Mr. Rogers’ quote but the unmistakable tone of the interview.

Part 1: Will again short the dollar & this recession will be the worst since second World War.

Part 2: Obama will “tax capital” and “protect workers” and both have proven by history to be disasters.

Part 3: China, “selling China in 2208 is like selling the US in 1908”

Part 4:Bernanke and Paulson have not let the market work and are making the crisis worse…The current commodity sell0off has been a forced liquidation and prices are going much higher.

Disclosure (“none” means no position):
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Monday’s Links

Post author By ToddSullivan
Post date November 17, 2008

Not gone, Goldman, Gas, Vitaliy

– Bigger than 9/11?

– No bonus

– Still dropping

– In Barrons….congrats

Disclosure (“none” means no position):
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Hedge Fund Managers Congressional Testimony (video)

Post author By ToddSullivan
Post date November 16, 2008

Simmons, Soros, Falcone, Paulson, Griffin….Congress looks really bad here. They are asking basic tax questions of the Hedgies…Ought they know the answers?

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The End of Free Markets? (video

Post author By ToddSullivan
Post date November 16, 2008

3 economists weight in..

Australian economist Mark Thirlwell

James K. Gailbraith

Robert Reich

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ESL’s Eddie Lampert Files 13-F

Post author By ToddSullivan
Post date November 14, 2008

Some new holdings…….

New:
Fannie Mae (FNM)= 34 million shares
Capital One (COF)= 9.3 million shares
The Hartford (HIG)= 550k shares

Full filing

The Capital One holdings were files in an Amended 13-F later

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Jim Grant on Ben Graham (video)

Post author By ToddSullivan
Post date November 14, 2008

This is a classic…..thanks to reader John who emailed me the link. This is Jim Grant on Berkshire’s (BRK.A) Warren Buffett’s mentor.

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DOJ On The Side of Bills Fans

Post author By ToddSullivan
Post date November 14, 2008

After knowing InBev wanted to buy Budweiser (BUD) for half a year now, the Dept. of Justice struck a blow to keep beer prices down at Bills and Sabres games.

From the release:

The Department of Justice announced today that it will require InBev N.V./S.A. to divest subsidiary Labatt USA, along with a license to brew, market, promote and sell Labatt brand beer for consumption in the United States, in order to proceed with InBev’s $52 billion acquisition of Anheuser-Busch Companies Inc. The Department said that the transaction, as originally proposed, would likely have led to higher prices for beer in the Buffalo, Rochester and Syracuse, N.Y., metropolitan areas.

The Department’s Antitrust Division filed a civil antitrust lawsuit today in U.S. District Court in Washington, D.C., to block the proposed transaction. At the same time, the Department filed a proposed settlement that, if approved by the court, would resolve the lawsuit and the Department’s competitive concerns.

According to the complaint, Anheuser-Busch’s Budweiser brands, including Budweiser and Bud Light, and InBev’s Labatt brands, including Labatt Blue and Labatt Blue Light, are the two biggest selling beer brand families in Buffalo, Rochester and Syracuse. The original transaction would have eliminated competition between Labatt USA and Anheuser-Busch and resulted in higher prices to beer drinkers in those metropolitan areas.

Under the terms of the proposed settlement, InBev must sell Labatt USA and grant a license to the acquirer to brew and sell Labatt brand beer for consumption throughout the United States. The Department’s Antitrust Division must approve the purchaser of Labatt USA to ensure that the sale will restore the competition for beer sales in Buffalo, Rochester and Syracuse that existed before InBev purchased Anheuser-Busch.

“This divestiture will ensure that consumers will continue to benefit from the significant competition between the merging companies in upstate New York,” said Deborah A. Garza, Deputy Assistant Attorney General of the Antitrust Division.

In the large majority of markets in the United States, InBev accounts for less than two percent of beer sales and engages in very little competition with Anheuser-Busch. In contrast, sales of InBev’s Labatt beer brands in Buffalo, Rochester and Syracuse account for a significant portion of beer sales. The Department concluded that in those markets, the elimination of the competition between InBev and Anheuser-Busch would have resulted in higher prices for consumers. The proposed settlement will allow the purchaser of Labatt USA to sell the Labatt brands throughout the United States.

It the little things the government does that make you all warm and fuzzy towards it…

Disclosure (“none” means no position):None
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Paulson & Co. Files 13F

Arbitrage is the name of the game here…

Paulson & Co. added $1.8 billion of Budweiser (BUD), $1.4 billion of Rohm & Haas (ROH) and sold all of old Yahoo (YHOO).

Unlike most other funds reporting this week, Pauslon saw a 40% increase in holdings from $5 billion to $7 billion in value while the number of issue held stayed the same (22 to 23).

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Assured Guarantee Buys FSA From Dexia

Post author By ToddSullivan
Post date November 14, 2008

Another coup for a Wilbur Ross investment.

The WSJ Reports

Bond insurer Assured Guaranty Ltd.(AGO) on Friday struck a $722 million deal to acquire rival Financial Securities Assurance Holdings from French-Belgian lender Dexia.

Dexia, which has struggled amid the credit crunch, will receive $361 million and 44.6 million shares in stock, giving the company a 25% stake in Assured Guaranty.

While Assured Guaranty will assume $730 million of FSA debt, the insurer won’t get the toxic assets contained in FSA’s asset-management business. Those will be guaranteed by the French and Belgian governments and wind down.

Assured Guaranty and FSA have remained the only AAA-rated U.S. bond insurers, as others around them have suffered amid the slumping value of structured investments such as collateralized debt obligations.

The purchase is subject, among other things, to the three major U.S. credit raters saying the takeover won’t hurt either company’s financial strength ratings. Moody’s Investors Service and Fitch Ratings have been reviewing FSA for possible downgrade.

Assured Guaranty will sell stock to raise capital for the cash portion of the deal and has a back-up financing commitment from distressed-asset investor WL Ross & Co., which would purchase newly issued shares. The company has about 91 million shares outstanding.

Assured Guaranty has been able to thrive in recent months as rivals suffered amid reduced credit ratings. It has become a big player in municipal-debt insurance, with its market share climbing to 44% of insured activity in the direct new-issue U.S. public finance market last month. That compares with 1.1% a year earlier, according to Thomson Reuters.

When this mess is all over, one can make the argument that Berkshire Hathaway (BRK.A) and Ross’s Assured will be the sole AAA rated bond insurers out there. Without competition from the Ambacs (ABK) and MBIA’a (MBI) of the world, the price they will receive for their services will rise as they pick and choose the deal they want and get the terms they want.

Bond insurance will again be a god business…for smart people..

Disclosure (“none” means no position):None
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