Fairholme’s (FAIRX) Bruce Berkowitz talks about his latest foray into health care.
Berkowitz top 5 holdings are
Berkshire Hathaway (BRK.A)
Canadian Natural Resources (CNQ)
Sears Holdings (SHLD)
DISH Network (DISH)
Mohawk Industries (MHK)
Disclosure (“none” means no position):Long SHLD, none
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UPGRADES
Coldwater Creek (CWTR)- CL King Accumulate » Strong Buy
SuccessFactors (SFSF)- Wedbush Morgan Hold » Buy
Zoran (ZRAN)- Longbow Neutral » Buy
Lincare (LNCR)- Wachovia Mkt Perform » Outperform
Pantry (PTRY)- Friedman Billings Mkt Perform » Outperform
Check Point Sftwr (CHKP)- Lehman Brothers Equal-Weight » Overweight
Corinthian Colleges (COCO)- Lehman Brothers Equal-Weight » Overweight
Host Hotels (HST)- Robert W. Baird Neutral » Outperform
City National (CYN)- Keefe Bruyette Mkt Perform » Outperform
DOWNGRADES
i2 Tech (ITWO)- Susquehanna Financial Positive » Neutral
F5 Networks (FFIV)- McAdams Wright Ragen Buy » Hold
Goldman Sachs (GS)- Wachovia Outperform » Mkt Perform
Spectrum Brands (SPC)- BMO Capital Markets Market Perform » Underperform
Research In Motion (RIMM)- JMP Securities Mkt Outperform » Mkt Perform
PG&E (PCG)- Jefferies & Co Buy » Hold
MGM Mirage (MGM)- JP Morgan Overweight » Neutral
Red Hat (RHT)- Oppenheimer Outperform » Perform
Entergy (ETR)- Banc of America Sec Buy » Neutral
AstraZeneca (AZN)- HSBC Securities Neutral » Underweight
British Sky Brdcst (BSY)- JP Morgan Overweight » Underweight
WuXi PharmaTech (WX)- Oppenheimer Outperform » Perform
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UPGRADES
Coldwater Creek (CWTR)- CL King Accumulate » Strong Buy
SuccessFactors (SFSF)- Wedbush Morgan Hold » Buy
Zoran (ZRAN)- Longbow Neutral » Buy
Lincare (LNCR)- Wachovia Mkt Perform » Outperform
Pantry (PTRY)- Friedman Billings Mkt Perform » Outperform
Check Point Sftwr (CHKP)- Lehman Brothers Equal-Weight » Overweight
Corinthian Colleges (COCO)- Lehman Brothers Equal-Weight » Overweight
Host Hotels (HST)- Robert W. Baird Neutral » Outperform
City National (CYN)- Keefe Bruyette Mkt Perform » Outperform
DOWNGRADES
i2 Tech (ITWO)- Susquehanna Financial Positive » Neutral
F5 Networks (FFIV)- McAdams Wright Ragen Buy » Hold
Goldman Sachs (GS)- Wachovia Outperform » Mkt Perform
Spectrum Brands (SPC)- BMO Capital Markets Market Perform » Underperform
Research In Motion (RIMM)- JMP Securities Mkt Outperform » Mkt Perform
PG&E (PCG)- Jefferies & Co Buy » Hold
MGM Mirage (MGM)- JP Morgan Overweight » Neutral
Red Hat (RHT)- Oppenheimer Outperform » Perform
Entergy (ETR)- Banc of America Sec Buy » Neutral
AstraZeneca (AZN)- HSBC Securities Neutral » Underweight
British Sky Brdcst (BSY)- JP Morgan Overweight » Underweight
WuXi PharmaTech (WX)- Oppenheimer Outperform » Perform
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Ever since the first post on this issue I have been looking into this further. Today’s Autozone (AZO) filing with ESL (Sears Holdings (SHLD) largest shareholder) gave me the information I needed.
From the Findlaw Legal site
“Delaware’s Analysis
Fiduciary principles have long been established to protect minority shareholders in interested transactions. This protection is embodied in the “entire fairness” standard, a reasonably stringent review. Under a fairly recent line of cases, controlling shareholders can avoid the entire fairness review by structuring their going-private transaction as a tender offer. As described in the Delaware Chancery’s decision In re Pure Resources, Inc. Shareholders Litigation, Delaware courts now apply two distinct fiduciary standards to boards evaluating a controlling shareholder’s acquisition of the remaining shares of a company.7 On the one hand, as detailed in Kahn v. Lynch Communications Systems, Inc., Delaware courts apply the “entire fairness” standard to long-form merger transactions involving a controlling shareholder:
“The concept of fairness has two basic aspects: fair dealing and fair price. The former embraces questions of when the transaction was timed, how it was initiated, structured, negotiated, disclosed to the directors, and how the approvals of the directors and stockholders were obtained. The latter aspect of fairness relates to the economic and financial considerations of the proposed merger, including all relevant factors: assets, market value, earnings, future prospects, and any other elements that affect the intrinsic or inherent value of a company’s stock. However, the test for fairness is not a bifurcated one as between fair dealing and price. All aspects of this issue must be examined as a whole since the question is one of entire fairness.” 8
Moreover, in Lynch “[t]he Court held that the stringent entire fairness form of review governed . . . [even though]: i) the target board was comprised of a majority of independent directors; ii) a special committee of the target’s independent directors was empowered to negotiate and veto the merger; and iii) the merger was made subject to approval by a majority of the disinterested target stockholders.”9 Even with these additional protective mechanisms, the Kahn Court determined that merger transactions involving a controlling shareholder contain an “inherent coercion” of the interests of minority shareholders, thereby requiring the more stringent “entire fairness” standard.
On the other hand, as demonstrated in Solomon v. Pathe Communications Corp., Delaware courts do not apply the “entire fairness” standard to tender-offer transactions involving a controlling shareholder if the tender offer is not coercive.10 Specifically, the Solomon Court found that “in the absence of coercion or disclosure violations, the adequacy of price in a voluntary tender offer cannot be an issue.”11 Recent decisions in In re Aquila12 and In re Siliconix Inc. Shareholders Litigation have followed this doctrine and found that “unless coercion or disclosure violations can be shown, no defendant has the duty to demonstrate the entire fairness of . . . [a] proposed tender offer.”13 The tender offers in Siliconix and Aquila contained a majority of the minority tender conditions and agreements to consummate DGCL §253 mergers at the same price as the tender offers. While the Chancery Court in those cases determined that the tender offers were not coercive, they did not specify factors for determining whether a tender offer is coercive.
In Pure Resources, while the Chancery Court “remain[ed] less than satisfied that there is a justifiable basis for the distinction between the Lynch and Solomon lines of cases,”14 it was unwilling to apply the Lynch “entire fairness” standard to tender offers involving a controlling shareholder. The Court found “the preferable policy is to continue to adhere to the . . . Solomon approach, while giving some greater recognition to the inherent coercion and structural basis concerns that motivate the Lynch line of cases.”15 In an effort to blend both lines of thought and expand upon the decisions in Siliconix and Aquila, the Court determined that a tender offer by a controlling shareholder would be noncoercive only when “1) it is subject to a nonwaivable majority of the minority tender condition; 2) the controlling stockholder promises to consummate a prompt [DGCL]§253 merger at the same price if it obtains more than 90% of the shares; and 3) the controlling stockholder has made no retributive threats.” Accordingly, although the distinction between a noncoercive tender offer and a long-form merger appears to rest on form over substance and has been questioned by commentators (e.g., Franklin Balotti), Delaware courts continue to honor the distinction.16
Conclusion
As seen by the Delaware Chancery’s decision in Next Level Communications, Inc. v. Motorola, Inc.17, target boards evaluating going-private transactions involving a controlling shareholder should continue to use the framework provided in Pure Resources. Whether a going-private transaction involving a controlling shareholder is structured as a merger or a tender offer, additional protective mechanisms should be employed to insulate target boards from breaching their fiduciary duties. For long-form mergers, “an approval of the transaction by an independent committee of the directors or an informed majority of minority shareholders shifts the burden of proof on the issue of fairness from the controlling or dominating shareholder to the challenging shareholder-plaintiff.”18 Alternatively, tender offers can avoid a coercive taint by including (i) a nonwaivable majority of the minority tender requirement, (ii) a back end short-form merger at the same price as the tender offer, and (iii) the absence of any retributive threats.19 Given the Chancery’s internal struggle with this issue, the Delaware courts appear likely to revisit the matter.”
Sears Holdings is a Delaware Corp. and would fall under its jurisdiction should this come up.
Any attempt by ESL to take Sears private would fail the “fairness” tests.
Price. Lampert has publicly said repeatedly that the market is undervaluing Sears shares and its prospects. Those statements alone would require him to offer a massive premium to the current price in order to satisfy the “fairness in price” requirement.
“Majority of minority”. In order to be free of a “coercive” offer claim, a majority of the minority shareholders would have to vote for the transaction. Does anyone really think Legg Mason, Pershing and Bill Ackman and Bruce Berkowitz, who all own shares in the $100 plus range would vote for a deal for anything less that what they bought shares at? Do we think they would demand a nice premium to even consider saying ok? Me too..
Those three hold 22% of the outstanding shares or, a virtual “majority of the minority”. Here is the kicker. As Lampert uses Sears cash to buy up shares to increase his ownership, he also increases theirs, giving them even more power in any deal.
Special deal for the big three to sell? Nope. This is what killed the Sears Canada deal. Pershing argued that Lampert achieved his “majority of the minority” by offering the banks that gave him their shares a higher price that the rest of the shareholders. The courts ruled that this is “unfair” to the remaining shareholders and ruled the “majority” Lampert had invalid. Without the bank shares being counted, Lampert lost his “majority”. The same scenario would hold here. Any deal the big three get, we would also.
The oft said “if Lampert owns 60% of the shares he can do whatever he wants” claims are patently false. As a shareholder, no matter how small, you do have rights…
Disclosure (“none” means no position):Long SHLD, none
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Here are the applicable portions.
Section 3.1 New Directors.
In accordance with the provisions of this Article III, the Company shall take appropriate actions, once nominees are identified satisfying the requirements of Section 3.2, to add three (3) new members to the Board (the “New Directors”). It is the intent of the parties that such additions shall occur as promptly as practicable, but in no case later than the Company’s 2008 Annual Meeting of Stockholders.
Section 3.2 Selection of New Directors.
(a) An independent search agency has been engaged to identify a nominee for one (1) of the New Director positions (the “Specified Director”) pursuant to criteria previously determined by the Nominating and Corporate Governance Committee and all of the directors shall be permitted to propose persons as suggested candidates for the Specified Director to such independent search agency. A candidate identified shall be considered by the Nominating and Corporate Governance Committee in accordance with its regular policies and procedures, which shall include, without limitation, consideration of such candidate’s background, competencies and experience. A candidate shall be recommended by the Nominating and Corporate Governance Committee as a nominee for election by the Board as the Specified Director only if he or she is (a) deemed to be “independent” pursuant to the Company’s corporate governance principles and the rules and regulations of the New York Stock Exchange and (b) reasonably acceptable to both ESL and a majority of the members of the Nominating and Corporate Governance Committee. Only a nominee who is recommended by the Nominating and Corporate Governance Committee shall be presented to the Board as a potential nominee for election as the Specified Director.
(b) Two (2) New Directors (the “Non-Specified Directors”) shall be appointed from nominees identified by ESL, including persons suggested by other directors to ESL who are reasonably acceptable to ESL (any such person, a “Candidate”). Each Candidate identified shall be considered by the Nominating and Corporate Governance Committee in accordance with its regular policies and procedures, which shall include, without limitation, consideration of such Candidate’s background, competencies, experience and affiliation with ESL (if any). Only candidates which are reasonably acceptable to both ESL and a majority of the members of the Nominating and Corporate Governance Committee may be recommended by the Nominating and Corporate Governance Committee for election to the Board. Either or both of the two Candidates may, at ESL’s discretion, be an officer of ESL and its affiliated investment entities. Each candidate shall qualify as “independent” pursuant to the Company’s corporate governance principles and the rules and regulations of the New York Stock Exchange. The Company will use its reasonable best efforts to have the Nominating and Corporate Governance Committee promptly recommend Candidates for election to the Board once candidates are identified satisfying the requirements above.
(c) Subject to the nomination of directors in accordance with the provisions of Section 3.2(a) and 3.2(b), the Company’s Board of Directors shall promptly take all action required to cause the Specified Director and Non-Specified Directors to be so elected.
Section 6.3 Future Sales and/or Transactions Involving an Acquisition of the Company.
(a) ESL shall not dispose or agree to dispose of any shares of Common Stock pursuant to any agreement, arrangement or understanding (whether or not in writing), including by way of merger or other business combination, at a price above the market price per share prevailing at the time of such agreement, arrangement or understanding, without taking appropriate steps to ensure that the purchaser of such shares simultaneously provides all other holders of Common Stock with an opportunity to dispose of a number of shares (representing, for each Company stockholder, the same proportion of owned shares of Common Stock as ESL proposes to dispose of) in such transaction on the same terms and conditions, including price per share, as ESL. It is understood that (i) sales in the open market shall be deemed to be at prevailing market prices and (ii) (a) the transfer of Shares of Common Stock from one ESL affiliate subject to this Agreement to another, (b) distributions by ESL to its shareholders or limited partners, and (c) sales to the Company or third parties approved by at least two directors representing a majority of the independent, disinterested directors unaffiliated with ESL, shall not constitute a disposition subject to this Section 6.3(a).
(b) ESL shall not pursue, either directly or indirectly, including as part of a group, a transaction resulting in the acquisition of all or substantially all of the shares of Common Stock not owned by ESL or by such group (including, for example, in a leveraged recap in which “stub equity” is left in the hands of some or all of the non-ESL stockholders) unless the following procedures and requirements are followed and satisfied. The Board shall establish a committee of independent, disinterested directors unaffiliated with ESL (the “Special Committee”) to review and evaluate any transaction (other than any such transaction in which ESL would be treated on the same basis as all other Company stockholders) proposed by ESL or in which ESL intends to participate, with full authority to negotiate and recommend the terms of such a transaction on behalf of the Company and the non-ESL stockholders. ESL will proceed only with a transaction recommended by the Special Committee, unless the acquisition is structured as a “non-coercive” tender offer, followed by a merger at the same price if the offer is successful, not subject to the test of “entire fairness” in accordance with applicable Delaware case law (e.g., the decisions involving Silconix and Pure Resources), assuming, for these purposes, that the Company had been incorporated under the laws of the State of Delaware and was subject to Delaware law.
(c) The provisions of this Section 6.3 may be enforced by any directors constituting a majority of the independent, disinterested directors unaffiliated with ESL or, in the absence of any such persons sitting on the Board, through a derivative action.
Section 6.4 Information Regarding Common Stock.
If ESL increases or decreases the number of Subject Shares it owns at any time prior to the Termination Date, ESL shall give prompt notice to the Company of such increase or decrease (which notice may be satisfied by a filing of a Form 4 with the Securities and Exchange Commission on a timely basis). If requested by ESL, the Company shall promptly provide ESL with the number of Outstanding Shares.
Section 8.1 Termination.
This Agreement and all of its provisions shall terminate upon the Termination Date; provided that Sections 8.3, 8.4, 8.5, 8.7, 8.8, 8.9, 8.10, 8.13 and, in the case of clause (b) below, 6.3 of this Agreement shall survive any termination of this Agreement. For purposes of this Agreement, “Termination Date” means the earliest of (a) the date upon which the Subject Shares shall, in the aggregate, constitute less than 25% of the Outstanding Shares, (b) the date upon which the Aggregate ESL Percentage shall exceed 50% and (c) the date upon which the Parties (which, in the case of the Company, shall have been authorized by at least two directors representing a majority of the independent and disinterested members of the Board unaffiliated with ESL) mutually agree in writing that this Agreement and all of its provisions shall no longer be in effect. Nothing in this Section 8.1 shall be deemed to release any Party from any liability for any breach by such Party of their representations and warranties or any other terms and provisions of this Agreement.
Disclosure (“none” means no position):None
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This was an interesting interview of the Borders (BGP) CEO and unfortunately way too short..
Jones talks about the consumer, the new direction, Barners & Noble (BKS) and other possible buyers.
Disclosure (“none” means no position):Long BGP, none
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I posted the agreement between Eddie Lampert and Autozone (AZO) this morning and got a flood of questions. Reader Jeff answered 90% of them with this post.
“EBITDAR- Earnings Before Dep./Amor, Interest, Taxes, Rent (lease payments).
Thus, the company can take on long term debt of 2.5x its annual EBITDAR. Relatively modest leverage.
The voting restriction for ESL is basically saying that, if he continues to accumulate, the shares he gets over a certain level (40% now, coming down to 37.5%), he will need to vote them in proportion to how the rest of AZO’s shareholders vote.
So, if all non-ESL shareholders vote 50/50, in aggregate, ESL will be required to vote any of its shares in excess of 40% 50/50 as well. This will stay in effect as long as ESL’s ownership remains in the range of 25% – 50%.
So Lampert gets his wish that they continue to recap a bit, taking on more leverage and buying back more shares, in exchange for some voting concessions.”
Now, something interesting. With the new repurchase allotment, Autozone will be repurchasing 8% of the outstanding shares. By default, this will bring Lampert’s ownership up to 44.2% without him buying another share.
That will leave 5.8% (338 thousand shares) left for him to purchase in order for him to invalidate the agreement and vote his shares as he wishes because he will then own 50% of the shares.
One had to wonder then, what is the point of the agreement? Was Lampert pushing for something now and has decided to back off in return for an 8% ownership increase via the repurchase?
It is the only explanation as the agreement simply by itself, for no alternative reason makes no sense and is meaningless.
Something is going on….
Ideas?
Disclosure (“none” means no position):None
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I posted the agreement between Eddie Lampert and Autozone (AZO) this morning and got a flood of questions. Reader Jeff answered 90% of them with this post.
“EBITDAR- Earnings Before Dep./Amor, Interest, Taxes, Rent (lease payments).
Thus, the company can take on long term debt of 2.5x its annual EBITDAR. Relatively modest leverage.
The voting restriction for ESL is basically saying that, if he continues to accumulate, the shares he gets over a certain level (40% now, coming down to 37.5%), he will need to vote them in proportion to how the rest of AZO’s shareholders vote.
So, if all non-ESL shareholders vote 50/50, in aggregate, ESL will be required to vote any of its shares in excess of 40% 50/50 as well. This will stay in effect as long as ESL’s ownership remains in the range of 25% – 50%.
So Lampert gets his wish that they continue to recap a bit, taking on more leverage and buying back more shares, in exchange for some voting concessions.”
Now, something interesting. With the new repurchase allotment, Autozone will be repurchasing 8% of the outstanding shares. By default, this will bring Lampert’s ownership up to 44.2% without him buying another share.
That will leave 5.8% (338 thousand shares) left for him to purchase in order for him to invalidate the agreement and vote his shares as he wishes because he will then own 50% of the shares.
One had to wonder then, what is the point of the agreement? Was Lampert pushing for something now and has decided to back off in return for an 8% ownership increase via the repurchase?
It is the only explanation as the agreement simply by itself, for no alternative reason makes no sense and is meaningless.
Something is going on….
Ideas?
Disclosure (“none” means no position):None
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AutoZone, Inc. (AZO) today announced that its Board of Directors has authorized the repurchase of an additional $500 million of the Company’s stock, bringing its current unused repurchase authorization to $608 million. Including the additional authorization, the cumulative share repurchase authorization approved by its Board since 1998 totals $6.4 billion.
Additionally, as part of the Company’s ongoing evaluation of its capital structure, the Company has decided to increase its adjusted debt / EBITDAR leverage metric to at least 2.5x from the previously established 2.1x. The Company believes this will better optimize its current capital structure and also reflect the ongoing strength of its free cash flow generation.
AutoZone also announced that it has entered into an agreement with ESL Investments, Inc. (with its affiliates, “ESL”) setting forth certain understandings and agreements concerning ESL’s continued investment in AutoZone. ESL currently owns approximately 36.2% of the outstanding AutoZone common stock. Pursuant to the agreement with ESL, the Company has agreed to use its commercially reasonable efforts to achieve at least the new 2.5x adjusted debt / EBITDAR leverage metric by the end of the Company’s second quarter fiscal 2009.
“We are very pleased to have reached this agreement with our long-term and significant stockholder, ESL, which was motivated, by our desire to continue to return excess capital to stockholders in the context of appropriate, mutually agreed governance arrangements,” said Bill Rhodes AutoZone’s Chairman, President and Chief Executive Officer. “We appreciate ESL’s belief in the Company and its management over the past eleven years and look forward to its continued involvement in helping us achieve our goals for the benefit of all stockholders.”
The agreement with ESL provides, among other things, that, should ESL’s percentage ownership of Company shares increase above certain thresholds, ESL will vote its shares owned above such thresholds in the same proportion as shares unaffiliated with ESL are actually voted. The initial threshold is 40%, which will reduce to 37.5% following the 2009 annual meeting of stockholders. The agreement also states the Company’s intention to add three directors in the near future, two of whom will be identified by ESL for consideration by the Company’s Nominating and Corporate Governance Committee, thereby increasing the Board’s size to 12 members. Thereafter, the Company expects to reduce the Board’s size to 10 members in conjunction with the 2008 annual meeting in December. The agreement also contains certain other protections for non-ESL affiliated shareholders as well as for ESL.
The agreement with ESL or certain of its provisions will terminate, except as the parties otherwise mutually agree, upon the earlier of the date upon which the shares (a) owned by ESL constitute less than 25% of the then outstanding shares or (b) owned by ESL constitute more than 50% of the then outstanding shares, provided that ESL has acquired subsequent to the date of the agreement additional shares representing above 10% of the then outstanding shares.
Disclosure (“none” means no position):None
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I started following the soon to be doomed park operator after a trip there last year. After a recent Hershey Park vacation, I am even more convinced they are done…
After large shareholders began selling and management began blaming god for poor results, I couldn’t wait for the latest excuse. Fortunately, you really only need wait a quarter.
At least they have begun to attempt some honesty with shareholders. Although, they still are blowing smoke up investors…well…
Dealscape Reports:
“The second-largest U.S. amusement park company, Six Flags Inc. (SIX), has been on a downhill ride over the last decade with its latest twist, a downgrade to selective default from CCC+ by Standard & Poor’s.
The move highlights the financial woes Six Flags has been suffering as the company has been hit hard by the slowing economy, particularly impacted by the rising price of gas, and intense competition from other forms of entertainment. The company has tried to save money with its recent move of exchanging $530.6 million in notes due in 2010, 2013 and 2014 for $400 million in bonds maturing in 2016, resulting in a net savings of $130 million. Additionally, the company has divested and closed some of its properties to free up more cash.
Despite these measures, Six Flags has not been able to stop the trend of losing money every year since 1998, plagued with a massive debt load of more than $2 billion due to overexpansion. With all the financial pressures that Six Flags has been experiencing, the only remedy for the theme park operator may be a merger with a stronger partner. However, when rival Cedar Fair Entertainment Co.(FUN) tested the M&A waters last year, it found no takers. So Six Flags’ ride may end in bankruptcy”
Six Flags is the only company I have ever seen that has a debt level ($2.3 billion) that is 14 times larger than it market cap ($160 million). Stunning….
Good news is that at $1.60 a share, you can skip a soda at the park and pick up three shares for the cost of the soda. Although, the soda at least will give you some enjoyment.
I do not buy the recent excuse du jour, gas prices. If anything, the regional parks ought to benefit as people will not travel long distances for vacations but seem more likely to do the day trip that is Six Flags. Witness this report
What is the problem? Simple really. A lousy experience that lacks any value.
Until that changes, expect nothing but more excuses, until the end, which, may not be much longer..
Disclosure (“none” means no position):none
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I thought this was a goner months ago?
Starbucks has perhaps realized it is not an entertainment company, but a coffee chain? By September, it is rumored the company will eliminate retail CDs sales in stores. Starbucks will offer just four CDs per store rather than the racks offering multiple CD choices customers currently there.
Starbucks says it was selling more than 4 million CDs a year. Now, if we divide it by the 14,000 location we get and average of 285 CDs per location or less than one a day. Why wasn’t this killed, oh maybe a year ago?
Now it isn’t clear if Starbucks is going to kill the whole division or not. It should. It is sucking resources and funds that ought to being put to better use. Maybe a dividend? Payoff some debt, now at $500 million vs less than $2 million a year ago? Maybe?
Over a year ago we first looked at this in a post and at least now they at least seem to be getting the point.
Now let’s not get all excited and run out and buy shares. Unless Starbucks axes the whole division, the move is just a drop in the bucket. At least if they nix it, we can then at least say they are getting things together. In now way does that constitute a reason to buy shares.
Far more needs to be done……….
Disclosure (“none” means no position):None
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I thought this was a goner months ago?
Starbucks has perhaps realized it is not an entertainment company, but a coffee chain? By September, it is rumored the company will eliminate retail CDs sales in stores. Starbucks will offer just four CDs per store rather than the racks offering multiple CD choices customers currently there.
Starbucks says it was selling more than 4 million CDs a year. Now, if we divide it by the 14,000 location we get and average of 285 CDs per location or less than one a day. Why wasn’t this killed, oh maybe a year ago?
Now it isn’t clear if Starbucks is going to kill the whole division or not. It should. It is sucking resources and funds that ought to being put to better use. Maybe a dividend? Payoff some debt, now at $500 million vs less than $2 million a year ago? Maybe?
Over a year ago we first looked at this in a post and at least now they at least seem to be getting the point.
Now let’s not get all excited and run out and buy shares. Unless Starbucks axes the whole division, the move is just a drop in the bucket. At least if they nix it, we can then at least say they are getting things together. In now way does that constitute a reason to buy shares.
Far more needs to be done……….
Disclosure (“none” means no position):None
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Fisher, SNS & SHLD, Gas, Google
– Phil was one of the greats
– Demand is falling
– Who to believe?
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Fisher, SNS & SHLD, Gas, Google
– Phil was one of the greats
– Demand is falling
– Who to believe?
Visit the ValuePlays Bookstore for Great Investing Books
So, if Hershey (HSY) is not going to be sold, it needs to acquire to keep pace with the new Mars & Wrigley (WWY) combo.
Recently Hershey reaffirmed its fiscal 2008 guidance and expects net sales growth to be in the range of 3%-4% and earnings per share-diluted from operations (EPS) to be $1.85-$1.90. They reported revenue of $4.9 billion in fiscal 2007. According to Reuters Estimates, analysts on average are expecting the Company to report revenue of $5.1 billion in the same period.
On another note:
Gene Marcial, Business Week’s Inside Wall Street Columnist, says Tootsie Roll is a buyout candidate:
Here is a review of the article:
1. Though the company has not performed well lately, as first-quarter sales tumbled, costs spiraled higher, and earnings are on a downward slope.
2. However, the “smart-money crowd” is starting to gather in the stock. That has lifted Tootsie’s share price since late April, when the stock traded at $23. It sprinted up to $27 by early June, where it has remained.
3. Tootsie Roll possesses many of the ingredients that make it a palatable buyout target; the company certainly needs new energy to spark a lift in sales, earnings, and stock price. And Tootsie Roll’s management hasn’t displayed the skills to improve the company in the current environment of rising commodity prices and stiffening competition.
4. Tootsie Roll’s chairman and CEO is now 88, and his wife, the company’s president and chief operating officer, is 76. They control some 76% of the class B voting stock and 54% of the common shares of the Chicago-based company, so the question of a hostile or unsolicited takeover at the Chicago-based company seems out of the question.
5. According to Mario Gabelli, “It looks like a sale will happen, although the big question is when.” Other big shareholders include Wells Capital Management, with a stake of 9.5%, T. Rowe Price (TROW), which holds a nearly 5% position, and Barclays Global Investors (BCS), with 4.3%.
6. Tootsie Roll is a well-recognized brand name, the balance sheet is strong with understated assets, cash flow, and dividend. But, earnings have been flat for years. And, that might attract its bigger rivals, which could see the prospect of rewarding synergies and potential growth in combining with Tootsie Roll. Such larger competitors include Hershey (HER), Mars and Wrigley (WWY).
Hershey needs to expand its offering and Tootsie Roll is both ripe for buying and an iconic brand to add to the stable. Even after the recent price increase. Tootsie sports a valuation of only 1.5 billion, roughly 1/4 that of Hershey.
One has to think that what Hershey would want is the name, close some outdated production facilities and consolidate operations and cost saving would surely be available.
PS. On a side note. A recent vacation to Hershey Park with the kids was a smashing success. First class amenities and and fantastic park. Not a single complaint to be had other than wishing we had chosen to spent more time there. Maybe next year….
Disclosure (“none” means no position):None
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