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The Week’s Best at VIN

Here are the week’s top stories at Value Investing News

Disclosure (“none” means no position):

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Icahn's Latest Letter to Yahoo (YHOO)

Yahoo (YHOO) cannot beat Icahn at this game. They know that, right?

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Roy:

While you may take issue with the content of my letter, I take issue with
your oversight of Yahoo! Again, I stand by my characterization of your “poison
pill” severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who “misrepresents and misstates the details” of the plan.
Much like the rhetoric in many well known political campaigns, you keep
repeating misstatements in the hopes that by repeating misstatements enough
times it will convince your shareholders that these misstatements are valid. For
example, you repeated, “the plan was fully disclosed at the time of its adoption
and should be no surprise to anyone at this point.” This is simply not true. The
egregious magnitude of the dollar amount cost of the plan was never fully
disclosed, nor was the email from your compensation advisor calling the plan
“nuts.” While you keep repeating that the severance plan was in the “best
interests of shareholders”, you neglect to mention that the financial cost of
the plan could be immense. The documents obtained during discovery and released
in the shareholder complaint show that Yahoo! estimates the maximum change in
control severance expenses to be a staggering $2.4 billion if Microsoft bids $35
per share for Yahoo! You neglected to mention that the true cost to an acquirer
may be even higher as the perverse change in control severance incentives may
diminish the work effort of Yahoo! employees. In case you do not understand the
plan, in addition to the $2.4 billion of severance expenses, I believe the plan
will negatively impact employee behavior and degrade the ability of an acquirer
to successfully integrate the acquisition. In the event of a change of control,
the employee may decide not to work as hard in the hopes of cashing in on a
robust severance package that awards up to two years salary and benefits,
$15,000 of outplacement expenses, and accelerated vesting of stock options and
restricted stock units. To make matters worse, it is not just the acquirer
firing the employee that can trigger the severance package but the employee who
may decide on his or her own to resign for “good reason” at any point within two
years of a change in control. It is quite obvious to me that this plan impacts
the price an acquirer would pay. Is it any wonder than an acquirer, once fully
comprehending this plan, might not wish to negotiate any further? I again call
upon you to honor your fiduciary duty to your shareholders and rescind this
“poison pill” severance plan.

You asked, “what exactly would happen to our Company if you and your
nominees were to take control of Yahoo!” I will give you my perspective on that.

o First, I would work to have the board replace your “poison pill”
severance plan with an acceptable alternative.

o Second, I intend to ask our new board to hire a talented and
experienced CEO (attempting to replicate Google’s success with Eric
Schmidt) to replace Jerry Yang and return Jerry to his role as “Chief
Yahoo”. Indeed, it was much speculated that Jerry would serve in the
CEO role temporarily until a permanent CEO was hired after the board
asked Terry Semel to resign.

o Third, I intend to ask our new board to inform Microsoft that unless
any alternative transaction can insure a $33 or higher stock price (of
which I am skeptical) all talks of alternative transactions are over.

o Fourth, I will ask our new board to offer publicly to sell Yahoo! to
Microsoft in a friendly and cooperative transaction.
———————————————————

o Fifth, to the extent Microsoft does not want to make a proposal, I
will ask our new board do a deal on search with Google, but only if it
contains termination provisions that would in no way impede a
subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

o Why don’t you, now that you have the opportunity, remove the “poison
pill” severance plan that I find to be ridiculous and thereby remove a
major obstacle to a Microsoft acquisition?

o In my opinion, Microsoft does not believe you will ever sell the
entire company on a friendly basis. So why don’t you stop dancing
around the subject and publicly offer to sell the company to Microsoft
for $34.375 per share and promise to cooperate completely?

o Why are you still giving hope to Microsoft that there is a possible
“alternative deal”? As long as there is the possibility of an
“alternative deal”, isn’t it obvious that Microsoft will not make a
bid for the whole company?

Sincerely yours,

CARL C. ICAHN

Disclosure (“none” means no position):None

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Icahn’s Latest Letter to Yahoo (YHOO)

Yahoo (YHOO) cannot beat Icahn at this game. They know that, right?

Roy Bostock
Chairman
Yahoo! Inc.
701 First Avenue
Sunnyvale, CA 94089

Dear Roy:

While you may take issue with the content of my letter, I take issue with
your oversight of Yahoo! Again, I stand by my characterization of your “poison
pill” severance plan and I find it humorous to see you attempt to defend it.

Roy, it is you who “misrepresents and misstates the details” of the plan.
Much like the rhetoric in many well known political campaigns, you keep
repeating misstatements in the hopes that by repeating misstatements enough
times it will convince your shareholders that these misstatements are valid. For
example, you repeated, “the plan was fully disclosed at the time of its adoption
and should be no surprise to anyone at this point.” This is simply not true. The
egregious magnitude of the dollar amount cost of the plan was never fully
disclosed, nor was the email from your compensation advisor calling the plan
“nuts.” While you keep repeating that the severance plan was in the “best
interests of shareholders”, you neglect to mention that the financial cost of
the plan could be immense. The documents obtained during discovery and released
in the shareholder complaint show that Yahoo! estimates the maximum change in
control severance expenses to be a staggering $2.4 billion if Microsoft bids $35
per share for Yahoo! You neglected to mention that the true cost to an acquirer
may be even higher as the perverse change in control severance incentives may
diminish the work effort of Yahoo! employees. In case you do not understand the
plan, in addition to the $2.4 billion of severance expenses, I believe the plan
will negatively impact employee behavior and degrade the ability of an acquirer
to successfully integrate the acquisition. In the event of a change of control,
the employee may decide not to work as hard in the hopes of cashing in on a
robust severance package that awards up to two years salary and benefits,
$15,000 of outplacement expenses, and accelerated vesting of stock options and
restricted stock units. To make matters worse, it is not just the acquirer
firing the employee that can trigger the severance package but the employee who
may decide on his or her own to resign for “good reason” at any point within two
years of a change in control. It is quite obvious to me that this plan impacts
the price an acquirer would pay. Is it any wonder than an acquirer, once fully
comprehending this plan, might not wish to negotiate any further? I again call
upon you to honor your fiduciary duty to your shareholders and rescind this
“poison pill” severance plan.

You asked, “what exactly would happen to our Company if you and your
nominees were to take control of Yahoo!” I will give you my perspective on that.

o First, I would work to have the board replace your “poison pill”
severance plan with an acceptable alternative.

o Second, I intend to ask our new board to hire a talented and
experienced CEO (attempting to replicate Google’s success with Eric
Schmidt) to replace Jerry Yang and return Jerry to his role as “Chief
Yahoo”. Indeed, it was much speculated that Jerry would serve in the
CEO role temporarily until a permanent CEO was hired after the board
asked Terry Semel to resign.

o Third, I intend to ask our new board to inform Microsoft that unless
any alternative transaction can insure a $33 or higher stock price (of
which I am skeptical) all talks of alternative transactions are over.

o Fourth, I will ask our new board to offer publicly to sell Yahoo! to
Microsoft in a friendly and cooperative transaction.
———————————————————

o Fifth, to the extent Microsoft does not want to make a proposal, I
will ask our new board do a deal on search with Google, but only if it
contains termination provisions that would in no way impede a
subsequent acquisition by Microsoft.

Now let me ask you a couple of questions, Roy:

o Why don’t you, now that you have the opportunity, remove the “poison
pill” severance plan that I find to be ridiculous and thereby remove a
major obstacle to a Microsoft acquisition?

o In my opinion, Microsoft does not believe you will ever sell the
entire company on a friendly basis. So why don’t you stop dancing
around the subject and publicly offer to sell the company to Microsoft
for $34.375 per share and promise to cooperate completely?

o Why are you still giving hope to Microsoft that there is a possible
“alternative deal”? As long as there is the possibility of an
“alternative deal”, isn’t it obvious that Microsoft will not make a
bid for the whole company?

Sincerely yours,

CARL C. ICAHN

Disclosure (“none” means no position):None

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Bruce Berkowitz on Sears Holdings

The following are an attendees notes from June 5, 2008 AAII NYC Conference on Sears Holdings (SHLD). Note Berkowitz recently added call options to his Sears position.

6. Sears Holding (SHLD) ($85.26) –

A. Lampert has cards up his sleeve. He is a smart guy. The price of SHLD means you get Eddie Lampert for nothing.

B. Obvious investment is real estate for Sears.

C. Claims lots of Free Cash Flow.

D. Bought back stock at high price.

E. Think about a young Berkshire Hathaway. Buffett struggled with the ailing textile mill for over 7 years before he pulled the plug. Look what Berkshire turned into.

F. Claims that K-Mart and Sears could disappear as retailers and all is still good. If they happen to hit, merely a bonus. “What if they become a Wal-Mart?” Don’t count on it, but could happen.

G. You can’t kill Sears. If you can’t kill it you should own it.

Disclosure (“none” means no position):Long SHLD,

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Andrew Liveris (DOW) Interview Part 1: Oil

This is part one of my interview with Dow Chemical’s (DOW) CEO Andrew Liveris. In this part we talked about oil, natural gas and how the JV strategy will effect their impact on Dow.

Hello Mr. Liveris

Andrew:
Hello Todd, nice to finally put a voice to the blog. Todd its been great reading your pieces……you track us very closely.

Todd:
Thank you. In full disclosure, I have been a shareholder for a few years now and quite a bit of my sons educational accounts is in Dow stock so I’m hoping you allow us to send them to the private school of our choice, not forced to a state one.

Andrew:
(laughing) I’m in I’m in. This is one of the nations core issues, but we won’t get into that I know we have limited time. You have very thoughtfully put together some questions forward.

Todd:
Yea…let’s get started..

Todd:
With the move in production to low cost nations underway, do you see a day when $125 oil and $12 nat gas become earnings drivers for the company as the price increases you are able to push on are in excess of input price increases? For example, say I make finished OJ. If the prices of oranges are going up, so are the prices of finished OJ. But, if I partner with an orange farmer, my input prices do not rise (or if they do, at a fraction of those buying oranges from the farmer), but I am then able to either increase my OJ prices along with other producers, OR become the low cost seller to increase market share. Does the analogy hold for Dow down the road?

Andrew:
It has been an interesting phenomenon as I have watched it rise since I got appointed. I almost feel like it’s a job index, you know years in office and years of oil price rises. I don’t think I’ve seen a decline except momentarily early last year.

Nat. gas is a US regional issue but will probably become a world issue but right now its still a US regional issue. Oil though is a world issue, and to your question then, if you have rising oil prices that are global in nature and all of its derivatives and they go up steadily then your point comes true. In essence for us it actually becomes a reason to raise prices but that is only as good as the consumer’s ability to take those prices. Unlike the 70s, which was the last time this really all occurred this time around we have the Chinese consumer, and frankly that actually adds some optimism that we should be able to as a globe pay more for these precious resources in the value chain.

Now, you can’t do it overnight otherwise you will kill the consumer, but over a period of time steadily rising inputs with strong new demand from places like China and other places (India, Middle East, Europe etc) then I think margin recalibration of a high oil price input all the way through the value chain including our part becomes very, very reasonable. Actually, the margin expansion which happened in the 70’s, Dow had a whole philosophy back then if you go back and track it called Reinvestment Pricing. Others used the acronym RIP and they were having fun with us. {laughter} It really was the same scenario but at that time the buoyant demand was more the US and that actually became the big problem as it created inflation and stagflation.

But this time around we have China so there is a chance your scenario will come to pass as long as it is not surging or a surge up and then a surge down which creates volatility.

Todd:
When you make the move to the Kuwait and Saudi ventures, do you see a significant input price drop on Dow’s part?

Andrew:
Well the Kuwait venture and the Saudi projects. Yes, I mean look firstly what we do there is we take advantage of natural gas prices way below world price and where you can see from our financials we are already making a lot of money in equity income from that. That is because those countries have said “I want to diversify our economies away from just oil and gas”.

We are a great diversification hedge for them, that is why they are prepared to give us low input prices way below world price, way below US price for sure. On oil, OK the key for us there is I’d like to call it the Exxon model. I mean Exxon (XOM), which is almost like nation-state in its own right, they basically take oil at world price or they produce it at cost and when they distribute in their production systems. They are efficient allocators of resource to petro-chemicals to fuels of all sorts not just gasoline and they run their whole machine for profitability which means that net net their input costs of petro-chemicals is lower because they run the whole machine. Now with Kuwait Petroleum and with Saudi Armco that is exactly the model we’re building.

We’re building a refinery integrated petro-chemical model where the owners of the oil, Kuwait and Saudi Arabia respectively will be able to efficiently allocate the oil within that entire machine and of course we’re a half owner the shareholders will benefit from oil integration so two physical hedges the gas one which is the stranded nat. gas with nation states that want to value add the gas vs burn it and second, refinery and oil integration with nation states who have oil who want to diversify away from just exporting the oil or who want to take the oil to places like China and want to participate in refineries and petrochemicals there.

Those are great physical hedges for the Dow Chemical Co. not well understood by the investment community. We’re working really hard to make them understand it and you know the icing on the cake is that we got paid $9.5 billion for that privilege.

Todd:
So, you anticipate 2010 is the year those JV’s (Kuwait and Saudi Arabia) should be up and running. ?

Andrew:
We are being conservative Todd. My recent investor presentation I showed 2011/2012 because stuff happens you know, TPC contracts capital costs etc. We’re pretty good as project managers and so are our partners so conservatively we are saying 2011/2012.

Part 2: US energy policy

Disclosure (“none” means no position):Long Dow, None

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Friday's Links

Primary, Touch, Oil, Settled

– All over but the pouting

– Looks pretty neat

– Bubble?

– So, they really did do it

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Friday’s Links

Primary, Touch, Oil, Settled

– All over but the pouting

– Looks pretty neat

– Bubble?

– So, they really did do it

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Friday's Upgrades and Downgrades


Upgrades
Phoenix Tech (PTEC)- Dougherty & Company Neutral » Buy
Cache (CACH)- Roth Capital Hold » Buy
TCF Financial (TCB)- Stifel Nicolaus Hold » Buy
CVB Financial (CVBF)- Credit Suisse Neutral » Outperform
Zoran (ZRAN)- Lazard Capital Hold » Buy
Vertex Pharm (VRTX)- Cowen & Co Neutral » Outperform
First Cash (FCFS)- Roth Capital Hold » Buy
Cogent Communications (CCOI)- RBC Capital Mkts Sector Perform » Outperform
Trex (TWP)- Sun Trust Rbsn Humphrey Neutral » Buy
Hot Topic (HOTT)- Friedman Billings Mkt Perform » Outperform
Royal Bank of Scotland (RBS)- Citigroup Hold » Buy
Northwest Airlines (NWA)- Lehman Brothers Equal-Weight » Overweight
UAL Corp. (UAUA)- Lehman Brothers Equal-Weight » Overweight
UAL Corp. (UAUA)- Soleil Sell » Hold
Cortex Pharm (COR)- Rodman & Renshaw Mkt Underperform » Mkt Perform

Downgrades
Integral Systems (ISYS)- Feltl & Co. Buy » Hold
Carpenter Tech (CRS)- JP Morgan Overweight » Neutral
Indevus Pharm (IDEV)- Ladenburg Thalmann Buy » Neutral
F5 Networks (FFIV)- Kaufman Bros Buy » Hold
Adobe Systems (ADBE)- Cowen & Co Outperform » Neutral
Regeneron Pharms (REGN)- Credit Suisse Outperform » Neutral
RSC Holdings (RRR)- UBS Buy » Neutral
United Rentals (URI)- UBS Buy » Neutral
H&E Equipment Srvs (HEES)- UBS Buy » Neutral
Hercules (HPC)- Jefferies & Co Buy » Hold
VeriSign (VRSN)- JP Morgan Overweight » Neutral
Haynes Intl (HAYN)- JP Morgan Overweight » Neutral
Allegheny Tech (ATI)- JP Morgan Overweight » Neutral
American Wdmrk (AMWD)- Robert W. Baird Outperform » Neutral
Parker-Hannifin (PH)- UBS Neutral » Sell
Caterpillar (CAT)- UBS Neutral » Sell
Kennametal (KMT)- UBS Neutral » Sell
PACCAR (PCAR)- UBS Neutral » Sell
Motorola (MOT)- Oppenheimer Perform » Underperform
Navistar (NAVZ)- UBS Buy » Neutral

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Friday’s Upgrades and Downgrades


Upgrades
Phoenix Tech (PTEC)- Dougherty & Company Neutral » Buy
Cache (CACH)- Roth Capital Hold » Buy
TCF Financial (TCB)- Stifel Nicolaus Hold » Buy
CVB Financial (CVBF)- Credit Suisse Neutral » Outperform
Zoran (ZRAN)- Lazard Capital Hold » Buy
Vertex Pharm (VRTX)- Cowen & Co Neutral » Outperform
First Cash (FCFS)- Roth Capital Hold » Buy
Cogent Communications (CCOI)- RBC Capital Mkts Sector Perform » Outperform
Trex (TWP)- Sun Trust Rbsn Humphrey Neutral » Buy
Hot Topic (HOTT)- Friedman Billings Mkt Perform » Outperform
Royal Bank of Scotland (RBS)- Citigroup Hold » Buy
Northwest Airlines (NWA)- Lehman Brothers Equal-Weight » Overweight
UAL Corp. (UAUA)- Lehman Brothers Equal-Weight » Overweight
UAL Corp. (UAUA)- Soleil Sell » Hold
Cortex Pharm (COR)- Rodman & Renshaw Mkt Underperform » Mkt Perform

Downgrades
Integral Systems (ISYS)- Feltl & Co. Buy » Hold
Carpenter Tech (CRS)- JP Morgan Overweight » Neutral
Indevus Pharm (IDEV)- Ladenburg Thalmann Buy » Neutral
F5 Networks (FFIV)- Kaufman Bros Buy » Hold
Adobe Systems (ADBE)- Cowen & Co Outperform » Neutral
Regeneron Pharms (REGN)- Credit Suisse Outperform » Neutral
RSC Holdings (RRR)- UBS Buy » Neutral
United Rentals (URI)- UBS Buy » Neutral
H&E Equipment Srvs (HEES)- UBS Buy » Neutral
Hercules (HPC)- Jefferies & Co Buy » Hold
VeriSign (VRSN)- JP Morgan Overweight » Neutral
Haynes Intl (HAYN)- JP Morgan Overweight » Neutral
Allegheny Tech (ATI)- JP Morgan Overweight » Neutral
American Wdmrk (AMWD)- Robert W. Baird Outperform » Neutral
Parker-Hannifin (PH)- UBS Neutral » Sell
Caterpillar (CAT)- UBS Neutral » Sell
Kennametal (KMT)- UBS Neutral » Sell
PACCAR (PCAR)- UBS Neutral » Sell
Motorola (MOT)- Oppenheimer Perform » Underperform
Navistar (NAVZ)- UBS Buy » Neutral

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"Fast Money" for Friday


FRIDAY’S PICKS
Jeff Macke is bullish on Microsoft (MSFT) $28.30

Guy Adami recommends getting long Intel (INTC) $23.87 after Nat Semi revenues topped expectations.

Pete Najarian likes Excel Maritime (EXM) $52.77 on increasing shipping rates.

Karen Finerman thinks J. Crew (JCG) $36.89 is a buy.

THURSDAY’S RESULTS
Jeff Macke recommends getting long Disney (DIS) $34.35 CLOSE $34.49 GAIN

Guy Adami suggests Starwood (HOT) $47.85 CLOSE $49.05

Karen Finerman and Pete Najarian both think Microsoft (MSFT) $27.54 is a buy CLOSE $28.30 GAIN

2008 Records:
Brian Schaeffer= 0-1
Carter Worth= 1-1
Jon Najarian= 4-3
Jeff Macke= 44-36-1
Tim Seymore= 17-14
Guy Adami= 48-36
Pete Najarian= 43-38
Karen Finerman= 42-32-1
Joe Terrenova= 1-3

2007 Results (Since 6/21):
Guy Adami= 58-46 = 56%
Jeff Macke= 60-40 = 60%
Pete Najarian= 49-41 = 54%

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NEWS: Interview With Dow Chemical's (DOW) Andrew Liveris

I just finished a 35 minute interview with Andrew Liveris, CEO of Dow Chemical. It covered US Energy Policy, oil, gas, Dow’s JV strategy, mergers, “the cash”, Dow Ag and other topics. Mr. Liveris was nothing but frank and honest as to his opinions and his outlook for the company. It was great….

As soon as I have it transcribed, I will begin to post it.

Disclosure (“none” means no position):Long DOW

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NEWS: Interview With Dow Chemical’s (DOW) Andrew Liveris

I just finished a 35 minute interview with Andrew Liveris, CEO of Dow Chemical. It covered US Energy Policy, oil, gas, Dow’s JV strategy, mergers, “the cash”, Dow Ag and other topics. Mr. Liveris was nothing but frank and honest as to his opinions and his outlook for the company. It was great….

As soon as I have it transcribed, I will begin to post it.

Disclosure (“none” means no position):Long DOW

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Whitney Tilson Talks About Shorts

Tilson talks about Ambac (ABK), MBIA (MBI), Lehman (LEH), Citigroup (C), Washington Mutual (WM) and Wachovia (WB). He always makes great points. Is it just me or do the short sellers like Ackman, Tilson and Einhorn (when they are short) make the best points?

Disclosure (“none” means no position):Long C, WB, none

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Will Lehman Answer Einhorn Now?

Despite attacks by the NY Times, Einhorn keeps raising issues that, until Lehman (LEH) can answer honestly, will continue to crush the stock.

Like I said yesterday, Einhorn is raising very specific issues. There have not been specific answers from anyone. Here is what Einhorn has ACTUALLY said regarding Lehman. Read the entire piece because what has been printed and said about it is well, less that accurate

Disclosure (“none” means no position):None

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Rebate Shoppers Flock to Wal-Mart (WMT)

One has to wonder what execs at Target (TGT) were thinking when they did noting to try to draw those with rebate checks to their stores like Wal-Mart (WMT) did.

As far back as January Wal-Mart began courting shoppers who were receiving rebate checks from the US government. In the middle of April I pondered why the “deafening silence” from the likes of Target and JC Penny (JCP) in regards to the payments.

All this against the background of questionable customer service tactics at the chain.

Well, the first monthly results since the stimulus checks began being mailed are in and Wal-Mart is the clear winner.

Wal-Mart said Thursday total U.S. same-store sales during the four-week period ending May 30 rose 4.4 percent due to strong sales of grocery, health and wellness and entertainment products. Excluding fuel sales, same-store sales for the month rose 3.9 percent. Analysts polled by Thomson Financial, on average, forecast a 1.6 percent increase in same-store sales.

Same-store sales increased 4 percent in its Wal-Mart Stores segment, while same-store sales at Sam’s Club stores increased 6.5 percent during the month.

Meanwhile Target said Thursday that its May sales at stores open at least one year fell 0.7%. Analysts, on average, had expected same-store sales to fall 0.2%. For June, the compnay sees same-store sales in a range of down 2% to flat. In the year-ago period, same-store sales rose 3.5%.

Wal-Mart see sales for same period up 2% to 4%.

It will not be very long before tough questions are asked at Target as to their decision to essentially ignore the coming rebate while Wal-Mart aggressively pursued the funds.

At least they should be……

Disclosure (“none” means no position):Long WMT, None

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