Some more thoughts Barnes & Nobel (BKS) and borders (BGP)
The timing of this is odd as Barnes and Nobel is scheduled to release results and have its earnings call tomorrow. Borders has it’s annual meeting tomorrow also. Next Monday and Tuesday feature borders Q1 results and earnings call respectively.
It is very “coincidental” this news leaked out after months of silence just before both companies are schedules to speak to the public and media…no?
Another thing that Borders does have is 1.75 million (and growing) members in its “Borders Rewards” program. These are the “book people” and are the highest valued customers due to their purchasing frequency.
Bill Armstrong – C.L. King & Associates: “Got it. Okay, obviously one of your biggest competitors, Borders, had a big announcement this morning. Would there be any interest on Barnes & Noble’s part in potentially acquiring Borders?”
Mitchell S. Klipper: “We haven’t been approached by Borders’ investment bankers and if we are, we’re certainly take a good look at the company and put it under review.”
Here is a video with another take on it:
Disclosure (“none” means no position):Long BGP, None
Andrew Liveris spoke on CNBC today about Dow (DOW), energy and jobs..
Liveris has been saying the same thing for three years. Based on the fact we have $133 oil (it was $35 when he started saying this) he bears listening too. That being said, as an investor having 66% of the business outside of the US is a good thing.
Now, let’s look at the announcement of the Kuwait deal from December of last year. The reasoning for it was same thing that Liveris has been saying all along:
What is important to note is that 50% of the business is being sold is being done so at $9.5 billion, the commodity business being only 25% of profits. If we do the math, the deal values the whole of Dow at roughly $76 billion. The company currently has a market cap of $38 billion.
Now, the petroleum based business are the ones being sold to Kuwait. That means that the per dollar barrel of oil becomes less important down the road because Dow will access it at the source. But, the worldwide prices of the end products that are based on that still matter as Dow will profit from their price appreciation with oil.
Essentially it looks like the input price of oil will matter less and the prices DOW will be able to get for the products it makes based on the per barrel price will remain elevated.
“The Committee agreed that that the statement to be released after the meeting should take note of the substantial policy easing to date and the ongoing measures to foster market liquidity. In light of these significant policy actions, the risks to growth were now thought to be more closely balanced by the risks to inflation. Accordingly, the Committee felt that it was no longer appropriate for the statement to emphasize the downside risks to growth. Given these circumstances, future policy adjustments would depend on the extent to which economic and financial developments affected the medium-term outlook for growth and inflation. In that regard, several members noted that it was unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook.”
The earnings call notes was enlightening as to the quality of this business and management.
Notables: * Four consecutive quarter of positive sales growth in commercial business and that growth is acceleration through the year. * Operating margin of 18%, up approximately two basis points from last year’s quarter * Return on invested capital for the trailing four quarters of 23.3%. * Did not see a material shift in sales mix to lower priced point merchandise. * Have not seen any material change in the competitive landscape.
CEO, Bill Rhodes “Return on invested capital is a key measure of our success. We have and will continue to make investments that we believe will generate returns that significantly exceed our cost of capital. We will not deviate from our efforts to optimize shareholder value over the long-term. We continue to be physically prudent with our investments while optimizing our earnings per share.”
Regarding gas prices: “Unfortunately we cannot control the prices of gas at the pump. However with more vehicles on the road than ever before, our ability to grow sales remains strong over the long-term and we believe consumers will ultimately adjust their spending habits to the higher prices. We will continue to develop marketing programs that support our customers’ needs during these high-price times.”
What drives the company’s business: “Let me again reiterate the two statistics we’ve always felt had the closest correlation to our market growth; miles driven and the number of seven-year-old and older vehicles on the road. While miles driven had been challenged recently thereby causing a challenge to our overall business, there has been a positive impact from more registered vehicles seven years old and older on the road; quite frankly more than in our country’s history.”
The reason for Eddie Lampert’s investing in the company is becoming more clear every time I look at it.
The biggest part of this news is not the possible Barnes and Nobel (BKS) bid for Borders (BGP)
Here is the big news, according to the Wall St. Journal,30 people, including strategic buyers and private equity firms, have either signed confidentiality agreements or are in talks to sign agreements so they can look at a bid for Borders.
There are some anti-trust issue with a possible BKS bid. Amazon (AMZN) is the #2 book seller with 15% of the market and a BKS, BGP combo would then have over 30%. Based on recent results (Whole Foods (WFMI) & Wild Oats, XM (XMSR) & Sirius (SIRI)) however, even if the government did object, chances are the merger would still eventually go through anyway.
Just yesterday, Carlye’s David Rubenstein said that, far from being dead, private equity deals in the $2 billion to $4 billion range will take precedence. “We are casting our net wider for $2 billion to $4 billion deals that will require little or no debt” said Rubenstein. He continued, “I think that the bottom has been hit in terms of private-equity investing activity and you’re now beginning to see the upward swing”.
Borders has a current market cap of $350 million and $580 million in debt. A deal that gave shareholders $12 a share would come in at $1.3 billion and change. At this price, the number of buyers who could purchase the chain is plentiful and perhaps the reason for the wide interest.
30 potential buyers will make for a very interesting and competative bidding process and is very good for shareholders.
We bought shares at $5 and change looking for this very possibility, not as a long term permanent holding. While sure this would eventually happen, I thought it was far more likely towards the fall as the Ackman financing and dilution deadline approached.
Either way, gonna be a fun summer with this one.
Disclosure (“none” means no position):Long BGP, none
– Priceless, so now because of “Global Warming”, we ought to expect “fewer hurricanes”. But isn’t that the exact opposite of what they said JUST LAST YEAR!!!! This is the very reason the whole things is just a guess…
– Maybe they are skeptical because Silverstein did not rule based on law?
– You know, Dallas’s Jerry Jones and New England’s Bob Kraft laughed at Buffalo’s Ralph Wilson and Cincinnati’s Mike Brown for voting against the CBA when they forced fed the horrible deal to the owners. It must suck to have to admit to two holdouts were the only ones who had a clue….
– Priceless, so now because of “Global Warming”, we ought to expect “fewer hurricanes”. But isn’t that the exact opposite of what they said JUST LAST YEAR!!!! This is the very reason the whole things is just a guess…
– Maybe they are skeptical because Silverstein did not rule based on law?
– You know, Dallas’s Jerry Jones and New England’s Bob Kraft laughed at Buffalo’s Ralph Wilson and Cincinnati’s Mike Brown for voting against the CBA when they forced fed the horrible deal to the owners. It must suck to have to admit to two holdouts were the only ones who had a clue….
Leucadia (LUK), in a just released SEC filing disclosed it purchased an additional 1.15 million shares of investment bank Jefferies (JEF) in two transactions. There was a 400K block at $17.77 on 5/16 and a 750K share block on 5/19 at $18.27
The purchases bring Leucadia’s stake to 45,492,100 shares.
Wednesday’s Picks Guy Adami thinks Public Service Enterprise Group (PEG) $43.91 is a buy.
Pete Najarian recommends getting long Excel Maritime (EXM) $55.03
Joe Terranova suggests shorting Hess (HES) $133.8
Jeff Macke likes getting long the SPDR Trust (SPY) $141.89 with a $139 stop.
Tuesday’s Results Guy Adami suggests getting long Boeing (BA) $87.07 Close $85.14 LOSS
Pete Najarian thinks DuPont (DD) $49.5 is a buy.Close $48.95 LOSS
Jeff Macke recommends shorting Electronic Arts (ERTS) $48.43 Close $49.05 GAIN
Karen Finerman likes shorting the British pound with the CurrencyShares British Pound Ster. Trust (FXB) $195.31 Close $197.25 LOSS
2008 Records: Brian Schaeffer= 0-1 Carter Worth= 1-1 Jon Najarian= 4-3 Jeff Macke= 40-31-1 Tim Seymore= 17-14 Guy Adami= 40-35 Pete Najarian= 38-34 Karen Finerman= 35-30-1 Joe Terrenova= 1-1
2007 Results (Since 6/21): Guy Adami= 58-46 = 56% Jeff Macke= 60-40 = 60% Pete Najarian= 49-41 = 54%
Well, NetFlix (NFLX) is once again ahead of Blockbuster (BBI).
A review from Time: “This week, a consumer-electronics company called Roku, in partnership with Netflix, launched a set-top box that brings us tantalizingly close to my dream. The Netflix player ($99 at netflix.com) is a palm-sized, black device that connects your broadband network (wired or wirelessly) to your TV. For as little as $8.99 a month, you can access Netflix’s library of 10,000 movies and TV shows on demand. Watch what you want, instantly, for as long as you want. You can even start a movie on your home TV, and finish watching it on your PC laptop at a hotel days later. Apple, which uses its own digital-rights management to copy protect films and TV shows, doesn’t support the Netflix on-demand service.
Setting up the Roku was about as painless an experience as I’ve had, and took less than 5 minutes. I cabled it to my TV, powered up both, then followed the on-screen prompts. The Roku device found my wireless connection immediately and asked for my password. I watched video by logging into my Netflix account (you’ll need one, which also entitles you to rent-by-mail DVDs) and adding movies and TV seasons to my “instant” queue; they show up on the Roku box almost instantaneously. I moldered on the couch for a few days, watching The Office reruns, some old Kubrick and Peckinpah movies and a Jimi Hendrix documentary. It was great.”
The news device caused Lehman Brothers (LEH) to upgrades the company:
On their recent earnings call, Blockbuster CEO Jim Keyes said “Our acquisition of Movielink provided both digital content and a distribution tool. Movielink integration is going well and proceeding as planned. We have a new online service in testing, in beta testing now and we are planning to make it available to all customers in June. The extensive library of over 9,000 titles gives us one of the largest digital VOD and day date electronic sell-through libraries in the marketplace.”
He continued “The remaining missing pieces of our digital offering are relating to subscription content. We are actively exploring opportunities to acquire content and to develop partners for distribution to the PC, the portable device, and ultimately to the home. These are just a few of the many examples of work underway in the digital space. I can assure you that Blockbuster has not at all backed away from an online strategy. We called a time-out from our by-mail initiatives, both to make that business profitable and to develop a plan for true digital delivery. I look forward to providing more updates to you in the weeks and the months ahead.”
Jim, see above…
Is this box going to be the “new way” next month? No. Eventually it will be and it gives Netflix a start and an immediate advantage. The bigger issue for Blockbuster shareholders is that once again they have been outflanked by Netflix. Wouldn’t it be nice if for just once Blockbuster was on the cutting edge of a new way to deliver content to the home? Second place is not all that bad unless you consider there are only two of you that really do it (three if you include Apple’s (AAPL) iTunes in which case Blockbuster is now third) it means that you are last.
