Tag: ackman

Some thoughts on Sears (SHLD) from articles from the web.

Felix Salmon points out that “Eddie Lampert has given up on the idea of running it as a hedge fund, and in any case Sears is losing money, which means that Lampert can’t invest its free cash flow.” While I like Felix’s writing, I could not disagree more. Lampert has given up trying to be a “retail head”, not a hedge fund manager and losing money does NOT mean Sears is “cash flow negative”.

Evan Newmark in the WSJ has a typical Sears article. He points out that Sears’ “analysts” can’t seem the get is right (true), high profile investors are in the stock (more on that later), the retail side is suffering and shorting the stock at this point is dangerous. The article essentially boils down to a “extrapolation of current events” to future ones.

Jeff Annello over at Cicle of Competence points out “the panic over their cash balances, debt, and decreased cash flow couldn’t be further from the mark. The company ended the quarter with $1.4 billion in cash. In context, their quarterly interest expense comes to $66 million, and the net loss was $56 million. The company is not circling the drain. The fact is, in a bad economy disadvantaged retailers suffer; I’m not sure what is shocking Sears onlookers so much. CEO Bruce Johnson even predicted the company would have higher EBITDA this year than the last.”

He finished pointing out “The story is quickly summed up by Mohnish Pabrai, who to my pleasure, recently disclosed a position in Sears (from the Chicago Tribune)

“Hedge fund investor Mohnish Pabrai has been watching Lampert since he worked his magic at Kmart and until recently viewed Sears shares as too expensive. But last fall—a time when the shares began their decline to below $100—his Irvine, Calif.-based Pabrai Investment Funds began buying and as of March 31 held 517,607 shares, according to Securities and Exchange Commission filings.

“There are two ways to look at Sears,” Pabrai said. “One is as a retailer. The second is as a collection of assets being managed by the greatest capital allocator. And I view it as the latter.”

Remember this: Short-sightedness can be blinding. Those who saw Berkshire Hathaway (BRK.A) as a textile (and a “failing” one at that)* maker were trumped by those who saw it as a collection of assets being managed by a brilliant capitalist.”

* Comment added by me

Concentrated Value has a thought provoking post in which he points out “As of May 23, 2008, Sears Holdings has 132,013,524 outstanding common shares. ESL Investments currently owns 65,639,184 shares giving the fund a 49.7215% ownership stake in SHLD. Notice how SHLD buybacks have significantly slowed as ESL closed in on the 50% ownership stake. Is Lampert timing the buybacks to coincide with a larger event?

Directors & Executive Officers as a group (19 persons) own 55.3% of Sears Holdings. The Tisch family alone owns 4,219,101 shares.

Eddie Lampert’s stake in Auto Nation is 40%. His fund has been aggressively buying shares in 2008. Will Lampert declare a 50% ownership stake in SHLD and AN at the same time?

From Acxiom’s (AXI) 2007 10-K:
“Our client base consists primarily of Fortune 1000 companies in the financial services, insurance, information services, direct marketing, publishing, retail and telecommunications industries. Some of our major clients include American Express (AXP), Bank of America (BAC), Baxter International (BAX), Capital One, CitiGroup (C), City of Chicago, DeLuxe, Discover Card (DFS), eFunds, Federated Department Stores , GE (GE), General Motors (GM), Guideposts, HSBC Bank USA (HSBC), HSBC Technology & Services (USA), IBM (IBM), Information Resources, Inc., JP Morgan Chase (JPM), Philip Morris (MO), Primedia, R.L. Polk, RR Donnelley, Sears, Sprint (S), TransUnion and Washington Mutual (WM).”

RBS Partner’s recently took up a 4.2% stake in the company. Everyone knows Lampert is a data mining geek constantly scrutinizing sales data. Acxiom’s value proposition is the enormous amount of data it owns on consumers and their buying habits. How do you value all the large longitudinal data sets currently provided by Acxiom? If large diversified retailer purchased Acxiom, would it provide a competitive advantage?

Deep value investors (Fairholme, Pershing Square, Force Capital, Perry, RBS, Legg Mason) and insiders own over 80% of the shares. They are not selling; in fact, Fairholme practically doubled its shares since their last filing. Would Fairholme make an $800M bet on SHLD on the allure of Lampert alone? Would Ackman buy $600M in SHLD if he did not see something? The same guy that reportedly read over 100,000 pages during his analysis of short sale of MBIA (MBI) and Ambac (ABK).”

Sears boils down to a company with a very concentrated shareholder base who also happen to be some of the most successful investors today. Should one think “Lampert does not know what he is doing” then one also has to then say Berkowitz, Ackman, Pabrai, Perry etc. have also been hoodwinked or enjoy losing money with a colleague. It is obvious neither are true.

Far too often people think a current situation is a irreversible path. That is good because without such erroneous thought processes, value investing would not exist.

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

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After several stories in the MSM and blogs yesterday erroneously said Pershings Bill Ackman flew to Sears Holdings (SHLD) annual meeting to confront Chairman Edward Lampert “because you will not take our calls”, the Tribune issued a correction.

“A story in Tuesday’s business section mischaracterized the reason activist investor William Ackman attended the annual meeting of Sears Holdings Corp. Ackman said he flew to Hoffman Estates from New York to hear Sears Chairman Edward Lampert speak. He had not tried to call Lampert.”

Here is a link to the correction:

This is troubling for the simple reason that the story in the Tribune has fictitious information. Another story in the NY Post reiterated it and one can only come to the conclusion the authors just invented most of it.

What is even worse is the tribune has changed the story online. If you do a Google search for “ackman lampert calls” you get the following results. You’ll notice the Tribune link says “But Ackman traveled thousands of miles to attend the meeting because Lampert wouldn’t take his call, the investor said in an interview after the event…” Yet, that is curiously missing from the story and the correction that has been made is not noted.

The heading “Wouldn’t Take Call” is still there in the actual article, but no mention of what it is talking about. A sloppy whitewash..

It is one things to misquote someone slightly, it is another entirely to invent an conversation…

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

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With the news that Target (TGT) has agreed to sell $3.6 billion worth of credit card receivables to JP Morgan (JPM), one cannot help but notice he has made not a single demand from Edward Lampert at Sears holdings (SHLD). This would be the only investment in memory he has taken such a stance.

Ackman was at Sears’ annual meeting yesterday and did ask a few benign questions. According to Ackman, his 5 million share investment in Sears “is due to Eddie Lampert”.

Now some will say that Ackman has bee quiet because “he knows Lampert” or some such foolishness. Let’s be honest, you do not invest over $500 million and keep quiet if you think things are not being done properly. Last time I checked, Ackman was loath to not speak up when he thought management was not doing the proper things.

Now, some out there have claimed Lampert’s statement yesterday that Sears was “cutting costs” means he “took the late train”. The assumption must be that because he only talks to folks maybe 4 times a year that when he says something it only happens from that point on? It has not been an ongoing effort? This is just disingenuous at best and totally dishonest at worst. These are the same folks that have complained for the past two years that Lampert has “cut costs too much” at Sears and the retailer has suffered because of it. Let’s get the story straight folks. Which is it? Is he late cutting costs or has he cut them too much?

Now let’s look at it. Other retailers like JC Penny (JCP) and Macy’s (M) are taking on additional debt to get through the current environment. Target (TGT) is shedding valuable assets. Only Wal-Mart (WMT) is thriving. Sears, suffering like the rest of the industry is actually repurchasing stock and paying off debt, improving an already industry best balance sheet.

In short, Lampert is acting like a guy who is in this thing for the next few decades, not quarters.

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

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