Tag: AN

Watch the video. This goes directly to the strategy at AutoNation (AN). The luxury auto market was dragged into the recession and will lead the auto market out. The length of time sales spend in it will be dwarfed by domestic and non-premium imports.

Just yesterday we talked about AutoNation’s Mercedes push. When I first spoke with CEO Mike Jackson last year, before credit market imploded he was stressing his desire to move the company away from domestic and into imports with a special emphasis on premium brands.

He stated then that the premium market, while not immune, was less markedly less affect by the business cycle, offered better margins and had longer service revenues
as those drivers tended to place a priority on keeping those vehicles running at a higher level. Currently AutoNation has 10% of Mercedes and 4.5%-5% of BMW US markets.

In June most domestic foreign makers saw sales fall 20% to 30%. Ford (F) was the lone bright spot with an 11% decline. But again, this is against already eviscerated sales as a starting point.

Now the usual disclaimer comes into play here. It is only a months worth of data and we need to see more for it to then become a trend. BUT, after what has happened to the auto market the last 8 months, good news of any sort is very welcome indeed.

Disclosure (“none” means no position):

My opinion is there is more here than a quick glance would lead one to appear…

First the news:

AutoNation, the nation’s largest car retailer, has returned to Oxnard, spending $9 million for property it’s leasing to an independent operator who has opened two new dealerships — Mercedes-Benz and Smart Car.

In 1998, AutoNation entered the Ventura County market with a used car megastore in a location that most recently housed Cars 101. But a year later, AutoNation exited the used vehicle megastore business and shuttered nearly two dozen stores nationwide, including the one in Oxnard.

Both brands are products of German automaker Daimler AG. The parent company reported Wednesday that combined U.S. sales for its Mercedes-Benz and Smart Cars fell nearly 26.5 percent in June to 16,271, compared with 22,121 in June 2008. The company said it sold 15,155 Mercedes-Benz vehicles, a nearly 22.6 percent decline from a year earlier, while its smart USA line of micro-cars sold 1,116 units in June, a 56.2 percent decline.

Eberhardt could not be reached for comment, but his membership information with the Gerson Lehrman Group’s consulting network sheds light on his ties to Mercedes. From 2003 to 2007, he headed up Chrysler’s global sales and had responsibility for the operation in more than 125 countries with more than 5,500 dealers. From 1993 to 2003, he held a variety of roles with Mercedes-Benz, Daimler and Chrysler, including CEO of Mercedes-Benz UK Ltd.

AutoNation is acting as the landlord of the property, which is about five acres at 1511 Auto Center Drive. The Mercedes and Smart Car dealerships together total approximately 218,000 square feet, according to county records.

Eberhardt and AutoNation have an operating agreement whereby Eberhardt is running the stores, Cannon said.

“We’ve done this before,” he said. “This is not uncommon. It’s like I own the land for the hotel and Hilton comes in as a franchise. It’s really a simple deal. We’re the landlord, he owns the rights to the dealership.”

What is the deal? AutoNation currently has 10% of the US market for Mercedes Benz through 14 Mercedes dealerships and upcoming openings look to bring that total to 12%. We also know AutoNation wants more of the upscale auto market as it has proven less dramatically impacted by recessionary events. They have also not shown any inclination in this environment to reduce their move into this area.

But, like any smart business, while now is the time to be making deals, economic uncertainty does require a certain amount of prudence. This is, in essence a cheap way for AutoNation to get another Mercedes dealership up and running without large upfront expenditures. Anyone else want to bet this dealership eventually (2-4 years) becomes their 100%?

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

My opinion is there is more here than a quick glance would lead one to appear…

First the news:

AutoNation, the nation’s largest car retailer, has returned to Oxnard, spending $9 million for property it’s leasing to an independent operator who has opened two new dealerships — Mercedes-Benz and Smart Car.

In 1998, AutoNation entered the Ventura County market with a used car megastore in a location that most recently housed Cars 101. But a year later, AutoNation exited the used vehicle megastore business and shuttered nearly two dozen stores nationwide, including the one in Oxnard.

Both brands are products of German automaker Daimler AG. The parent company reported Wednesday that combined U.S. sales for its Mercedes-Benz and Smart Cars fell nearly 26.5 percent in June to 16,271, compared with 22,121 in June 2008. The company said it sold 15,155 Mercedes-Benz vehicles, a nearly 22.6 percent decline from a year earlier, while its smart USA line of micro-cars sold 1,116 units in June, a 56.2 percent decline.

Eberhardt could not be reached for comment, but his membership information with the Gerson Lehrman Group’s consulting network sheds light on his ties to Mercedes. From 2003 to 2007, he headed up Chrysler’s global sales and had responsibility for the operation in more than 125 countries with more than 5,500 dealers. From 1993 to 2003, he held a variety of roles with Mercedes-Benz, Daimler and Chrysler, including CEO of Mercedes-Benz UK Ltd.

AutoNation is acting as the landlord of the property, which is about five acres at 1511 Auto Center Drive. The Mercedes and Smart Car dealerships together total approximately 218,000 square feet, according to county records.

Eberhardt and AutoNation have an operating agreement whereby Eberhardt is running the stores, Cannon said.

“We’ve done this before,” he said. “This is not uncommon. It’s like I own the land for the hotel and Hilton comes in as a franchise. It’s really a simple deal. We’re the landlord, he owns the rights to the dealership.”

What is the deal? AutoNation currently has 10% of the US market for Mercedes Benz through 14 Mercedes dealerships and upcoming openings look to bring that total to 12%. We also know AutoNation wants more of the upscale auto market as it has proven less dramatically impacted by recessionary events. They have also not shown any inclination in this environment to reduce their move into this area.

But, like any smart business, while now is the time to be making deals, economic uncertainty does require a certain amount of prudence. This is, in essence a cheap way for AutoNation to get another Mercedes dealership up and running without large upfront expenditures. Anyone else want to bet this dealership eventually (2-4 years) becomes their 100%?

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

OK, we all saw last week that Eddie Lampert sold 4% of his holdings in auto parts retailer AutoZone (AZO). He must not be bullish anymore? Not quite. Let’s look.

Remember this agreement from last year?

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.

Then his news from last week?

AutoZone Inc (AZO.N), the leading U.S. auto parts retailer, said on Wednesday its board had authorized another $500 million to buy back common stock.

Shares in the Memphis-based company have gained almost 12 percent since the start of the year as the U.S. recession has prompted more consumers to drive cars longer and shop for better deals on replacement parts.

“AutoZone’s strong financial health has allowed us to continue to repurchase our stock while operating within our targeted leverage metric,” said AutoZone Chief Financial Officer Bill Giles said in a statement.

In late May, AutoZone posted a 9-percent gain in profit that topped analyst estimates.

Billionaire investor Edward Lampert and his ESL Investments owns about 43 percent of AutoZone (prior to recent sale). Lampert is also the largest shareholder in AutoNation (AN), the largest U.S. auto dealership chain.

So, Autozone is upping its leverage ratio and using it to repurchase shares. Lampert’s recent sale lower his ownership to below the 37.5% threshold so he may vote his shares as he wishes and maintains board representation.

What happens now? As Autozone completes their repurchase (approx $600m left) they will have reduced the outstanding shares (at today’s prices) by 7.5%. That sale also triggered a 6% drop in the stock price so that $600, will repurchase moire shares. In essence, Lamper sold shares for a nice profit and then Autozone will repurchase shares to increase his ownership once again back to the mid 40% range.

Why not hold them to get to the 50% threshold? The agreement above requires Lampert “to acquire” additional shares to the gain benefits from being at/above 50% in terms of voting. One can only assume he sees no “value” in shares at these prices (they aren’t) and therefore does not want to buy more. Doing it this way he can free up capital and have the company maintain his ownership level for him.

Nice….

On another note, Autozone, in my opinion is nearing an earnings peak. With auto sales at decade lows they have benefited from the repair biz. If “cash for clunkers” does increase sales as predicted by AutoNation CEO Mike Jackson, that will directly negatively impact Autozone’s biz. Perhaps another reason Lampert is not buying more???

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

I think 10% may be a bit conservative. From the empirical evidence department. I know several folks who are eagerly looking into the “cash for clunkers” program’s details to get a new car. These are folks who have been putting off buying a new car for the past year and a half not wanting a new car payment. But, the advertised incentives, coupled with the age of their current vehicles, has them taking a very close look at this.

From Bloomberg:

– AutoNation Inc. said the “cash-for- clunkers” law President Barack Obama signed may increase new- vehicle sales at the largest publicly traded U.S. auto retailer by 10 percent through year end.

AutoNation sold 65,698 new vehicles in the third quarter of last year through its 289 dealer franchises. A 10 percent increase from the law approved yesterday may mean “roughly” an extra 4,000 new vehicles because industry demand has been running as much as 40 percent lower than last year, according to Marc Cannon, a company spokesman.

“The fact that this incentive will be available only at new-vehicle franchises is a big advantage,” Chief Executive Officer Mike Jackson said in an interview. “At a minimum it will generate a lot of traffic.”

Knowing Jackson, my guess is that 10% is “in the bag” so to speak and he is looking for much more. In the past he has said about other statements of this order, “if we weren’t sure we could do it, we wouldn’t say it”, and to this point, he has yet to let investors down on that.

No reason to expect him to start now…

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

Here is a look at both AutoNation (AN) and CarMax (KMX)

My thoughts are this:
CarMax will hold up well during times of crisis,but, when that crisis ebbs (they always eventually do) AutoNation will outperform. Of the two, the current GM, Chrysler dealership shedding has far more benefited AutoNation in terms of its market share.

I also am not sold on the “used car” model longer term. Again, in times of stress it will, while not prospering, hold its own so to speak. I much prefer the diversity of options and product mix of an AutoNation.

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

AutoNation’s (AN) Mike Jackson was on CNBC this am as GM (GM) files for bankruptcy protection. Since Jackson sells cars from every dealer, he is probably the best guy out there to comment on both the industry and the auto makers.

Regular readers know how high we hold Jackson here. He has his pulse on the consumer and credit markets. Not sure if he was asked to be the “car czar” or not but if he wasn’t, huge fail on the government. If he was, my guess is that he turned it down because he seems to lack the ability to tolerate the garbage that goes on in Washington. Good for him (and shareholders)

Part 1: Banks are not lending…

Part 2:

Were they managed for the unions?

Part 3: What the industry will look like in 5 years

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

Mike Jackson of AutoNation (AN) commented today on the GM (GM) closings announced.

ORT LAUDERDALE, Fla., May 15 /PRNewswire-FirstCall/ — AutoNation, Inc.
(NYSE: AN), American’s largest automotive retailer, today announced that
General Motors notified AutoNation that six of its dealerships were identified
for potential closing by GM. The notification is part of GM’s communication
today to approximately 1,100 dealers that GM does not expect to continue as GM
dealerships past October 2010. The AutoNation stores potentially impacted by
the consolidation plan represent 0% of AutoNation’s 2008 operating income.
AutoNation does not believe that any one-time charges that may be associated
with these actions will be material to its continuing operations or debt
covenants.

Commenting on the consolidation plan, Mike Jackson, Chairman and Chief
Executive Officer, said, “We believe GM’s consolidation plan is a difficult but
positive step that will strengthen America’s dealer network and improve dealer
profitability over the long term. The consolidation plan is consistent with
AutoNation’s long-term strategy that we implemented in 2000 to consolidate
domestic dealerships and realign our brand mix more towards import and premium
luxury franchises. With our financial and operational strength and diversified
brand mix, we are well-positioned to succeed in the rapidly changing automotive
retail landscape.”

Have been saying for a while now this would be helpful for AutoNation (AN) in allowing for it to expedite its domestic reduction plans. What remains to be seen is what is happening around them. 1100 GE dealers closed by the end of 2010, mostly in metro areas leaves a lot of competition be be shuttered.

Will update as soon as I get word…

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

(UPDATE: At end of post is the list of Chrysler dealerships closing. AutoNation has 7)

This has been a long time coming. Both Chrysler and GM (GM) are expected to notify up to 2000 dealers combined that they are closing either today or tomorrow. The moves are expected to cost about 150,000 jobs at the dealership level. Note, these job losses DO NOT include losses associated with the dealerships such as cleaning & maintenance crews contracted to do work on the premises and other ancillary services.

Is this a good thing? As sad as it is, and a bad as the job losses will be, it is the best thing for the industry on all levels. Those dealerships left will become stronger as their market share immediately grows and increased profitability ought to follow.

Now the GM closings, as far as I know can only be done in a Chapter 11 scenario. In any other scenario, GM will most likely spend an eternity in State Courts for violation of State Franchise Laws. A Chapter 11 eliminates that scenario. Now the other option is for GM to offer franchisees a sweetner to take the deal (they just may as those being closed are most likely not profitable now). This would be a waste of time and money for GM, BUT, based on its history, just may be what happens.

Who is the main beneficiary of this? AutoNation (AN). Why?

1- They have made no secret of their desire to reduce domestic exposure, this may do it for them very easily. Now, if some of their dealerships are chosen, since AutoNation owns the building and land on almost all dealerships, transferring that property to another brand is virtually as simple as moving existing inventory to another dealer, changing signs and then moving new inventory in.

2- Most of the closing are expected to be in Metro markets. AutoNation has heavy exposure to those very markets. So, even if the scenario in #1 does not unfold, they do just fine because they receive large market share from the dealerships closing around them.

3- Totally aside from the other two scenarios, there are other dealer groups in a precarious situation that simply will not be able to withstand the loss of a franchise, even a marginally profitable one. Consider the scenario. A dealer with three dealerships Ford (F), GM (GM) and Chrysler. Depending on the mix, the GM dealership could be covering for losses at Ford and Chrysler (or Chrysler at Ford & GM). But, because of the area concentration of GM (Chrysler) dealerships, their is selected to close. Now the dealer is stuck with two money losing dealerships and that may just force the closure of the other two.

Before you dismiss this scenario, you must consider that most dealers own multiple locations and depending on the sales mix in the area, the above scenario is not only possible, but very likely in a number of locations.

The summary here is that the end number of closings from these actions will be in excess of the final, stated number form both Chrysler and GM.

When all is said and done, the clear winners will be those left standing. Their earnings power when its over will be in excess of pre-dealer decimation levels even with industry sales below 2006-2007 levels. They will receive immediate benefits from share and margin increases that will be maintained as a return to previous dealer levels is not likely for years..

UPDATE: Here is the list of Chrysler Dealers:
List of Chrysler Dealers

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


Disclosure (“none” means no position):

This has been a long time coming. Both Chrysler and GM (GM) are expected to notify up to 2000 dealers combined that they are closing either today or tomorrow. The moves are expected to cost about 150,000 jobs at the dealership level. Note, these job losses DO NOT include losses associated with the dealerships such as cleaning & maintenance crews contracted to do work on the premises and other ancillary services.

Is this a good thing? As sad as it is, and a bad as the job losses will be, it is the best thing for the industry on all levels. Those dealerships left will become stronger as their market share immediately grows and increased profitability ought to follow.

Now the GM closings, as far as I know can only be done in a Chapter 11 scenario. In any other scenario, GM will most likely spend an eternity in State Courts for violation of State Franchise Laws. A Chapter 11 eliminates that scenario. Now the other option is for GM to offer franchisees a sweetner to take the deal (they just may as those being closed are most likely not profitable now). This would be a waste of time and money for GM, BUT, based on its history, just may be what happens.

Who is the main beneficiary of this? AutoNation (AN). Why?

1- They have made no secret of their desire to reduce domestic exposure, this may do it for them very easily. Now, if some of their dealerships are chosen, since AutoNation owns the building and land on almost all dealerships, transferring that property to another brand is virtually as simple as moving existing inventory to another dealer, changing signs and then moving new inventory in.

2- Most of the closing are expected to be in Metro markets. AutoNation has heavy exposure to those very markets. So, even if the scenario in #1 does not unfold, they do just fine because they receive large market share from the dealerships closing around them.

3- Totally aside from the other two scenarios, there are other dealer groups in a precarious situation that simply will not be able to withstand the loss of a franchise, even a marginally profitable one. Consider the scenario. A dealer with three dealerships Ford (F), GM (GM) and Chrysler. Depending on the mix, the GM dealership could be covering for losses at Ford and Chrysler (or Chrysler at Ford & GM). But, because of the area concentration of GM (Chrysler) dealerships, their is selected to close. Now the dealer is stuck with two money losing dealerships and that may just force the closure of the other two.

Before you dismiss this scenario, you must consider that most dealers own multiple locations and depending on the sales mix in the area, the above scenario is not only possible, but very likely in a number of locations.

The summary here is that the end number of closings from these actions will be in excess of the final, stated number form both Chrysler and GM.

When all is said and done, the clear winners will be those left standing. Their earnings power when its over will be in excess of pre-dealer decimation levels even with industry sales below 2006-2007 levels. They will receive immediate benefits from share and margin increases that will be maintained as a return to previous dealer levels is not likely for years..

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

So, after reading that the WSJ was actually increasing circulation figures in an environment that is seeing newspaper circulation plummet, I began digging into it owner, News Corp.

Overview:
OVERVIEW OF THE COMPANY’S BUSINESS
The Company is a diversified global media company, which manages and reports its businesses in eight segments:

• Filmed Entertainment, which principally consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide.
• Television, which, principally consists of the operation of 27 full power broadcast television stations, including nine duopolies, in the United States (of these stations, 17 are affiliated with the FOX network, and ten are affiliated with the MyNetworkTV network), the broadcasting of network programming in the United States and the development, production and broadcasting of television programming in Asia.
• Cable Network Programming, which principally consists of the production and licensing of programming distributed through cable television systems and direct broadcast satellite operators primarily in the United States.
• Direct Broadcast Satellite Television, which principally consists of the distribution of premium programming services via satellite and broadband directly to subscribers in Italy.
• Magazines and Inserts, which principally consists of the publication of free-standing inserts, which are promotional booklets containing consumer offers distributed through insertion in local Sunday newspapers in the United States, and the provision of in-store marketing products and services, primarily to consumer packaged goods manufacturers in the United States and Canada.
• Newspapers and Information Services, which principally consists of the publication of four national newspapers in the United Kingdom, the publication of approximately 147 newspapers in Australia, the publication of a metropolitan newspaper and a national newspaper (with international editions) in the United States and the provision of information services.
• Book Publishing, which principally consists of the publication of English language books throughout the world.
• Other, which principally consists of NDS Group plc (“NDS”), a company engaged in the business of supplying open end-to-end digital technology and services to digital pay-television platform operators and content providers; Fox Interactive Media (“FIM”), which operates the Company’s Internet activities; and News Outdoor, an advertising business which offers display advertising in outdoor locations primarily throughout Russia and Eastern Europe.

So, why consider buying?

Looking forward at the business. I divide it into entertainment (film ,tv, book) and News (papers, cable tv (broadcast)). The first is very dependent on the consumer and the timing of releases vs prior years so the period to period comparison is not always apples to apples and one would expect it to be highly cyclical. The news and papers I would consider to give a more steady gauge as to the health of the overall company.

Here are the segments operating income that tend to back the assertion of certain segments being more volatile.

For instance, 2008 Film Results:

For the three months ended December 31, 2008, revenues at the Filmed Entertainment segment decreased $491 million, or 25%, as compared to the corresponding period of fiscal 2008. The revenue decrease was primarily due to a decrease in worldwide home entertainment revenue from theatrical and television products. The three months ended December 31, 2008 included the worldwide home entertainment release of Horton Hears a Who, the worldwide theatrical releases of The Day the Earth Stood Still, Australia and Max Payne and the domestic theatrical release of Marley & Me and their related releasing costs.

Also contributing to the three months ended December 31, 2008 were the pay television performances of Juno and 27 Dresses. The three months ended December 31, 2007 included the home entertainment performances of The Simpsons Movie, Live Free or Die Hard and Fantastic Four: Rise of the Silver Surfer and the theatrical releases of Alvin and the Chipmunks and Juno. For the six months ended December 31, 2008, revenues at the Filmed Entertainment segment decreased $814 million, or 23%, as compared to the corresponding period of fiscal 2008. The revenue decrease was primarily due to a decrease in worldwide home entertainment revenue from theatrical and television products, as well as a decrease in worldwide theatrical revenues as a result of the difficult comparisons to The Simpsons Movie and Live Free or Die Hard in the six months ended December 31, 2007.

Fox News:

For the three and six months ended December 31, 2008, Fox News’ revenues increased 18% and 19%, respectively, as compared to the corresponding periods of fiscal 2008, primarily due to an increase in net affiliate and advertising revenues. Net affiliate revenues increased 37% and 32% for the three and six months ended December 31, 2008, respectively, primarily due to an increase in the average rate per subscriber, a higher number of subscribers and lower cable distribution amortization as compared to the corresponding periods of fiscal 2008. Advertising revenues increased 6% and 8% for the three and six months ended December 31, 2008, respectively, primarily due to higher volume and higher pricing as compared to the corresponding periods of fiscal 2008. As of December 31, 2008, Fox News reached approximately 95 million Nielsen households.

Here are the most recent results vs rival CNN, MSNBC. Fox wins every hour..if you combined their results, they still do.

From the recent 10-Q

The Company’s revenues decreased 8% and 2% for the three and six months ended December 31, 2008 as compared to the corresponding periods of fiscal 2008. The decreases were primarily due to revenue decreases at the Filmed Entertainment, Television and Book Publishing segments. The decreases at the Filmed Entertainment segment were primarily due to decreased worldwide home entertainment revenues. Television segment revenues decreased primarily due to decreased advertising revenues as a result of general weakness in the advertising markets. The decreases at the Book Publishing segment were primarily due to strong title offerings in the corresponding periods of fiscal 2008 with no comparable titles in fiscal 2009.

These decreases were partially offset by increases in revenues at the Cable Network Programming and Newspapers and Information Services segments. Cable Network Programming segment revenues increased primarily due to increases in net affiliate and advertising revenues. The increases at Newspaper and Information services were primarily due to the inclusion of revenue from Dow Jones & Company, Inc. (“Dow Jones”), which was acquired in December 2007.

This is very important news. At a time when ad rates are falling like stones throughout the industry, News Corp. is actually increasing them. That can only be taken as it having a industry best “brand” that advertiser recognize and want and one could take that even further to say they do have a moat around their news division.

Essentially you have News’ cable operations getting stronger during the industry downturn and this bodes well for the recovery.

Here are the revenue results (click to enlarge):

Cash:
As of December 31, 2008, the Company complied with all of the covenants under the revolving credit facility, and it does not anticipate any violation of such covenants. The Company had consolidated cash and cash equivalents of approximately $3.6 billion as of December 31, 2008.

Debt (from 10-K):
News has $13 billion of debt outstanding. Over $12 billion of that does not come due for in excess of 5 years ($1 billion is due in less than 5) and of that $12 billion, 30% has maturities extended out until 2035 and 2037. This will not be a strain on cash.

Valuation:
Even after writing down $8.4 billion in Q4, NWS shares prices at $8.50 sell at 65% of book value of $29 billion. 20%o the current market cap of the company as of 12/31 is the cash sitting on the books. Here are the write-down details:

As a result of this impairment review, the Company recorded a non-cash impairment charge of approximately $8.4 billion in the three and six months ended December 31, 2008. The charge consisted of a write-down of the Company’s indefinite-lived intangibles (primarily FCC licenses) of $4.6 billion, a write-down of $3.6 billion of goodwill and a write-down of Newspapers and Information Services fixed assets of $185 million in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” As a result of the continued adverse economic conditions in the markets in which the Company conducts business, the Company will continue to monitor its goodwill, indefinite-lived intangible assets and long-lived assets for possible future impairment.

Insider Controlling Shareholder:

As of December 31, 2008, Cruden Financial Services was the beneficial owner of 306,623,480 Shares, constituting approximately 38.4% of the total number of outstanding Shares at such date. All of the 306,623,480 Shares beneficially owned by Cruden Financial Services are also beneficially owned by the Murdoch Family Trust. Cruden Financial Services has the power to vote and to dispose or direct the vote and disposition of the Shares owned by the Murdoch Family Trust. Cruden Financial Services, the sole trustee of the Murdoch Family Trust, is a Delaware limited liability company with six directors.

As of December 31, 2008, the Murdoch Family Trust was the beneficial owner of 306,623,480 Shares, constituting approximately 38.4% of the total number of outstanding Shares at such date. The Murdoch Family Trust is a trust governed by Nevada law whose trustee is Cruden Financial Services. Cruden Financial Services, as sole trustee, has the power to vote and to dispose or direct the vote and disposition of the Shares owned by the Murdoch Family Trust.

As of December 31, 2008, K. Rupert Murdoch was the beneficial owner of 317,290,709 Shares, constituting approximately 39.7% of the total number of outstanding Shares at such date. Of the 317,290,709 Shares beneficially owned by K. Rupert Murdoch, 306,623,480 of such Shares are directly owned by the Murdoch Family Trust. Cruden Financial Services has the power to vote and to dispose or direct the vote and disposition of the Shares owned by the Murdoch Family Trust. As a result of Mr. Murdoch’s ability to appoint certain members of the board of directors of Cruden Financial Services, the corporate trustee of the Murdoch Family Trust, Mr. Murdoch may be deemed the beneficial owner of the Shares beneficially owned by the Murdoch Family Trust. Mr. Murdoch, however, disclaims any beneficial ownership of such Shares.

This is much like my AutoNation (AN) purchase. A company doing well in a poor operating environment. 75% of operating profits are from very stable and growing segments of the company. The other 25% is cyclical and release date dependent which causes volatility. Currently shares are excessively being punished for that section of earnings and being given very little credit for the other 75%.

That gives us a ValuePlay…I’m getting very close to buying some at these levels…

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

Had a great conversation with CEO Mike Jackson and COO Mike Maroone from AutoNation (AN) after earnigs were released this morning.

Some notes:

– Q1 was the bottom for auto sales
– Expects an annual run rate of 11 million units by end of 2009
– The 900 to 1200 dealership closures that are currently estimated for 2009 is “substantially below” what they feel the eventual reality will be.
– Regarding Closures:

• Counting rooftops is not a totally accurate assessment of the effect of closures. For instance, the Bill Heard closings, while only 30 dealerships, had a fundamental change in the markets in which they did business because of the huge volume of business they did in them. Those dealers left standing in those markets are now seeing significant operating improvements (share and margin).

– Domestic metro market are those in which “rationalization” will occur
– Rural markets are “fine”
– Domestic share now at 30% and AutoNation now plans to lower that through the GM (GM) and Chrysler restructuring. Those dealerships that AN owns will then be transferred to other uses (Import, Luxury)
– Debt Covenants:

• Leverage ratio down to 2.35 vs covenants of 3.0 (better than Q4)
• “The deeper we get into this, the stronger we get”, looking forward to the rest of the year, if one were to say they are very comfortable with their covenant situation that would be an “extremely, extremely credible statement”.
• $400 million in capacity in credit lines and cash on hand makes for “colossal liquidity”

– Service down only 6% and has proven very resilient.
– GM’s announced 9 week shutdown is fantastic move as it means they are serious about getting rid of excess inventory
– Auto loan securitization will be TALF dependent through 2009

8-K Just filed

Here is Jackson’s CNBC appearnance this morning:


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

If there was any doubt AutoNation (AN) is pulling away from the pack as the premier auto dealer today, this quarter, in this environment ought to put any doubt to rest. These results surpassed even my most optimistic scenarios.

We know “green” is good, right? But, will those green investments you may be considering pay off? A recent poll taken tells a familiar refrain. Cost trumps all other considerations, especially in a downturn. The most surprising part for me? Our youth are the most price sensitive when it comes to abandoning the “green” ideal.

From Marketing Charts:

The research found that while 76% of Millennials ages 13-29 feel it’s very important or important for brands to get involved in the green movement, 71% of teens (ages 13-17) surveyed say if they had to choose between a less expensive product or one that “gave back” to the environment, they would choose the less expensive product.

In contrast, the older Millennial demographic would choose the more expensive brand that gave back in a green way.

Moreover, the majority of Millennials surveyed found it confusing as to why products that are better for the environment are more expensive. Generate Insight noted that the extra cost – without consistent explanation – discourages the majority of shoppers from embracing and contributing to the green movement.

The study also found several other deterrents to Millennials living greener lives. These include products that require too much effort, are too time consuming and are not convenient; products that are confusing and difficult to understand, and families that are not involved in, supportive of or knowledgeable about the green movement

Additional findings from the survey:

74% of Millennials believe they can make a difference in helping Earth, but the number decreases significantly among the 13-17-year olds. Only 48% of 13-17 year olds feel they can make a difference because the problems are too huge for them to move the needle.

In terms of contributing most to living green, 87% of Millennials recycle; 84% turn off lights when not in use; 80% reduce water use; and 73% use energy-efficient light bulbs

The top three biggest hurdles for this generation faces when embracing the green movement are cost (41%), proof that they’re making a difference (24%), and ease of use ( 12%).

Let’s put aside the obvious hypocrisy of the generation that protests for one thing yet behaves an entirely different way. That is a rant for another day..

What was also surprising were the essentially flaccid actions taken by those willing to pay a bit more. It is the standard “little effect” list that our mothers told us when we were kids. Missing are larger investments like autos, solar panels, increased home insulation, energy saving appliances. I wish more data were available because I not really sure I consider buying an energy efficient light bulb for a buck or two more being “willing to pay more to save the environment”. I was thinking that statement would come with some more significant meaning.

The survey focused on items like soda (“A” gives 5% to environmental causes & “B” is cheaper). 70% of teens went for cheaper choice while only 60% of 18-29 went for 5% back. What I want to see is behavior when the cost of the item went up. If only 60% will spend nominally more when the issue is a can of Coke (KO), what is the behavior when it is $200 on a new washer and dryer or a water heater?

I think the fact auto dealers like AutoNation (AN) report hybrid vehicles choking lots because they will not sell due to the cost answers the question, no?

What the survey told me that investments in companies that focus on the “greening” of out world, at least from the consumer perspective are going to hit a serious wall until the overall economy suffers significant improvement. If the most devoted of the ideal are proving to be so price sensitive for low cost items, the number for older, more fiscally responsible generations must be stunningly low.

I think it also means that if the “green” company you are thinking about investing in is not doing business in a government mandated program (ethanol, for example), I would give serious pause as to what its future looks like at least for the next year or two..

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