Wednesday, October 1, 2008

Three brief items

1. The credit crunch is having a predictable impact on merger and acquisition activity.

Still, a deal is a deal. Parties ought to be deterred from simply walking away when performance of their agreed-upon obligations has become onerous.

Vice Chancellor Stephen Lamb of the Delaware Chancery Court has refused to let Hexion Specialty Chemicals abandon its $6.5 billion buyout of Huntsman Corp.

Lamb's ruling came down Monday. "We are reviewing the decision and our options," said Hexion in a statement.

2. Ciena Capital has sought the protection of the bankruptcy courts. Ciena, a real estate lender, is 95% owned by Allied Capital, the bĂȘte noire of famed short seller David Einhorn.

Indeed, Einhorn wrote a book last year chiefly devoted to venting his frustrations at short selling Allied. He had begun making a public case for short selling, on the basus of the illiquidity of its portfolio, in the spring of 2002. Here's a link to an informative review of that book subscription required but free.

Short selling is all about timing. If you take a short position, you're betting not just that the stock will fall sometime, but that it will fall within the framework needed to make that position pay off. Einhorn's position in Allied over the period discussed inhis book was no diaster, but it proved no bonanza either.

No matter how badly the bankruptcy of Ciena may hurt Allied, then, it comes rather too late to vindicate views asserted in 2002. Though, let it be noted, Allied Capital stocks fell 14% yesterday, as general market indexes were rising.

3. Maurice Greenberg. A few days ago I would have saids that "Hank" Greenberg had given up on playing a continuing role at his old company, AIG.

He had filed a statement on September 25, after all, to the effect that he and entities under his control are selling 40 million shares of AIG stock. They took a big loss in doing so, too.

But AIG is being effectively nationalized, and its new Washingtonian masters want it to sell off assets.

This has created an opening for Greenberg to play a different sort of role. No longer as boss, no longer as quite so large a shareholder. But now he shows up as ... willing buyer.

Meanwhile the revolving door in from of the CEO office at AIG continues to twril. Greenberg sent his letter asking to be allowed to bid on the assets to ... Edward Libby. Who has been CEO for all of two weeks.

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