Wednesday, December 30, 2009
It now appears though that Aiful has some good news to celebrate this holiday season. It will not have to liquidate, because its own creditors have agreed to a debt rescheduling plan through an out-of-court mediation. Here's the link to a PDF of the company's announcement.
The new regulations that led to this point were inspired, it appears, by a decision of Japan's Supreme Court in January 2006 see details here.
The short version is this: The high court ruled that consumer loan interest rates in excess of 20% are illegal, under a 1954 statute. In response, the couyntry's legislature passed the Money Lending Business Law, which endorsed the 20% cap, but allowed for a transition period during which companies could continue to charge more than 20%, although only in the expectation that this was breathing-room, like the yellow traffic light you see before it turns red.
Anyway, the red light is about to come on -- and this situation is chasing out some of the foreign-based consumer lending companies that had been doing business in Japan, as well as throwing a scare into the home-grown companies like Aiful.
Tuesday, December 29, 2009
What underlies this lawsuit is a classic "white knight" situation. The executives at Applica, an appliance firm which markets under the Black & Decker brand, weren't at all happy at the prospect of being taken over by NACCO. But another suitor, Harbinger Capital Partners, appeared more likely to let these executives keep their job. So (these unproven allegations run), some of the executives at NACCO passed nonpublic information to a consultant working for Harbinger. Harbinger then alegedly used that information to craft disclosure documents of its own that helped sink the deal.
Eventually (this part is not allegation, but public fact), Harbinger won the bidding war and combined Applica with another appliance company it controls, Salton Inc.
The whole opinion is available here, but to my mind, the most intriguing of the counts in the lawsuit is the allegation of tortious interference with contract, pp. 57-60.
There are five common-law elements for such a claim: (1) a contract, (2) a third party's knowledge of this contract, (3) an intentional act by that third party, (4) that act must be without justification and (5) it must cause damage.
The court said that there could be "no meaningful dispute" about either of the first two elements, and that in earlier sections of the opinion (dealing with breach of contract) he had setled the fifth, on the face of the complaint, in the plaintiff's favor. So what was unique to the tort claim was the dispute over elements (3) and (4).
The Court of Chancery found that the complaint satisfied these points, as well, by alleging that "Harbinger ... obtained an unfair advantage over NACCO by accumulating a large stock position based on false disclosures. Because of Harbinger's actioons, NACCO did not receive the full benefit of the contractual protections that NACCO bargained for...."
As merger-and-acquisitions activity revives from its recent dormancy, many are the market participants who will want to study this decision.
Monday, December 28, 2009
The story, by Naureen Malik, is devoted chiefly to the wariness of private investors to get into cellulosic ethanol, and concomitantly to the wariness of the Dept. of Energy to contribute money in this area until private investors have been lined up, in what Malik calls a "chicken-and-egg problem." (Psssst. Malik. Why consider it a 'problem'? It may be the optimal result -- the non-waste of taxpayers' dollars on a boondoogle.)
She quotes Arnold Klann, chief executive of BlueFire Ethanol Fuels, on the difficulties of finding investors for the projects he has in mind: "They all want to be the first to finance the second project, they won't finance the first."
After all these years, are we still talking as if "the first" cellulosic-ethanol project is a matter for the use of the future tense? The answer: because all the talk of break-throughs in the past has been just that: talk.
Here's a Motley Fool piece on the subject from nearly three years ago. Jack Uldrich was at that time encouraging "investors in ethanol companies such as Pacific Ethanol (Nasdaq: PEIX), Archer Daniels Midland (NYSE: ADM), and Aventine (NYSE: AVR), to begin boning up on cellulosic ethanol...."
Well, I don't suppose the reading could have done them a lot of harm, but there were other things they might more profitably have been boning-up on in terms of market-ready projects.
Sunday, December 27, 2009
In the middle of this month, a Reuters investigative reporter, Matthew Goldstein, was working on a story about Steven Cohen, a big fish in the hedge fund pond. Goldstein apparently had good reason to believe and report that the SEC is investigating Cohen on charges of insider trading. He of course called Cohen for a reaction. Cohen wasn't satisfied with the usual "I have done nothing wrong" or "no comment." Instead, Cohen called Goldstein's superiors in Reuters (also Chris Clair's superiors) and they spiked the story.
Talking Biz News is is on it.
Anyway, Clair blogs about hedge funds for Reuters, and he wrote as follows:
News organizations are supposed to break news, not make it. Too often, though, in my nearly 20 years in this business, the news has become the news. Jayson Blair, Patricia Smith, Stephen Glass, Rick Bragg, the reporting leading up to the Iraq War … the list goes on and on, and those are just the high-profile cases. Friends of mine—good, honest, hard-working journalists looking to tell the truth—have had stories killed for all sorts of reasons that had nothing to do with the accuracy or relevance of the pieces.
And now, in my own back yard, comes word of the latest journalistic stinker.... When I read about the incident, I was befuddled and beside myself. At first I didn’t want to believe it. Then, the more I thought about it the more I realized that given the state of journalism today, it really wasn’t all that surprising. What was surprising, in fact, was that I hadn’t heard about something like this before.
Some cancerous chickens are coming home to roost in journalism. This was a profitable business for a long time. The information monopoly, as monopolies tend to be, was a lucrative one for those who controlled it. Profits attracted businesspeople, who moved up the chain of command both on the editorial side and the business side by devising plans to increase profits still further. Reporters at larger papers and news outfits started earning more money, which helped change the makeup of those seeking jobs in journalism. And the rise of the public relations industry meant that for many journalism was just a stepping stone to real money and power.
There is a good deal more, but the bottom line is that Clair has succeeded in drawing wider attention to the story -- or rather to both of them, the one about Cohen and the one about the spiking of the story about Cohen.
As for example here.
Wednesday, December 23, 2009
Facet refused the bid, and Biogen threatened a proxy contest.
This seemed to have the effect that an unwanted suitor often does -- the maiden looks about for a white knight. She "lets down her hair," like the gal at the top of the Tower, if the right man is standing beneath. Thus, we get an announcement like this:
Facet Biotech recently announced that it has agreed to amend its rights agreement [i.e. let down said hair] to permit Baupost Group to purchase a number of additional shares without the rights under the rights agreement becoming exercisable. Baupost beneficially owned 3.5 million shares of Facet Biotech common stock on December 16, 2009, which represents 14 percent of the total shares outstanding. The amendment will increase the ownership limit for Baupost from 15 percent to 20 percent of the total outstanding shares of Facet Biotech common stock.
Ah, the ways of love.
Tuesday, December 22, 2009
A share was worth $16.25 at the close of business November 16, but only $13.22 after yesterday.
Still, one might fairly argue that the Refco analogy that immediately sprung to my mind at the time was hasty. Refco folded within a single week after its accounting came under scrutiny. That scrutiny began in earnest, as I've mentioned before, on October 10, 2005 when the company announced it had discovered a receivable owed to the company in the amnount of $430 million. Refco filed for chapter 11 protection only one week later. Since Overstock is still around, should we dismiss the proposed analogy?
Not entirely. Financial services firms, like Refco, are especially vulnerable to a quick unravelling, simply because trust is all they are selling. It is their stock in trade. If Overstock were only selling trust in its value as a counter-party, it would likely be done now, too. But Overstock is selling physical merchandise, a fact that can slow the forces of destruction.
The Facebook shenanigans that have more recently garnered attention began well before the fall-out of auditee with auditor. Yet the emergence of the former into the light of dayt so soon after the latter has a poetic appropriateness to it, and some of the statements that Byrne and Bagley have made since the matter became public have had the sound of desperation.
Oh, BTW, a moment ago I mentioned that Overstock sells physical merchandise. I wonder, though, if that is still what underlies its stock price. Perhaps for purposes of stock analysts Overstock is really selling a share of its lawsuits. But more on that possibility another time.
Monday, December 21, 2009
Bloomberg has put out a story on some of the problems with the proposed flight to Switzerland, especially Geneva. There are all those quotidian non-novelistic details with which to deal, like a housing shortage there for example. There is also the question of office space. The Bloomberg report quotes Tim Dawson, who works in Geneva himself, saying: "There is more office space in Canary Wharf than in the whole of Switzerland."
Canary Wharf, BTW, is a large office/shopping development largely constructed in the 1990s, in East London, in an area of idled docks. At an early stage of development, in 1993, Canary Wharf's working population was only 7,000. By January 2000, that working population figure was 27,000. So although financial business can and did in that interval leave central London's famous "Square Mile" for a place about 3 miles as a crow flies to the east and south, to continue all the way to Geneva presents graver problems.
Clearly the Bloomberg reporter and Mr Dawson are right to make this point, it does not follow though that the government in London can continue to increase the burden of doing business there with impunity. People who work in the financial district of London (either the Square Mile or Canary Wharf!) come from a lot of places around the world. The financial centrality of London is preserved by these ex-pats. And where will most of them go if the burdens become too great? To no single place. Simply: home.
Sunday, December 20, 2009
Other news on TTWO is at the other end of this click.
TTWO is notorious as the publisher of Grand Theft Auto, a series of video games that features sometimes shockingly realistic depictions of violence. Though the Grand Theft series has been wildly popular, TTWO is at present a money loser.
Last year, TTWO successfully resisted a $2 billion bid by Electronic Arts (EA). Be careful what you wish for, though, you might get it: independence, in particular, can be costly. The stock's value was at $17 when EA made the offer. It immediately lept to $26, reflecting EA's interest, and stayed in that neighborhood until the market understood that the deal wasn't going to go through after all, whereupon the price of TTWO began to fall. And kept falling. To less than $6 this March.
TTWO has recovered a bit since. It was close to $12 in mid-November, and has wildly zig-zagged, mostly downward, since.
I'm sure Icahn will have something to say about how it should be run, and we'll have a chance to revisit Take Two here.
Wednesday, December 16, 2009
Way back in November 2001, several European-centered news organizations, including Reuters, The Financial Times, and the Guardian, received under unclear circumstances what appeared to be a presentation originally prepared in connection with a planned corporate acquisition. The leak, if trustworthy, was important: Interbrew, a large Belgian-based beer company, (best known for Stella Artois and Beck's) was about to launch a bid to buy SAB, the South Africa based rival best known for Carling Black Label. And it was prepared to pay up to 650p per share for SAB, but it was going to try a low-ball bid of 500p first.
Some of the news organizations ran the story. They didn't say the bid would happen, but they did say they had received documents claiming, etc. On Nov. 29, 2001, for example, the Guardian published a story saying that it had a “secret document” which it said had been couriered to a “large chunk” of the business press. The price of SAB rose, of course, and my guess is that the leaker then sold his shares of it for a nice quick profit.
The truth behind these documents seems to be that they were real, but that the price and had been tampered with. (The actual price range contemplated in the real documents had been 400-550, not 500 - 650. The leaker presumably changed the numbers to create a higher price bounce.) Interbrew decided it would not go forward with the proposed bid. And it was furious at the unknown leaker, so it sued the media outlets and demanded to know where they had gotten this material.
Don't cry for Interbrew. They later became Inbev, and still later took over Anheuser-Busch. Anyway, back to 2001...the outlets resisted, Interbrew filed a lawsuit in the UK, and over the course of the following years, the case wound its way up to the European Court of Human Rights.
Possibly important point: NONE OF THE MEDIA OUTLETS INVOLVED had ever promised confidentiality to the leaker. Yet they resisted giving up information about their receipt of the tampered-with documents because they believed doing so would hurt their ability to make such promises when it was warranted.
December 15, 2009: ECHR has ruled in favor of the news outlets. "Interbrew's interests in eliminating, by proceedings against X, the threat of damage through future dissemination of confidential information and in obtaining damages for past breaches of confidence were, even if considered cumulatively, insufficient to outweigh the public interest in the protection of journalists' sources."
Comments, anyone? (And yes, Mr. Rather, you may go to the airline ticket counter immediately if you like.)
Tuesday, December 15, 2009
The ERISA says simply: "[T]here shall be payable to the corporation [PBGC], with respect to each applicable 12-month period, a premium at a rate equal to $1,250 multiplied by the number of individuals who were participants in the plan immediately before the termination date.” But the bankruptcy court agreed with Oneida that this was a pre-petition claim under chapter 11, subject to relief. This is a matter of enormous concern to many companies who find, as the population of the US (like that of much of the rest of the industrialized world) ages, that pension obligations are a significant burden.
It is a burden they have largely brought upon themselves. I don't know anything of Oneida's specific situation, but many US companies have used the prospect of juicy pensions as a way of easing otherwise difficult labor negotiations. The unions representing their workers were also complicit in this game, because they could present higher pension promises as a negotiating victory to their rank-and-file, without worrying much about whether those promises were funded or just hot air. So the bill comes due, and the restaurant's diners keep passing it around the table.
The 2d Circuit has since overturned the bankruptcy court's discharge, though, preserving the ERISA obligation. And it was the 2d Circuit decision whence the company sought a writ of certiorari. Now SCOTUS has let that ruling stand, leaving the other circuits free to go their own ways without guidance. Of course, if those other circuits follow the 2d Circuit's precedent, there will never be a need for SCOTUS to weigh in. This is one of a class of cases in which SCOTUS prefers to wait until a split among the circuits develops.
Another decision-not-to-decide: the Chrysler bankruptcy. Yesterday the Justices dismissed an appeal brought by Indiana pension funds who objected to the ham-handed way in which the Obama administration pushed the old Chrysler through bankruptcy at their expense. The 2d Circuit in June had approved of the shotgun sale of most of Chrysler's assets to Fiat, but Justice Ginsberg stayed the sale soon thereafter. Now the Justices have sent the case back to the 2d Circuit with an order that the circuit dismiss the challenge to that sale as moot.
The state treasurer in Indiana says that he is happy with the high court's decision not to decide on mootness grounds. The manner in which it is done effectively erases the Second Court's decision as a precedent, and this means there is no precedent upholding the kind of emergency proceeding employed here. Its critics survive to fight another day.
Monday, December 14, 2009
Today's Wall Street Journal informs me that shareholders of Dragon Oil PLC, a Dublin-based operation, have rejected a takeover offer from Dubai-based Emirates National Oil Co. This is despite a recommendation by the advisory group RiskMetrics, which says that in its view the price offered is fair.
Dragon Oil's principal asset is the Cheleken contract area in the Caspian Sea, with what the story, with James Herron's byline, calls "proven and probable reserves of 645 million barrels of oil and contingent gas resources of 3.2 trillion cubic feet as of June 2008."
As I observed last month, the answer to the question, "what is a 'proven' reserve?" is not as self-evident as the naive among us might expect. I wonder how solid these numbers are, especially since they have to be date-stamped to a year and a half ago.
2. Paul Samuelson, RIP
Paul Samuelson, the economist who wrote the textbook in which generations of undergraduate college students have learned the basics of supply and demand, micro and macro, fiscal and monetary policy tools, etc., has passed away at the age of 94. I have seen anything more specific about the cause of death than ... welll ... the fact that he was 94.
Samuelson was married to Marion Crawford from 1938 until her death in 1978. In 1981 he re-married, Risha Eckhaus, who survives him, as do six children from his first marriage. As does a nephew named Lawrence Summers, Obama's chief economic advisor.
3. The GSI bankruptcy
GSI is a multi-national family of companies that supply technology to the global medical, electronics, and industrial markets. Three of the entities within this family filed for chapter 11 reorganization last month in the bankruptcy court in Delaware: GSI Group Inc., the parent Canadian holding company; GSI Group Corp.; and MES International, Inc., a non-operating subsidiary of GSI Group Corp.
On November 23, Stephen Bershad requested the creation of an equity committee. It now appears that he'll get his wish. He has entered into an agreement with the debtors in possession that they will support this request, in return for his commitment not to contest the April 30, 2010 meeting date set by the Board of Directors.
If the equity committee is not formed by December 31, 2009, or, if formed, is disbanded for any reason, Mr. Bershad retains his right to challenge the April 30, 2010 meeting date.
Sunday, December 13, 2009
1. Cisco and Tandberg. On Wednesday, December 2, I wrote here that Cisco Systems had extended the offer period in its effort to acquire Tandberg, a Norway based company.
Apparently, Cisco soon thereafter won its prize. That link will also give you a tick-tock on the whole courtship.
2. Cadbury. This one is still up in the air. The relevant trade union is unhappy with the idea of Kraft taking over. On the other hand, Kraft's interest has attracted other bidders, and it seems likely Cadbury will lose its independence to somebody, although the question "to whom?" remains unanswered.
The European Commission has given itself until January 6 to study the matter.
3. MRV Communications. Back in early October I told you that MRV, the California based networking-ethernet company, was going to hold an annual shareholder meeting on November 11, and it would face a proxy challenge at that time. So ... what happened?
The two sides kissed and made up, that's what. Spencer Capital secured an agreement from the company that three of the board members would resign on the day of the annual meeting: Furchtgott-Roth, Jaensch, and Tsui. In return, Lotan, Margalit, Fischer, Herman, Keane, and Shidlovsky would all be re-elected without opposition. So there are three new faces on the board: Charles M. Gillman, Michael J. McConnell and Kenneth H. Shubin Stein.
Intriguingly, one of the three winners who has been put out to pasture in this way, Daniel Tsui, won the Nobel Prize in Physics in 1998, for the discovery of "a new form of quantum fluid with fractionally charged excitations,"
Wednesday, December 9, 2009
This includes a greater risk of personal liability and enforcement actions by the federal bank regulators. Further, federal regulations restrict the degree to which banks may indemnify their directors in the event of such enforcement actions. You might ask: why should bank directors be at a disadvantage vis-a-vis other directors? The best short answer is that it is an artefact of history. Banking has always been different.
Heck, I recently became the owner -- half inadvertently -- of two recent books about notorious bank robbers of the 1930s. One concerns the Barrow gang -- Clyde Barrow, Bonnie Parker, and their shifting cast of associates. The other treats of John Dillinger, who was following the same pursuit at the same time though with a range somewhat to their north. One common theme from both books is that there was a certain degree of popular Robin-Hoodish delight in the tales of these outlaws and their derring-do. An audience watching the newsreels before a movie might think, "Well, the banks have been stealing from me, I can hardly feel sympathy for them when someone steals from them."
Banks have been different since long before that. The Medici will forever be remembered as bankers. Heck, they are sometimes misremembered as if they invented banking, and double entry bookkeeping into the bargain.
And surely amongst the many people with their homes "underwater" nowadays, owning more than the house in total is worth, there will be few who will consider bank board directors, even given their extra layers of liability as described by the folks from Ropes & Gray, as especially plausible objects of sympathy.
Tuesday, December 8, 2009
The board elections are being contested by a shareholders group calling itself Shareholder Advocates for Value Enhancement (SAVE).
Glass Lewis & Co. is supporting SAVE. It believes "that the Board's recent amendments to the Company's bylaws call into question whether the Board is truly acting in shareholders' best interests." Apparently, these recent amendments eliminate the ability of shareholders to call special meetings and stagger the Board into three classes -- taking the pro-entrenchment side of two of the classic contentious issues of corporate governance.
On its own behalf USA Technologies has characterized the situation thus: "At precisely the moment in the Company's history when we achieved market leadership and have developed a roadmap to achieve profitability, we believe the dissidents are opportunistically seeking to take control of your Company to serve their own agenda. The dissidents are attempting to distort and discount our achievements by cherry-picking stock price data that paints our Company management team and Board in the worst possible light."
I don't see a specific defense of the recent bylaw amendments in these materials. But I suppose management if they believe the above assertions would also say, "This sort of dissident is exactly the reason we need to be able to entrench ourselves."
Monday, December 7, 2009
Earlier this year, as it happens, Lord Davies faced a good deal of pressure to resign his office over a now-forgotten scandal that involved his supposed excessive coziness with the Mugabe regime in Zimbabwe. That appears to be all settled, or perhaps just forgotten, now.
Here's a link from that forgotten era of February 2009.
Such things forgotten, Davies is now expected to head off unsatisfactory results in the Gulf. Results so unsatisfactory, in fact, that the Times of London says this morning that the two defaulting Saudi firms could "do as much damage to the Gulf's bruised financial reputation as the Dubai shock of ten days ago."
The two conglomerates involved are not in a position to present a united front, so if Davies is clever he may be able to make use of the tensions between them. Specifically, AHAB has accused the chairman of Saad of a fraud that could amount to $10 billion.
Sunday, December 6, 2009
That is of course a full decade before insider-trading charges were brought against Rajaratnam this October.
Roomy Khan was a products marketing manager at Intel. It appears that she faxed confidential sales and pricing information to Raj's hedge fund, Galleon, in 1998. She was charged with, and in time (in 2002) pleaded guilty to, wire fraud in this connection.
I have to wonder: how material is such information? Obviously in principle sales and pricing information could lead a trading in receipt of such a leak to the conclusion that Intel's latest sales are in excess of projections -- and that when this fact becomes public, the price will rise to reflect it. Or the other way around. Such information could then inspired buying or selling, respectively. But how big a piece would her leak have been without the over-all mosaic of information relevant to whether the price of Intel stock will rise or fall on a given day?
Imagine just for the sake of a hypothetical that Intel made the following two announcements on the same day: it is planning a new stock issuance, and it had just sold more chips than it had expected. If these two announcements are the only bits of news relevant to Intel's value that day, and if there is nothinng industry-wide or economy-wide that swamps their effect, then the relative size of the two developments will presumably determine whether the dilutive effect of the former announcements sends the over-all stock value down, or the value-enhancement of the latter sends it up. It isn't like looking at the back of the book of the teacher's edition of a textbook to cheat on your homework.
In the market, there is no teacher's edition, except for the actual passage of time, and the real movement of that stock.
Wednesday, December 2, 2009
Reuters is quoting one analyst thus: "I think Cisco will succeed. They would not have extended the offer if they had a low acceptance level."
Cisco is the world's largest network equipment maker. Tandberg is the leader in videoconferencing equipment -- which sounds like a natural hook-up. Apparently, videoconference is a market segregated by "tiers," and Tandberg's great strength is in the mid-tier, in terms of price and sophistication.
Even before the increase, Cisco's initial offer was a 38.3% premium on the closing share price of Tandberg as of July 15. That is how it is characterized on Cisco's corporate blog in a entry by senior vice president Ned Hooper.
But is July 15th a relevant day? Hooper calls it "one day prior to major media reports of a possible transaction."
But as you'll see if you go to that blog entry and look at the comments beneath it, some doubt the significance of July 15th as a measuring point. The Norwegian stock market as a whole apparently rose significantly in the weeks subsequent to that "major media report," so some at least of the change in Tandberg's stock value reflects that broader rise, and is unrelated to the possibiliuty of this transaction. Since the investors in Tandberg would have participated in that rise anyway (so runs the reasoning) estimate of the true size of the "premium" have to be adjusted.
Tuesday, December 1, 2009
It appears that Hong Kong securities authority, the SFC, should amend its listing rules.
Why? An orange-plantation firm called "Asian Citrus": that's why. Asian Citrus has traded on the Alternative Investment Market of the London Stock Exchange since August 2005. The group's first orange plantation (which was acquired from a precursor entity) is 30.9 sq. kilometers in Hep County, Guangxi province. The second, which the group established, is 37.1 sq kil in Xinfeng county, Ganzhou, Jiangxi province. A third is under development, in Dao country, Human province.
But the recent excitement has nothing to do with the LSE and little to do with the actual business of growing and selling oranges. No ... Asian Citrus was listed on the Hong Kong Exchange last week, and promptly more than 85% of its initial value.
This happened because even before its listing, AC had split its shares 10-for-1. But in the summary section of its listing document, not only did it neglect to mention this fact, but it based its earnings-per-share figure on the number of shares outstanding before the stock split. So the ersatz earnings-per-share figure was ten times the one that an accurate document would have shown. The same shenanigans apply to the company's disclosure of its net tangible asset value.