1. Trident Microsystems
Trident, based in Santa Clara, Calif., is a designer and marketer of integrated circuits and associated software. It recently concluded a deal with a Dutch company, NXP Semiconductors, buying NXP's television systems and set-top box business lines.
Pursuant to this deal, NXP is receiving "newly issued shares of Trident common stock equal to 60% of the total shares outstanding post-closing, including approximately 6.7 million shares that NXP will purchase at a price of $4.50 per share, resulting in cash proceeds to Trident of $30 million."
The deal resolves a proxy contest that had been brewing. The disaffected stockholders, led by Spencer Capital Management LLC, had been complaining of Trident's poor performance. Now they seem to concede that Trident is trying a new direction, and they are giving that new tack a chance, withdrawing their intent to nominate a slare of directors.
"They also serve who only stand and threaten."
2. Prepackaged bankruptcy for CIT.
CIT, the bank holding company (NYSE: CIT) the survived a near-death experience in July, has seen its stock price return to ... a little above a dollar.
It continues to work to reduce its $30bn debt load by at least $5.7bn through a debt exchange, and is also soliciting votes for a pre-packaged Chapter 11 bankruptcy filing, which it will use if too few bondholders agree to the debt exchange.
Now Carl Icahn has stepped in, contending that the company's plans are unfair to bondholders, and he has a better idea. It isn't yet clear (to me at any rate) just what his angle on this is. I'm guessing he isn't helping those bondholders out of a charitable impulse.
3. Cerberus consolidates the gun and ammo industry
Cerberus, the hedge fund and private equity fund group that took something of a beating in the automotive industry, is now working on a new business plan.
The Wall Street Journal reports that Cerberus has been in the market for small guns-and-ammo operations see here. It has bought seven of them over three years, and now it has consolidated them into one, and plans to take that one public.
In the first half of 2008, Cerberus owned gun operations lost $6.1 million. In the first half of this year, they made $23 million. That sounds like a nice turnaround.
Showing posts with label Cerberus Capital. Show all posts
Showing posts with label Cerberus Capital. Show all posts
Wednesday, October 21, 2009
Sunday, September 13, 2009
The risks of "risk arb"
A couple of weeks ago, the US District Court, District of Connecticut dismissed a class action lawsuit brought against United Rental by hedge funds and other entities who had invested in it back in 2007.
Back in the still-heady days of 2007, Cerberus had represented that it would buy United Rental Inc. (URI), and this led to purchases of URI stock by various speculative third parties, engaging in a practice naturally called "merger arb," or known, sometimes, more ominously as "risk arb." At the time of such an announcement, a target stock's price on the market is generally below the acquirer's bid price -- the difference is known as the "control premium." The risk arb guys, buying the stock on the market, are better that the deal will be consummated as planned, and they can pocket the risk premium for themselves, minus their transaction costs.
Of course there is a very brief window during which that play is possible, because usually there are enough risk-arbers around to push the market price up to the big price well before the deal closes. Sometimes the market price gets above the bid price, which can mean either of a couple of things: somebody is betting that another suitor will appear, turning the deal into an auction; or there is simply a "greater fool" effect at work.
But back to 2007. By November of that year, the folks at Cerberus had troubles. They saw that the credit markets were tightening, and Chrysler -- which they ownesd at this point -- was eating up their cash. So Cerberus pulled out of the UR deal. URI's stock price took a big hit, and the company received liquidated damages.
At least the less numble of the risk arb types took a beating. They didn't take it lying down, though. They brought a lawsuit on the theory that when URI management first received intimations from Cerberus that they might need to "renegotiate" the acquisition, that fact should have been and was not made public. 07-cv-01708-JCH First New York Securities LLC, et al v. United Rentals Inc et al
That is the case that was dismissed last month, on the grounds essentially that the assertions in the complaint, accepted as true for the purpose of the motion, do not entail a strong inferenece of scienter. https://ecf.ctd.uscourts.gov/doc1/04112228541
This case may be important in the evolving understanding of how scienter must be pleaded under the evolving standards of the PSLRA. But my initial reaction to it was simply: "Man up, wimps! You knew you were taking this risk. That's how the capitalist cookie crumbles." Given that simple unsophisticated reaction, I have to give the court in this matter three cheers.
Back in the still-heady days of 2007, Cerberus had represented that it would buy United Rental Inc. (URI), and this led to purchases of URI stock by various speculative third parties, engaging in a practice naturally called "merger arb," or known, sometimes, more ominously as "risk arb." At the time of such an announcement, a target stock's price on the market is generally below the acquirer's bid price -- the difference is known as the "control premium." The risk arb guys, buying the stock on the market, are better that the deal will be consummated as planned, and they can pocket the risk premium for themselves, minus their transaction costs.
Of course there is a very brief window during which that play is possible, because usually there are enough risk-arbers around to push the market price up to the big price well before the deal closes. Sometimes the market price gets above the bid price, which can mean either of a couple of things: somebody is betting that another suitor will appear, turning the deal into an auction; or there is simply a "greater fool" effect at work.
But back to 2007. By November of that year, the folks at Cerberus had troubles. They saw that the credit markets were tightening, and Chrysler -- which they ownesd at this point -- was eating up their cash. So Cerberus pulled out of the UR deal. URI's stock price took a big hit, and the company received liquidated damages.
At least the less numble of the risk arb types took a beating. They didn't take it lying down, though. They brought a lawsuit on the theory that when URI management first received intimations from Cerberus that they might need to "renegotiate" the acquisition, that fact should have been and was not made public. 07-cv-01708-JCH First New York Securities LLC, et al v. United Rentals Inc et al
That is the case that was dismissed last month, on the grounds essentially that the assertions in the complaint, accepted as true for the purpose of the motion, do not entail a strong inferenece of scienter. https://ecf.ctd.uscourts.gov/doc1/04112228541
This case may be important in the evolving understanding of how scienter must be pleaded under the evolving standards of the PSLRA. But my initial reaction to it was simply: "Man up, wimps! You knew you were taking this risk. That's how the capitalist cookie crumbles." Given that simple unsophisticated reaction, I have to give the court in this matter three cheers.
Sunday, October 12, 2008
GM news
I found the stock price drop-off on Thursday surprising. If you'll read my commentary Wednesday you'll see why. I had thought the fall-off earlier in the week was the result of a one-time event: pressure on a lot of hedge funds to liquidate some of their equity holdings in order to satisfy end-of-quarter redemption demands from dissatisfied investors.
I had hoped/expected some levelling off by Thursday. Instead, the DOw fell another 600-plus points.
Allow me then to make the point that this proves how I don't know nuttin'. So don' take this blog (or any other blog!) as a dispensary of investment advice. Please.
My best guess about Thursday is that the market was spooked chiefly by an S&P announcement in the late afternoon Wednesday. Standard & Poor's put General Motors, a US corporate icon if ever there was one, on "credit watch negative."
By the end of the week, Barclay's had lowered its loss-per-share estimate for GM for 2008. It had previously predicted that when this year's books are done, GM would lose $15.68 per share. Now it's guesstimating $15.87.
How has GM responded? Officially, thus: "Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets. But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers."
Unofficially, GM is said to be in talks with Chrysler -- or rather with its parent company -- about a merger. How will that help? Won't that simply absorb badly-needed cash (or strain the credit that S&P just put on watch)? Apparently, the idea is that GM will pay for Chrysler with its remaining interest in its financing arm, GMAC. General Motors spun off GMAC two years ago, selling a bare majority of the equity, retaining 49%. So now it will give Cerberus that 49% and ger Chrysler.
Why? To increase its market share, presumably, though that hardly amounts to a cure to its ills. Chrysler suffers from the same ills, which is why it isn't part of Daimler-Chrysler any more.
The reported talks leave me wondering: why has it still occurred to no one that the most logical business combination of the world would be a takeover of the auto industry by the petroleum companies?
I've raised this before, hoping to get some explanations of why I'm wrong. Still nothing. But it seems to me that the logical model here is that of the shaving-blade industry. Gillette sells the razors at a loss. It can afford to do so, because the economic significance of a razor is to lock a consumer into buying a stream of blades that fit it, and the profit from those blades more than compensates the loss on the razor.
If Exxon-Mobil and its peers bought up the US auto industry, they could afford to sell automobiles for a loss, for the same reason. The economic significance of a car is to lock a consumer into the purchase of fuel.
So get to work, deal makers!
I had hoped/expected some levelling off by Thursday. Instead, the DOw fell another 600-plus points.
Allow me then to make the point that this proves how I don't know nuttin'. So don' take this blog (or any other blog!) as a dispensary of investment advice. Please.
My best guess about Thursday is that the market was spooked chiefly by an S&P announcement in the late afternoon Wednesday. Standard & Poor's put General Motors, a US corporate icon if ever there was one, on "credit watch negative."
By the end of the week, Barclay's had lowered its loss-per-share estimate for GM for 2008. It had previously predicted that when this year's books are done, GM would lose $15.68 per share. Now it's guesstimating $15.87.
How has GM responded? Officially, thus: "Clearly we face unprecedented challenges related to uncertainty in the financial markets globally and weakening economic fundamentals in many key markets. But bankruptcy protection is not an option GM is considering. Bankruptcy would not be in the interests of our employees, stockholders, suppliers or customers."
Unofficially, GM is said to be in talks with Chrysler -- or rather with its parent company -- about a merger. How will that help? Won't that simply absorb badly-needed cash (or strain the credit that S&P just put on watch)? Apparently, the idea is that GM will pay for Chrysler with its remaining interest in its financing arm, GMAC. General Motors spun off GMAC two years ago, selling a bare majority of the equity, retaining 49%. So now it will give Cerberus that 49% and ger Chrysler.
Why? To increase its market share, presumably, though that hardly amounts to a cure to its ills. Chrysler suffers from the same ills, which is why it isn't part of Daimler-Chrysler any more.
The reported talks leave me wondering: why has it still occurred to no one that the most logical business combination of the world would be a takeover of the auto industry by the petroleum companies?
I've raised this before, hoping to get some explanations of why I'm wrong. Still nothing. But it seems to me that the logical model here is that of the shaving-blade industry. Gillette sells the razors at a loss. It can afford to do so, because the economic significance of a razor is to lock a consumer into buying a stream of blades that fit it, and the profit from those blades more than compensates the loss on the razor.
If Exxon-Mobil and its peers bought up the US auto industry, they could afford to sell automobiles for a loss, for the same reason. The economic significance of a car is to lock a consumer into the purchase of fuel.
So get to work, deal makers!
Wednesday, November 21, 2007
Shake-up at H&R Block
The tax-preparation company, H&R Block, announced yesterday that its Chairman and CEO, Mark A. Ernst, has resigned from both of those posts.
Ernst has been replaced as chief executive, on an interim basis, by Alan Bennett.
The new chairman is Richard Breeden, and that (for proxy partisans) is the story here.
Breeden has wanted Ernst out of the way for some time. Breeden, who was the chairman of the Securities and Exchange Commission through most of the administration of George H.W. Bush, has been keeping busy recently as the manager of a hedge fund, aptly called Breeden Partners. In that capacity, he's been a very activist stockholder in a variety of the companies in his fund's portfolio.
One of those companies, of course, is H&R Block. And Breeden's contention is that under Ernst, the company has drifted from its moorings as a tax-services company, ineffectively dabbling in other fields. He's presumably going to be a back-to-basics kind of chairman.
Breeden's unhappiness on this point appears to have preceded, but it was certainly fed by, this summer's subprime mortgage crisis, which hit H&R's mortgage lending unit especially hard.
One analyst is quoted in today's WSJ saying: "H&R Block has delayed recogizing the losses in their subprime businesses ... because they were trying to get the sale done with Cerberus."
Cerberus. That darned dog shows up everywhere, doesn't he?
But congrats to Breeden, and I hope his victory doesn't end up giving him indigestion. I may need the services of the company he's now heading ... next March or thereabouts.
I wish everyone celebrating the holiday tomorrow the best for the long weekend. You'll hear from me again here on Sunday.
Ernst has been replaced as chief executive, on an interim basis, by Alan Bennett.
The new chairman is Richard Breeden, and that (for proxy partisans) is the story here.
Breeden has wanted Ernst out of the way for some time. Breeden, who was the chairman of the Securities and Exchange Commission through most of the administration of George H.W. Bush, has been keeping busy recently as the manager of a hedge fund, aptly called Breeden Partners. In that capacity, he's been a very activist stockholder in a variety of the companies in his fund's portfolio.
One of those companies, of course, is H&R Block. And Breeden's contention is that under Ernst, the company has drifted from its moorings as a tax-services company, ineffectively dabbling in other fields. He's presumably going to be a back-to-basics kind of chairman.
Breeden's unhappiness on this point appears to have preceded, but it was certainly fed by, this summer's subprime mortgage crisis, which hit H&R's mortgage lending unit especially hard.
One analyst is quoted in today's WSJ saying: "H&R Block has delayed recogizing the losses in their subprime businesses ... because they were trying to get the sale done with Cerberus."
Cerberus. That darned dog shows up everywhere, doesn't he?
But congrats to Breeden, and I hope his victory doesn't end up giving him indigestion. I may need the services of the company he's now heading ... next March or thereabouts.
I wish everyone celebrating the holiday tomorrow the best for the long weekend. You'll hear from me again here on Sunday.
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