SEC Notice to Amedisys

Amedisys (Nasdaq:AMED), a provider of home health care nursing services, said on June 30 that it has "received notice of a formal investigation from the Securities and Exchange Commission ... pertaining to the company, and received a subpoena for documents relating to the matters under review by the Senate Finance Committee."

Amedisys, which is run out of Baton Rouge, La., also said that it will cooperate with the investigation.

Back in April, the Wall Street Journal ran a story that strongly suggested abuse of the Medicare reimbursement system by Amedisys, the largest company in the sector.

Sam Antar makes the case that the WSJ report wasn't as hard-hitting as it could have been.

Going back a bit, I should note that in September 2009, the president and chief operating officer of Amedisys, Larry Graham, resigned those posts suddenly. So did Alice Ann Schwartz its Chief Information Officer.

The company didn't give any reason for these departures. Not even their desire to spend more time with their families. Just a bald, "...to pursue other interests." That sort of thing is always ominous.

The U.S. Senate Finance Committee investigation to which the company referred in its statement involved four companies in the field. In addition to Amedisys, the Senate was curious about Almost Family Inc., Gentiva Health Services Inc., and the LHC Group, and their "internal policies and guidelines regarding the number of visits provided to each patient...."

"People familiar with the matter"

The Wall Street Journal this morning is quoting "people familiar with the matter" who say that Goldman Sachs is close to a deal to provide $2.2 billion in financing to a group led by Starwood Capital Group, so Starwood can buy the Extended Stay hotel chain.

May 17 -- a week from today -- is the deadline set by the bankruptcy court for acquisition plans from Starwood and/or from another bidder.

The alternative bidder is a group led by Centerbridge Partners LP.

The Wall Street Journal's story, by Lingling Wei, suggests that Goldman's willingness to get involved in this is a good sign that a recovery is underway.

"For months, investors have been gathering huge war chests to buy distressed real estate, but debt financing has been much harder to obtain. Goldman Sach's willingness to finance the Starwood bid is a sign that large well-capitalized banks are dipping their toes back into the business of financing offices, shopping malls, hotels and other commercial buildings."

Bill Ackman

Eric Jackson, of thestreet.com, has written this profile of Bill Ackman, the CEO of Pershing Square, and has thereby inspired me to put together a few Ackman-related links for you folks this morning.

Pershing Square has a very high exposure these days to the General Growth bankruptcy proceedings as discussed in Market Folly, and as discussed by Ackman himself here.

Here's the latest on Pershing Square and General Growth, from Reuters.

And here's Ackman on CNBC's Fast Money, talking about Kraft.

The Wall Street Journal gave Ackman a positive write-up in regard to his firm's February performance here.

But we began with one blog and we'll end with another, even if we have to got back behind the latest New Years' celebrations to find one we like, The Investment Linebacker.

What's Going On At Legg Mason

There it was on the front page of yesterday's Wall Street Journal, a story with the following lede: "Nelson Peltz, an activist investor in businesses ranging from diamong rings to hamburgers, is set to grab a seat on the board of Legg Mason Inc. after quietly accumulating a significant stake in one of the nation's biggest mutual fund families."

There's a lot going on in that sentence! Let's break it down piece by piece.

1. Who is Nelson Peltz? He is the principal of Trian Fund Management, and in that capacity we have met him in this blog before. The cute reference to diamond rings derives from Peltz's interest in Tiffany & Co. The last time I checked, Peltz/Trian controled slightly less than 7% of Tiffany's stock. And the hamburgers? Wendy's.

2. Legg Mason, the mutual fund family: where does it stand?

Well, it has had a tough couple of years. Its Western Asset Management fixed-income business, in particular, was clobbered as it unwound its position in short-term debt issued by structured investment vehicles (SIVs). The SIVs involved had issued this debt in order to raise money to buy into the sky-rocketing value of real estate not long ago. As the SIVs took a bath on that plan last year, the debt held by Western Asset Management sudedenly looked over-valued. As a result, it sold $1.4 billion of these notes early this year, taking its loss. Separately, Legg Mason also sold $0.4 billion of notes that had been supported through a total return swap with a major bank (no, I don't know which).

3. Did Peltz really "grab a seat"?

It hadn't happened yet when the WSJ went to press yetserday morning, so with appropriate caution the paper didn't say he "has received a seat," but that he was "set to" receive one -- or "grab one," in a nicely vivid turn of phrase. What was "set to" happen did in fact happen, I can now report.

4. How big a "significant stake"?

Trian holds about 6.9 million shares of Legg Mason's common stock, or about 4.3%.

The Wall Street Journal's story tries to hard to try to turn this into a landmark event. Peter Lattman gets the byline, and he writes in his fifth paragraph, "In previous years, companies would have paid little heed to activist investors. But since the middle of this decade, there's been a broader philosophical shift, giving big outside shareholders more influence in running companies."

Well ... no. Philosophy hasn't "given" Peltz more of a stake. A lot has been going on, in various cross-currents, and I've tried to make some sense out of it in this blog, but I can't really buy into Lattman's phrasing.

Anyway, but for that one lame 'graph, it is a fine story.

Brief Argentinian excitement

The Wall Street Journal reported Monday that there was a deal in the works in which Argentina would re-open a debt exchange deal that country closed in 2005.

Among public-finance wonks this was big news. Argentina is a G20 nation, and is often taken as a bellwether of the other Latin American economies. It also has had a very tumultuous recent monetary history.

Anyway, the deal as outlined in that story would still be big news if it happened, but it now appears that the excitement was premature.

Some history: The 2005 deal was to swap Argentinian bonds for GNP warrants. This meant that Argentina would save a good deal of money by not any longer having to make the interest payments on those bonds. It wasn't such a great deal for the bondholders, because the warrants weren't considered to be worth much, but they figured they'd be worth even less if Argentina should default, so many of them accepted the warrants in a half-a-loaf spirit.

Many bondholders refused to participate in the swap, hoping that they would get a better deal down the line, when Argentina was both willing and able to restore its international credit. The last three years have been good to Argentina (and not just because of the tourist dollars spent by trysting Governors of states of the US, either). This means that those once-spurned GDP warrants are now worth something, and it makes sense that at least some of those closed-out bondholders would want back in to something like the 2005 swap.

But it now seems that this report was inaccurate. If it were true, one would expect the markets in those old defaulted debt instriments to reflect it. Those markets have been unmoved by the report.

Also, a Barclays analyst has put out a report throwing cold water on the thing: "Our final assessment is that the ideas vented by the WSJ are unlikely to be the final proposal made to bondholders and that the process has a long way to go before the decision-makers give a go ahead to a specific proposal that can be seriously evaluated."

well ... the balloon was fun while it was afloat.

Ripples from Senator Kennedy's death

A story in the Wall Street Journal's weekend edition makes an important point about the political fall-out from Senator Edward Kennedy's demise.

Kennedy had chaired the Senate's Health committee, which was to have made him the administration's point man in efforts to reform the US health care system. Now that he is gone, it appears that one of my Senators, Christopher Dodd, will take over at Health.

Yet Senate rules prohibit Dodd from chairing more than one committee at a time, so this will mean he'll have to step down as chair of the Banking Committee. He was to have been the administration's go-to guy for the re-wiring of financial regulation. The question then is: who will step in there?

Next in line would be Senator Tim Johnson. Johnson has in the recent past broken with his party over financial-regulatory issues, so he may not be a loyal soldier for President Obama's plans. The administration might have to chose between fighting to keep him out of that chairmanship, or lettinbg him take it and trying to work around him.

I recommend the story, which had Damian Paletta's byline and gave a contribution credit to Jonathan Weisman.

Geithner Banks

Front page headline of today's Wall Street Journal, "Geithner Banks on Private Cash."

When I first read that, I saw the word "banks" as a noun, and Geithner as an adjective. I tried to makle sense out of that: what kind of bank is a Geithner bank, anyway?

It took me a few seconds to mentally transform "banks" into a verb and read the headline as a sentence in which the Treasury Secretary's name is the subject.

Brad DeLong explains in Seeking Alpha that the gist of the plan is to make the US Treasury the world's biggest hedge fund investor.

As the plan unfolds we might have plenty of opportunity to discover what kind of institution might deserve the name "a Geithner Bank"!

Sun-Times Media Group

In mid-January, as my readers may recall, Davidson Kempner announced the success of its consent solicitation campaign with regard to the Sun-Times Media Group. I blogged as much here.

On January 22, the Group acknowledged the receipt of the requests in a brief press release: "Okay, we see that we've lost. Bye."

Well, not exactly in those words, but that was the spirit of the announcement. Subsequent press releases from the Sun-Times have been posted presumably by appointees of the incoming bosses.

Question: What has the switch to new management done to the stock chart (OTC: SUTM)?
I posted a chart in my Jan. 21 entry, should post another one here. There's been no miraculous post-DK takeover turnaround. The stock is now selling for around $0.05 a share.

On a related subject, L. Gordon Crovitz has a very intelligent, insightful column in today's Wall Street Journal under the heading "Information Wants to be Expensive," about the troubles of the newspaper industry today, the costs of being hip about your on-line presence, and the belated rise of the for-subscription model.

Crovitz says that managers have to ask themselves, "What kind of journalism can my staff produce that is different and valuable enough that people will pay for it online?"

Good question. Good point.

The next big thing

The new President's first legislative victory is in the record books. He has his stimulus plan. Happy President's Day, Mr. President!

The biggest domestic issue on his agenda now is the one that most impacts the concerns of this humble blog. The Obama administration and its allies in Congress will turn to an overhaul of the financial-regulatory system.

What does "overhaul" mean? Right now it means a swirl of different and contending ideas. Some would have the CFTC combine with the SEC into one agency, along the lines of the Financial Services Authority in the UK.

Some would have the banking regulators, too, brought into the recharting.

But, so that it won't be just a re-charting, most plans would involve a beefing up of money and people devoted to the enforcement of regulations and the pursuit of lawbreakers.

Here's a link to an article in the Wall Street Journal earlier this month reviewing some of the ideas and some of the participants.

My own view? Frankly I've completely lost confidence in my predictive abilities of late.

PS IV not the "roach motel" after all.

Readers in my age cohort may remember the old commercial for a Black Flag insect trap. "Roaches check in, but they don't check out."

Some hedge funds have been like that of late, dropping redemption "gates," or announcing the suspension of payments. "We'll take your money, but we'll be damned if we'll give it back!"

The Wall Street Journal is reporting this morning, page C1, that William Ackman, principal of the Pershing Square hedge fund group, will soon inform his investors that he'll allow them to withdraw from one of those funds, PS IV, afer all, despite talk last week that he was going to limit such redemptions.

Pershing Square IV was set up to benefit from an expected rise on the price of the stock of Target, the big-box retail chain.

The story quotes Ackman himself, "reached at his office Sunday night," saying that PS IV is down 90% and that is nothing to be proud of. But the story doesn't quote Ackman confirming the gist of what the reporters are telling us, which is that Ackman will be putting $25 million of his own cash into the fund in order to allow it to settle with the impatient, and apparently to reward the patient as well. The specifics are attributed to that old reporter's friend, "a person familiar with the matter."

During the past 13 months, Target's shares have declined in value by 38%. Pershing Square IV has been investing through stock options, not through the shares themselves, and this has had an amplifying effect on the loss.

My hunch, reading the story (and this is ONLY a hunch, a guess, a speculation, call it what-you-will) is that Ackman himself is the "person familiar with the matter." The story reads like a one-interview job to me. At parts of the interview, Ackman probably just said, "now this next bit you can't attribute to me by name" -- while at other parts he said, "now THIS bit is what you should quote me on."

The final graf of the story notes that Ackman's non-Target funds lost betwen 11% and 13% in 2008. Give how disastrous a year it was, that actually sounds like a respectable performance.

US equity prices

There's been an inordinate amount of punditry in recent days linking the rise and fall of US equity prices to the prospects of Wall Street bailout legislation in Congress.

I was just listening to such talk on morning television, along with admonitions that "bailout" isn't the right word. It's a "rescue." Well ... excuse me.

Either way, I'd like to interject some skepticism about that link. The market didn't rise Friday, I submit, because it had decided that the "Paulson plan" will pass and prove wonderful. The market rose Friday because the SEC banned short selling on a wide range of stocks.

If you arbitrarily exclude a certain class of sellers, then you've jiggered the prices in favor of a rise. How complicated a concept is that?

Likewise, I submit, the market didn't fall Monday because the market has suddenly become worried Congress won't pass the bill after all.

More likely, it fell because evidence accumulated over the weekend that the SEC isn't all that serious about the short sale ban, and that it won't last. That, by the way, is very good news and we should welcome Monday's decline as part of the natural equilibrium-seeking process for unjiggered prices.

On the broader point, Gordon Crovitz had a fascinating op-ed piece in yesterday's WSJ, under the headline "Information Haves and Have-Nots."

The money quote. "There are now about half as many Wall Street analysts as in 2000. Former New York Attorney General Eliot Spitzer eviscerated the profession with $1.4 billiuon in settlements and a new mandate for how the industry would be structured, which made the analysts uneconomical....The now-former senior executives at Bear Stearns, Lehman and Merrill must wish they had been able to retain all those star banking analysts."

Another Spitzer legacy that has contributed to our present troubles was his Ahab-like pursuit of Hank Greenberg, effectively kicking him out of the executive suites of the insurance company Greenberg did so much to build -- AIG.

The US government has now effectively nationalized AIG, on the ground in essence that Greenberg's successors couldn't handle the job. Well ... why does he even have successors???

The bearish case on mining stocks

The "Heard on the Street" column of the Wall Street Journal, written in this instance by Arindam Nag, set out the bearish case on mining stocks on August 26.

One intruguing idea in the column is that the rise of specialized ETF funds may have been bad news for such stocks.

"With investors able to invest directly in commodities through exchange-traded funds and other vehicles, they don't have to dig into mining companies themselves to retain long-term exposure to metals."

Okay, but we don't want to be nagged, Arindam.

Cymbal clash. You're a beautiful audience. I can feel the love in this room.

More on Yahoo

Carl Icahn is the "indirect beneficial owner" of a little more than 59 million shares of stock of Yahoo.

As I noted in yesterday's entry, citing his letter to the board, some of these are actual shares, some are "share-equivalents."

What that means, according to other recent SEC filings, is that Icahn owns about 10 million actual shares and more than 49 million call options.

Yahoo's annual meeting is set for early July. I don't believe a record date has been set yet, so he could presumably convert all of those call options into actual voting shares in time to use them at the meeting.

Meanwhile, Microsoft has given off equivocal signals about whether it has really "moved on" or whether it wants a deal with Yahoo still and, if the latter, what kind of deal it now wants. It doesn't want to acquire Yahoo anymore, but it wants a "collaboration," apparently having something to do with advertising and eyeballs.

MS hasn't made much progress lately in turning itself into an internet company. It remains wedded to the desktop model which (though comfortably profitable and likely to remain so for awhile yet) seems a bit like the wave of the past.

One amusing sidenote. A columnist in the Wall Street Journal recently suggested that what MS ought to do is split itself up. The specifics of the split-up he suggested sounded a lot like -- the trial judge's divestiture order of a few years back, one that MS appealed and freed themselves from.

Everything old is new again.

So where do things go from here? Wish I knew.