1. Melnyk's astonishment
Let's just try to keep up today with three of our continuing stories. As I reported month, there was a shake-up at the Canadian pharma company Biovail. The company is doing its best to disassociate itself from its founder, Eugene Melnyk, whom it blames for a roster of legal troubles. This is tricky, because Melnyk remains the largest shareholder, with just under 12% of the equity.
And he isn't a happy camper. Indeed, in a letter to the reconstituted board of his old company, dated May 8, he professes himself astonished by the latest measures in this continuing distancing.
He is "very concerned about the circumstances surrounding the entering into of the employment agreements with senior management and the change in control provisions in those agreements. I intend to pursue this matter further."
He can pursue it on June 25, the day of the annual shareholders' meeting. The "record date" for the meeting is April 28 -- i.e. you'd need to have been a shareholder "of record" by then to be qualified to vote.
2. More from Ben Stein
You remember Ben Stein? I last wrote about him in January, when he used his New York Times column to set out a theory of "trader realism," i.e. that the whims and machinations of speculators in Manhattan or London are so important to pricing of strategic commodities that they render the fundamentals ("supply," and "demand" and other stuff and nonsense) essentially irrelevant.
This is a lunatic theory, and since then Stein has shown signs of abandoning it for a cause even dearer to his heart -- "biologist realism" linked here.
But watch out economics. Stein, like a poltergeist, is baaa-ack.
Felix Salmon does him justice.
3. The latest at CSX
The feud between railroad company CSX and activist investor TCI continues, pending some resolution at next month's meeting.
TCI has posted a white paper titled "CSX: The Case for Change," it claims that numerous opportunities for productivity improvements could add $2.2 billion to annual earnings within five years, and it complains that the incumbents ()the folks who have left those opportunities unexploited) have also awarded themselves the highest pay packages in the industry.
Yesterday, TCI sent out a "dear shareholders'" letter asking its fellow investors to go to their website and check out that white paper.
Tuesday, May 13, 2008
Monday, May 12, 2008
A market-driven spin-off
EnCana, an oil and gas company, announced this weekend that it plans to split itself into two: "one a natural gas company with an outstanding portfolio of early life, North American, natural gas resource plays and the other a fully integrated oil company with industry-leading in-situ oilsands properties and top-performing refineries, as well as an underlying foundation of reliable oil and gas resource plays."
So it said in a Mothers-Day release/
This presumably means that it has decided that the 'synergies' from those two lines are negative: they're more profitable apart than together.
There has been a good deal of discussion in recent years about the "agency" problem in corporate governance. The boards of directors are formally the agents of the investors, and in a situation where a split-up works best for those investors, should work toward a split up. But do they?
Some economists argue that an empire-building impulse prevents or obstructs such developments. To put it baldly: a typical CEO would rather be at the top of a large company than of one of two smaller ones. This may even be the case when it means he's the boss of an under-performing large company rather of a better-performing small one. That (if true) makes them untrustworthy agents.
In this one case, anyway, it would seem not to be true. So hurrah for the board of EnCana. I hope their mothers are proud.
Though no shareholder-activist campaign seems to have been required to force their hand, I'll observe (if only to tie this entry in clearly with the over-arching themes of this blog) that such campaigns are often directed at producing precisely such a restructuring effect.
So it said in a Mothers-Day release/
This presumably means that it has decided that the 'synergies' from those two lines are negative: they're more profitable apart than together.
There has been a good deal of discussion in recent years about the "agency" problem in corporate governance. The boards of directors are formally the agents of the investors, and in a situation where a split-up works best for those investors, should work toward a split up. But do they?
Some economists argue that an empire-building impulse prevents or obstructs such developments. To put it baldly: a typical CEO would rather be at the top of a large company than of one of two smaller ones. This may even be the case when it means he's the boss of an under-performing large company rather of a better-performing small one. That (if true) makes them untrustworthy agents.
In this one case, anyway, it would seem not to be true. So hurrah for the board of EnCana. I hope their mothers are proud.
Though no shareholder-activist campaign seems to have been required to force their hand, I'll observe (if only to tie this entry in clearly with the over-arching themes of this blog) that such campaigns are often directed at producing precisely such a restructuring effect.
Sunday, May 11, 2008
Nick Maounis
Bloomberg is reporting that Nick Maounis, formerly the boss of Brian Hunter at Amaranth Advisors, is trying to raise money for a new hedge fund.
I'm not sure that they're right. Bloomberg seems to have been reporting this story for a long time. They ran this worried column on the subject sixteen months ago.
Amaranth collapsed in September 2006. As Mr. Maounis explained in a teleconference that month with investors: "We lost a lot of our own money this month. We lost even more of yours."
The reaction of many commentators back in January 2007 to the possibility that Maounis might be trying to start up a new fund was: It's too soon.
Well, this is May 2008. Is it still too soon? If it will always be "too soon," then the problem isn't timing and one shouldn't pretend that it is.
My own view, for what it's worth, is that Maounis seems to have been duped by his employee, Brian Hunter. If that's right, then it is possible nearly two years of reflection has taught him something about, say, the need for rigorous in-house controls. So take another shot, Nick! Best of luck.
I'm not sure that they're right. Bloomberg seems to have been reporting this story for a long time. They ran this worried column on the subject sixteen months ago.
Amaranth collapsed in September 2006. As Mr. Maounis explained in a teleconference that month with investors: "We lost a lot of our own money this month. We lost even more of yours."
The reaction of many commentators back in January 2007 to the possibility that Maounis might be trying to start up a new fund was: It's too soon.
Well, this is May 2008. Is it still too soon? If it will always be "too soon," then the problem isn't timing and one shouldn't pretend that it is.
My own view, for what it's worth, is that Maounis seems to have been duped by his employee, Brian Hunter. If that's right, then it is possible nearly two years of reflection has taught him something about, say, the need for rigorous in-house controls. So take another shot, Nick! Best of luck.
Wednesday, May 7, 2008
SWFs versus activism
I don't believe I've used the initials SWF yet in the brief history of this blog.
So here's a definition. Outside of the personal-ads section of a newspaper, where they of course refer to single white females, the initials SWF stand for "sovereign wealth funds," the quasi-public investment funds established by nations with revenues that exceed their operational needs.
So what? Maybe nothing. Maybe it's old-fashioned profit maximization (or its close relative, risk hedging) and nothing more. The most oil-rich nations on the map have themselves already drilled all the "easy oil." The peak is nearing -- we may already be there -- and the down slope, when the industrialized world makes the necessary and long-delayed adjustments to a new system of energy use -- could be nasty for them. The sensible use of their SWF funds is simply to prepare against that day.
One example is Dubai International Capital, which is said to have $13 billion worth of assets under management.
Still, oil peak oil schmeak. That's a lot of weight to throw around. Who, if anyone, should be worried? That is a question now coming under debate in both the "mainstream press" and here in the blogosphere. Will DIC throw its financial weight around on behalf of political goals rather than profit maximization? And, if so, at whose expense?
Meanwhile, Singapore has a couple of large SWFs, the more venerable of which is known as Tamasek. Tamasek has a substantial stake in both Merrill Lynch and Barclays.
The People's Republic of China's SWF, unsurprisingly named the China Investment Corp. assisted Morgan Stanley's balance sheet last year with a $5 billion infusion.
Indeed, the major western banks and brokerage firms that have weathered the recent crises best are precisely those that have had timely infusions from SWFs. But gratitude isn't much of a factor in these matters.
I have my own pet theory about SWFs, not a very original theory but one dear to me nonetheless. My view is that the real problem they pose is to activist investing. The notion that shareholders can and should shake things up, challenging intrenched laxy managers via proxy fights, is one that has only slowly gained ground in recent years. But what if managers can call in heavy-weight support on the scale of SWFs to squelch any possible proxy fight? Then ehy'll be able to go back to sleep again, won't they?
As a "proxy partisan," as one who thinks that proxy fights are in general a good thing, I'm wary of the passive investing model that SWFs seem in general to follow. They may become the ultimate benevolent fairy godmothers of their favored managers of their favored western corporations. And in that very quiet way they may do a good deal of harm.
I'm still thinking these things through, though.
So here's a definition. Outside of the personal-ads section of a newspaper, where they of course refer to single white females, the initials SWF stand for "sovereign wealth funds," the quasi-public investment funds established by nations with revenues that exceed their operational needs.
So what? Maybe nothing. Maybe it's old-fashioned profit maximization (or its close relative, risk hedging) and nothing more. The most oil-rich nations on the map have themselves already drilled all the "easy oil." The peak is nearing -- we may already be there -- and the down slope, when the industrialized world makes the necessary and long-delayed adjustments to a new system of energy use -- could be nasty for them. The sensible use of their SWF funds is simply to prepare against that day.
One example is Dubai International Capital, which is said to have $13 billion worth of assets under management.
Still, oil peak oil schmeak. That's a lot of weight to throw around. Who, if anyone, should be worried? That is a question now coming under debate in both the "mainstream press" and here in the blogosphere. Will DIC throw its financial weight around on behalf of political goals rather than profit maximization? And, if so, at whose expense?
Meanwhile, Singapore has a couple of large SWFs, the more venerable of which is known as Tamasek. Tamasek has a substantial stake in both Merrill Lynch and Barclays.
The People's Republic of China's SWF, unsurprisingly named the China Investment Corp. assisted Morgan Stanley's balance sheet last year with a $5 billion infusion.
Indeed, the major western banks and brokerage firms that have weathered the recent crises best are precisely those that have had timely infusions from SWFs. But gratitude isn't much of a factor in these matters.
I have my own pet theory about SWFs, not a very original theory but one dear to me nonetheless. My view is that the real problem they pose is to activist investing. The notion that shareholders can and should shake things up, challenging intrenched laxy managers via proxy fights, is one that has only slowly gained ground in recent years. But what if managers can call in heavy-weight support on the scale of SWFs to squelch any possible proxy fight? Then ehy'll be able to go back to sleep again, won't they?
As a "proxy partisan," as one who thinks that proxy fights are in general a good thing, I'm wary of the passive investing model that SWFs seem in general to follow. They may become the ultimate benevolent fairy godmothers of their favored managers of their favored western corporations. And in that very quiet way they may do a good deal of harm.
I'm still thinking these things through, though.
Tuesday, May 6, 2008
A new hire at Silver Lake
A very prominent manager of private equity funds, Silver Lake Partners LP, has brought a new senior adviser on board.
He's Miles Flint, until last September president of Sony Ericsson.
The Financial Times has a brief piece on this new hire this morning, at the bottom of page 17. It caught my eye because I would have supposed that the ongoing credit squeeze would make corporate types like Mr. Flint wary of joining PE firms. A Silver Lake, as a rule, is much more dependent on leverage, and much more vulnerable to a squeeze there, than is a Sony Ericcson.
But ... there you go. If I had "supposed" that, I would have been wrong.
By the way, the California Public Employees Retirement System, CalPERS, the huge pension fund, owns nearly 10% of Silver Lake. (This wasn't an investment in SL funds, it was an investment in the management company itself.) That was only the latest cozying-up in a long-term relationship.
In 1999, CalPERS invested $73.2 million in one of Silver Lake's funds, a fund that has earned a 26% annualized return since then.
In 2004, CalPERS invested $125 million into another SL fund, and it has gotten a 22.3% return on that one.
Best wishes then, from this blogger, to all the parties mentioned above, and especially to the now retired folk who used to grind out their daily labor on the public payroll in California and who now rely on CalPERS' decisions as if they were their own. My Miles Flint and his new colleagues do well for you.
Cheers.
He's Miles Flint, until last September president of Sony Ericsson.
The Financial Times has a brief piece on this new hire this morning, at the bottom of page 17. It caught my eye because I would have supposed that the ongoing credit squeeze would make corporate types like Mr. Flint wary of joining PE firms. A Silver Lake, as a rule, is much more dependent on leverage, and much more vulnerable to a squeeze there, than is a Sony Ericcson.
But ... there you go. If I had "supposed" that, I would have been wrong.
By the way, the California Public Employees Retirement System, CalPERS, the huge pension fund, owns nearly 10% of Silver Lake. (This wasn't an investment in SL funds, it was an investment in the management company itself.) That was only the latest cozying-up in a long-term relationship.
In 1999, CalPERS invested $73.2 million in one of Silver Lake's funds, a fund that has earned a 26% annualized return since then.
In 2004, CalPERS invested $125 million into another SL fund, and it has gotten a 22.3% return on that one.
Best wishes then, from this blogger, to all the parties mentioned above, and especially to the now retired folk who used to grind out their daily labor on the public payroll in California and who now rely on CalPERS' decisions as if they were their own. My Miles Flint and his new colleagues do well for you.
Cheers.
Monday, May 5, 2008
Yahoo: The Price of Victory
AP has a story this morning about an incipient revellion amongst Yahoo! shareholders about the management's refusal to sell the company to MS.
The story relies chiefly on a single interview, with Darren Chervitz, co-manager of an internet-devoted investment fund.
In the final days of negotiations, MS had expressed a willingness to go as high as $33 per share. Yahoo took the position that nothing less than $37 would suffice. Having drawn their lines in the sand, there seems to have been no face-saving way for either side to suggest ... um ... $35?
Anyway, Chervitz would have liked to have had that $35 per share, or even perhaps that $33 per share, and he's unhappy. "There is probably blame to go around on both sides, but I think most of it is in Yang's hands."
The AP story doesn't give any indication of how many shares Chervitz' find owns, or (if it doesn't own enough of a block to cause much fuss at the next annual meeting itself) how representative it is. All we have is the fact that HE is unhappy, and the conclusion that this MAY be symptomatic of a broader rebellion. Or maybe not.
So I did some supplementary research myself. The "Jacob Internet Fund" owns 144,274 shares of Yahoo, which is just a little more than one percent of one percent (i.e. one share out of every ten thousand) of the whole. Not enough to cause much fuss at all.
Yahoo's annual shareholder meeting will be a forum for venting anguish, but there isn't enough time to put forward an alternative slate, so the most anyone can expect to organize is a symbolic "vote no" campaign.
Allow me this anodyne conclusion. If any major shakeup occurs at the top of Yahoo's governance structure as a result of their having successfully spurned MS, I for one will be surprised.
Still: I've been surprised before.
The story relies chiefly on a single interview, with Darren Chervitz, co-manager of an internet-devoted investment fund.
In the final days of negotiations, MS had expressed a willingness to go as high as $33 per share. Yahoo took the position that nothing less than $37 would suffice. Having drawn their lines in the sand, there seems to have been no face-saving way for either side to suggest ... um ... $35?
Anyway, Chervitz would have liked to have had that $35 per share, or even perhaps that $33 per share, and he's unhappy. "There is probably blame to go around on both sides, but I think most of it is in Yang's hands."
The AP story doesn't give any indication of how many shares Chervitz' find owns, or (if it doesn't own enough of a block to cause much fuss at the next annual meeting itself) how representative it is. All we have is the fact that HE is unhappy, and the conclusion that this MAY be symptomatic of a broader rebellion. Or maybe not.
So I did some supplementary research myself. The "Jacob Internet Fund" owns 144,274 shares of Yahoo, which is just a little more than one percent of one percent (i.e. one share out of every ten thousand) of the whole. Not enough to cause much fuss at all.
Yahoo's annual shareholder meeting will be a forum for venting anguish, but there isn't enough time to put forward an alternative slate, so the most anyone can expect to organize is a symbolic "vote no" campaign.
Allow me this anodyne conclusion. If any major shakeup occurs at the top of Yahoo's governance structure as a result of their having successfully spurned MS, I for one will be surprised.
Still: I've been surprised before.
Sunday, May 4, 2008
Microsoft Backs Off a Fight
Microsoft chief executive Steve Ballmer has written his counterpart at Yahoo, Jerry Yang, in a letter dated May 3 and posted on MS' website, to say that MS has reached the "conclusion of the process regarding a possible combination" of those two companies, and that MS has decided NOT to initiate a proxy fight in order to force the acquisition over Yang's opposition.
One passage in the letter mystifies me, because it appears to be designed chiefly tohelp future potential targets. Ballmer, referring to some conversations he has had with Yang over the last week, says that he has come to believe that if he pressed the matter "you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft."
It's called "shark repellent," though such impolite terms aren't used in the letters released via one's corporate website.
Anyway, Ballmer then proceeds to list in some detail the particular plans on Yahoo's part that did the repellent job, even including a bullet list.
Hey, Ballmer, your company remains one of the biggest meanest sharks out there. Why give future prey a detailed description of how to ward you off?
BBC News, on its website, has posted an intelligent analysis of where MS goes from here..
One passage in the letter mystifies me, because it appears to be designed chiefly tohelp future potential targets. Ballmer, referring to some conversations he has had with Yang over the last week, says that he has come to believe that if he pressed the matter "you would take steps that would make Yahoo! undesirable as an acquisition for Microsoft."
It's called "shark repellent," though such impolite terms aren't used in the letters released via one's corporate website.
Anyway, Ballmer then proceeds to list in some detail the particular plans on Yahoo's part that did the repellent job, even including a bullet list.
Hey, Ballmer, your company remains one of the biggest meanest sharks out there. Why give future prey a detailed description of how to ward you off?
BBC News, on its website, has posted an intelligent analysis of where MS goes from here..
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