The Supreme Court of the United States yesterday announced that it will not grant cert to bankrupt flatware maker Oneida, which sought to use its chapter 11 filing in 2006 to relieve itself of the obligation to make its payments to the Pension Benefit Guaranty Corp.
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.
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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.
Showing posts with label Chrysler. Show all posts
Showing posts with label Chrysler. Show all posts
Tuesday, December 15, 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.
Wednesday, June 10, 2009
Three brief items
1. Tang Capital v. Penwest
Tang Capital and Perceptive Life Sciences are waging a proxy contest vis-a-vis Penwest Pharmaceuticals Co. (NASDAQ: PPCO), asking shareholders to vote for a resolution "requesting that the Board promptly take all necessary action to wind down substantially all of the Company’s operations so that the full value of
the Opana ER royalty income stream will be retained for the benefit of shareholders."
Opana ER is a pain treatment licensed in the US since June 2006 and marketed under the name Endo. The dissidents apparently think that the rest of the company is a drag upon that one valuable asset. The matter will be resolved at the annual meeting today.
As it happens, just yesterday PenWest licensed Endo to Valeant Phamaceuticals, for 10-20% of the net sales in Australia, Canada, and New Zealand.
Penwest's management is predictably resisting the call for dissolution.
2. Keweenaw Land Association Ltd.
Keweenaw is asking its shgareholders to vote for the company slate against dissident board candidates Ronald S. Gutstein and Scott Frisoli at their annual shareholder meeting, scheduled for June 23. This meeting is to take place in Ironwood, Michigan.
(I love Ironwood as a place name: a compound of two solid Anglo-Saxon nouns. But let's stay focused.)
Gutstein and Frisoli will bring little to the board, the company says, because, "Though undoubtedly possessing skills in the securities industry, they lack executive level experience in an industrial company and industry-specific experience in timberlands and minerals management, a fact acknowledged by RiskMetrics in its 2008 report.
"Neither individual has visited the Company, toured the Company's timberland holdings, or had in-depth on-site discussions with senior managers."
3. Chrysler-Fiat obstruction removed
I had hopes, briefly, that we were about to see a classic instance of judicial defiance of the executive. But it was not to be.
Ruth Bader Ginsburg had up the Chrysler-Fiat deal for about 24 hours.
Not exactly like the Steel-nationalization case from the Truman era, was it?
Dang.
Tang Capital and Perceptive Life Sciences are waging a proxy contest vis-a-vis Penwest Pharmaceuticals Co. (NASDAQ: PPCO), asking shareholders to vote for a resolution "requesting that the Board promptly take all necessary action to wind down substantially all of the Company’s operations so that the full value of
the Opana ER royalty income stream will be retained for the benefit of shareholders."
Opana ER is a pain treatment licensed in the US since June 2006 and marketed under the name Endo. The dissidents apparently think that the rest of the company is a drag upon that one valuable asset. The matter will be resolved at the annual meeting today.
As it happens, just yesterday PenWest licensed Endo to Valeant Phamaceuticals, for 10-20% of the net sales in Australia, Canada, and New Zealand.
Penwest's management is predictably resisting the call for dissolution.
2. Keweenaw Land Association Ltd.
Keweenaw is asking its shgareholders to vote for the company slate against dissident board candidates Ronald S. Gutstein and Scott Frisoli at their annual shareholder meeting, scheduled for June 23. This meeting is to take place in Ironwood, Michigan.
(I love Ironwood as a place name: a compound of two solid Anglo-Saxon nouns. But let's stay focused.)
Gutstein and Frisoli will bring little to the board, the company says, because, "Though undoubtedly possessing skills in the securities industry, they lack executive level experience in an industrial company and industry-specific experience in timberlands and minerals management, a fact acknowledged by RiskMetrics in its 2008 report.
"Neither individual has visited the Company, toured the Company's timberland holdings, or had in-depth on-site discussions with senior managers."
3. Chrysler-Fiat obstruction removed
I had hopes, briefly, that we were about to see a classic instance of judicial defiance of the executive. But it was not to be.
Ruth Bader Ginsburg had up the Chrysler-Fiat deal for about 24 hours.
Not exactly like the Steel-nationalization case from the Truman era, was it?
Dang.
Tuesday, June 9, 2009
Surprise from the Supreme Court
Judge Ginsburg yesterday issued a one-sentence order staying the sale of most of the assets of Chrysler to Fiat pending further order.
This surprised me. Fiat is entitled to walk away from the deal if it does not close by June 15, and I was under the impression that the federal courts in general would fade in the face of such a ticking clock, regardless of the merits of such contentions as might be brought to their attention by objecting parties.
The Obama administration wants this deal. Their solicitor general, Elena Kagan, had argued that blocking the sale would force Chrysler's liquidation. That seems to me the sort of ham-fisted our-way-or-the-highway argument that Truman's lawyers once used to try to justify the seizure of the steel mills.
At least part of my startled reaction to this decision is delight that we are seeing another such moment, of a Supreme Court willing to stand up to the Executive on a matter of principle. What is the principle?
The objecting parties are three Indiana pension funds, who object that the sales agreement everyone wants to push through rewards unsecured creditors ahead of secured creditors and that this is illegal. It also objects to the fact that the US Treasury is using bailout money for Chrysler as part of an effort to make the deal happen -- the bailout funds were authorized by Congress in order to keep the banking system going.
This surprised me. Fiat is entitled to walk away from the deal if it does not close by June 15, and I was under the impression that the federal courts in general would fade in the face of such a ticking clock, regardless of the merits of such contentions as might be brought to their attention by objecting parties.
The Obama administration wants this deal. Their solicitor general, Elena Kagan, had argued that blocking the sale would force Chrysler's liquidation. That seems to me the sort of ham-fisted our-way-or-the-highway argument that Truman's lawyers once used to try to justify the seizure of the steel mills.
At least part of my startled reaction to this decision is delight that we are seeing another such moment, of a Supreme Court willing to stand up to the Executive on a matter of principle. What is the principle?
The objecting parties are three Indiana pension funds, who object that the sales agreement everyone wants to push through rewards unsecured creditors ahead of secured creditors and that this is illegal. It also objects to the fact that the US Treasury is using bailout money for Chrysler as part of an effort to make the deal happen -- the bailout funds were authorized by Congress in order to keep the banking system going.
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!
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