Buy Some Furniture, Give the Cat A Name

This is the chart for the performance of Tiffany's common stock over the last six months. As you can see, there was an early peak at $52, then a jagged decline to $36 by early July. It has since risen from that, to the neighborhood of $46, although there was another dramatic-looking dip at the end of August.

That dip may have come about largely because Trian Fund, the investment vehicle of Nelson Peltz, has been selling. Trian still owns a 5.43% stake, whichmakes it Tiffany's biggest stockholder.

Tiffany did better-than-expected in recent quarters. But even that hurts it in Shapira's estimation, because she thinks it did well on the basis of declining commodity prices, and its profit margins are not sustainable.

The relevant Goldman Sachs analyst has downgraded Tiffany from neutral to sell. That analyst is Adrianne Shapira by name. She says, "TIF trades at a 26% premium to an index of department stores, which is approaching one standard deviation above the 3-year average premium of 15%. We believe as [earnings estimate] beats moderate in the near term, peak valuations will be tough to sustain."

There is not especially good reason for me to be discussing Tiffany's right now, but it does give me a chance to quote the famous dialog from a certain classic Audrey Hepburn movie:

Holly: Poor old Cat. Poor slob. Poor slob without a name. The way I look at it, I don’t have the right to give him one. We don’t belong to each other; we just took up by the river one day. I don’t even want to own anything until I can find a place where me and things go together. I’m not sure where that is, but I know what it’s like. It’s like Tiffany’s

Fred: Tiffany’s? You mean the jewelry store?

Holly: That’s right. I’m crazy about Tiffany’s…Calms me down right away. The quietness and the proud look of it. Nothing very bad could ever happen to you at Tiffany’s. If I could find a real-life place that made me feel like Tiffany’s then…then I’d buy some furniture and give the cat a name.

Here's hoping that Tiffany's itself finds that place.

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.