According to a front-page story in today's Wall Street Journal, William Lerach is hoping that newspaper subscriptions will put him in a good bargaining position in prison.
Yesterday, Lerach, formerly a prominent class-action plaintiffs' attorney, who has pleaded guilty to rent-a-plaintiff accusations, received his sentence. He'll do two years in federal prison, pay $8 million, and accept disbarment.
Fortunately, he has been in the habit of reading up to six newspapers a day. He figures that'll help him get along. "A sports section is supposed to win you a lot of favors." Good luck with that.
It is amusing to me that the government stumbled into the case against Lerach and his former colleagues at Milberg Weiss in the course of pursuing a bit of insurance fraud involving two extremely valuable paintings -- a Monet and a Picasso, no less.
The works were: Monet's "The Customs Officer's Cabin at Pourville," from 1882, and Picasso's "Nude Before a Mirror," painted in 1932. They were both purchased by a fellow named Stephen Cooperman, then insured in 1991 for a total of $12.5 million. The following year he reported them stolen and made his insurance claim. This was suspicious from the get-go. The Cooperman home had a burglar alarm, which had not been set off by the alleged thief. There was no sign of break-in at all, other than the reportedly missing paintings. But the insurance company, after contesting the matter initially, settled in time. (I don't know off hand whether the amount of the settlement has ever been made public.)
Anyway, the paintings were found undamaged in a storage locker in a Cleveland suburb on Feb. 2, 1997. For the story of how that recovery came about, go here. The short version ... a Clevelander apparently had stored the paintings in the locker as a favor to his buddy, Cooperman. The insurance company took title to the paintings when they were found, and Cooperman now faced fraud charges.
Cooperman cut a deal for a lighter sentence by telling authorities that he had some (unrelated) dirt on Milberg Weiss. He had been a lead plaintiff of theirs in class-actions against corporations. They'd have him buy stock in a company that might be vulnerable to such a lawsuit. This is where the business sections of six daily newspapers might be helpful. Then, if the the stock price fell dramatically, Cooperman would serve as the lead plaintiff, allowing Milberg Weiss to win a "race to the courthouse" against other attorneys and their clients, and allowing it to be first in line for as lead counsel for the class. Cooperman would receive payment for his part in this, and that payment would in turn be very hush-hush, because the courts are rather vigilant about intra-class conflicts of interest.
So that's the want-of-a-horseshoe-nail type story that led to the fall of King Lerach.
Seek edification elsewhere.
Tuesday, February 12, 2008
Monday, February 11, 2008
More About That Furniture Company
As I indicated yesterday, Costa Brava, the hedge fund managed by Roark, Rearden, & Hamot, wants to take over the board of a Virginia based furniture company.
It is a challenging business in these days of disintermediation, and Bassett has been shrinking. Of course, they prefer words like "consolidating" and "cost-cutting." But they're shrinking.
In the words of their latest annual report, "Over the last seven years, we have reduced our number of facilities from 13 to 3 and reduced our headcount from approximately 4,200 to 1,450. During 2007, we closed a large wood manufacturing facility in Bassett, Va. This resulted in headcount reductions of approximately 280 employees and leaves us with one small wood assembly plant in Martinsville, Va., one fiberboard supply facility in Bassett, Va., and one upholstery facility in Newton, N.C."
They also seem nowadays to receive a lot of their income not from the furniture business at all, but from running their own portfolio. They have $51.8 million invested in The Bassett Industries Alternative Asset Fund LP.
Hmmm. So is Costa Brava actually trying to obtain control over the furniture company -- that wood assembly plant, the fiberboard supply facility, the upholstery facility -- or is this a matter of one hedge fund trying to merge with another. Except that the merger target still has some of the trappings of a furniture company around it?
There's 11.8 million shares of Bassett outstanding. The stock price is in the neighborhood of $12. Simply multiplying them gives us a market cap of about $140 million. So the "alternative asset fund" is more than one-third of that, raising the prospect (in my simple mind anyway) that the fund is the prize, not the fibreboard.
It is a challenging business in these days of disintermediation, and Bassett has been shrinking. Of course, they prefer words like "consolidating" and "cost-cutting." But they're shrinking.
In the words of their latest annual report, "Over the last seven years, we have reduced our number of facilities from 13 to 3 and reduced our headcount from approximately 4,200 to 1,450. During 2007, we closed a large wood manufacturing facility in Bassett, Va. This resulted in headcount reductions of approximately 280 employees and leaves us with one small wood assembly plant in Martinsville, Va., one fiberboard supply facility in Bassett, Va., and one upholstery facility in Newton, N.C."
They also seem nowadays to receive a lot of their income not from the furniture business at all, but from running their own portfolio. They have $51.8 million invested in The Bassett Industries Alternative Asset Fund LP.
Hmmm. So is Costa Brava actually trying to obtain control over the furniture company -- that wood assembly plant, the fiberboard supply facility, the upholstery facility -- or is this a matter of one hedge fund trying to merge with another. Except that the merger target still has some of the trappings of a furniture company around it?
There's 11.8 million shares of Bassett outstanding. The stock price is in the neighborhood of $12. Simply multiplying them gives us a market cap of about $140 million. So the "alternative asset fund" is more than one-third of that, raising the prospect (in my simple mind anyway) that the fund is the prize, not the fibreboard.
Sunday, February 10, 2008
An Objectivist Furniture Company?
Costa Brava Partnership III, a Boston based hedge fund, has nominated seven people for the nine-member board of a Bassett, Va.-based furniture company, Bassett Furniture Industries.
Costa Brava owns 5.1% of Bassett's equity, so it can't win a proxy fight without a lot of help. More interesting to me at the moment, Costa Brava is managed by a company called Roark, Rearden & Hamot Capital Management LLC.
That corporate name sounds like a list of three founders. But only one of the three (Seth W. Hamot) is non-fictitious. The rest of the name appears to refer to two characters in Ayn Rand's novels: architect Howard Roark of The Fountainhead, and metallurgist Hank Rearden of Atlas Shrugged.
The novels were very poorly written efforts to illustrate a philosophy that Rand called Objectivism, which itself was just a very poorly thought-through mishmash of what she picked up from secondary and tertiary sources about some of the thoughts of real philosophers.
None of which is to say that the Costa Brava nominees won't know how to run a furniture company. I just hope nobody ends up dynamiting Bassett stores in emulation of a plot devise in The Fountainhead.
Costa Brava owns 5.1% of Bassett's equity, so it can't win a proxy fight without a lot of help. More interesting to me at the moment, Costa Brava is managed by a company called Roark, Rearden & Hamot Capital Management LLC.
That corporate name sounds like a list of three founders. But only one of the three (Seth W. Hamot) is non-fictitious. The rest of the name appears to refer to two characters in Ayn Rand's novels: architect Howard Roark of The Fountainhead, and metallurgist Hank Rearden of Atlas Shrugged.
The novels were very poorly written efforts to illustrate a philosophy that Rand called Objectivism, which itself was just a very poorly thought-through mishmash of what she picked up from secondary and tertiary sources about some of the thoughts of real philosophers.
None of which is to say that the Costa Brava nominees won't know how to run a furniture company. I just hope nobody ends up dynamiting Bassett stores in emulation of a plot devise in The Fountainhead.
Wednesday, February 6, 2008
Bank merger and personal drama
Mr. Hill is still alive, but this is happening over his metaphorically "dead body."
Shareholders of Commerce Bancorp Inc. will meet later today to approve the sale of that New Jersey bank to a Canadian company, TD Bank Financial Group.
Regulatory approvals are still pending, but if everything goes as expected the result will be one of the largest banks on the North American continent.
The deal is based on a share swap as well as cash payments. Commerce shareholders will receive 0.4142 shares of a TD common share and $10.50 in cash in exchange for each common share of Commerce Bancorp Inc. That was calculated on the basis of a valuation of US$42 per share for Commerce.
The drama here is the fall of Commerce founder, Vernon W. Hill II, who staunchly opposed selling his bank. his baby. The board of directors had to squeeze him out in order to put it up for sale.
The office of the Comptroller of the Currency helped them do so. It made noises about investigating Hill, and stopped approving new bank branches until he retired.
Here's a link for those of you who may want to read some more about Hill and that particular squeeze.
Shareholders of Commerce Bancorp Inc. will meet later today to approve the sale of that New Jersey bank to a Canadian company, TD Bank Financial Group.
Regulatory approvals are still pending, but if everything goes as expected the result will be one of the largest banks on the North American continent.
The deal is based on a share swap as well as cash payments. Commerce shareholders will receive 0.4142 shares of a TD common share and $10.50 in cash in exchange for each common share of Commerce Bancorp Inc. That was calculated on the basis of a valuation of US$42 per share for Commerce.
The drama here is the fall of Commerce founder, Vernon W. Hill II, who staunchly opposed selling his bank. his baby. The board of directors had to squeeze him out in order to put it up for sale.
The office of the Comptroller of the Currency helped them do so. It made noises about investigating Hill, and stopped approving new bank branches until he retired.
Here's a link for those of you who may want to read some more about Hill and that particular squeeze.
Tuesday, February 5, 2008
Back to the US
As everyone who hasn't been living in a cave for the last few days by now knows, Microsoft wants to buy Yahoo!
What is a bit newsier is that Yahoo's management doesn't really want to let that happen.
They don't have the final say in the matter. Of course, Yahoo isn't "their" company beyond whatever psychological identification they may feel with it. Yahoo belongs to its owners, the shareholders, and MS can go over the heads of management to bring this merger about.
Here's an analysis from the San Jose (Calif.) Mercury
Yahoo faces few options.
I'm interested especially in what the Mercury calls the "Disney ending." To what white knight might Yahoo possibly appeal? Hmmmm. Any ideas out there?
What is a bit newsier is that Yahoo's management doesn't really want to let that happen.
They don't have the final say in the matter. Of course, Yahoo isn't "their" company beyond whatever psychological identification they may feel with it. Yahoo belongs to its owners, the shareholders, and MS can go over the heads of management to bring this merger about.
Here's an analysis from the San Jose (Calif.) Mercury
Yahoo faces few options.
I'm interested especially in what the Mercury calls the "Disney ending." To what white knight might Yahoo possibly appeal? Hmmmm. Any ideas out there?
Monday, February 4, 2008
A sentence in Korea
On Friday, February 8, a court in Seoul, Korea sentenced Paul Yoo to five years in jail on a charge of stock price manipulation. This was only half of what prosecutors had requested, but it still surely seems like a long time to Mr. Yoo.
I doubt that Mr. Yoo did anything to merit the sentence. Nonetheless, I won't go into a tirade about the tyranny of it all, etc. I understand the prosecutors' reaction to events fairly well at a human level.
It is what I remarked upon briefly yesterday, a natural reflexive oposition to the increasing prominence of the impersonal equity markets -- at the expense of the more personal 'Confucian' type of business dealings some in east Asia consider more of a cultural/regional strength.
With the rise of equity markets comes the thorough globalization of finance, and the demise of traditional ideas of sovereignty. With the rise of equity markets come mergers and acquisitions, proxy contests, and a general stirring of the pot. The stirring can be very productive, but if you're one of the vegetables inside, it can be scary too.
Lone Star Funds is an investment company headquartered in Dallas Texas. Five years ago it bought a controlling stake in the Korean Exchange Bank. At that time, Mr. Yoo worked for Lone Star, with the job of scouting out promising acquisition targets and reporting to Steven Lee, who was the highest-ranking Lone Star honcho in Korea.
The gist of the ostensible case against Yoo is that he made false public statements about KEB, and especially about its credit-card unit, KEB Credit Services, in order to make their financial distress seem greater than it was, drive down the share price, and ease the way for their acquisition by Lone Star.
You can find more on the subject in this Bloomberg story.
I doubt that Mr. Yoo did anything to merit the sentence. Nonetheless, I won't go into a tirade about the tyranny of it all, etc. I understand the prosecutors' reaction to events fairly well at a human level.
It is what I remarked upon briefly yesterday, a natural reflexive oposition to the increasing prominence of the impersonal equity markets -- at the expense of the more personal 'Confucian' type of business dealings some in east Asia consider more of a cultural/regional strength.
With the rise of equity markets comes the thorough globalization of finance, and the demise of traditional ideas of sovereignty. With the rise of equity markets come mergers and acquisitions, proxy contests, and a general stirring of the pot. The stirring can be very productive, but if you're one of the vegetables inside, it can be scary too.
Lone Star Funds is an investment company headquartered in Dallas Texas. Five years ago it bought a controlling stake in the Korean Exchange Bank. At that time, Mr. Yoo worked for Lone Star, with the job of scouting out promising acquisition targets and reporting to Steven Lee, who was the highest-ranking Lone Star honcho in Korea.
The gist of the ostensible case against Yoo is that he made false public statements about KEB, and especially about its credit-card unit, KEB Credit Services, in order to make their financial distress seem greater than it was, drive down the share price, and ease the way for their acquisition by Lone Star.
You can find more on the subject in this Bloomberg story.
Saturday, February 2, 2008
Importance of stock markets
I received a review copy recently of a new book by Frank B. Cross and Robert A. Prentice, LAW AND CORPORATE FINANCE.
I'm not going to review it here, but I would like to quote one passage from the first chapter that piqued my interest and that relates to the issues I discuss on this blog.
"The value of stock market financing was disputed for some time, when East Asian countries' success was fueled by bank lending and cross-ownership arrangements for investment, without much in the way of freely traded national equity markets. Some even suggested that the developed equity markets of countries such as the United States could be counter-productive, by creating demands for short-term performance at the expense of long-run economic success. Time has not been supportive of these theories, though, and empirical research generally bears out the importance of developed and free equity markets, although the incentive for short-term focus by American companies remains a concern."
He gives no citation for the ideas he's referencing there. As I understand it, though, he's referencing the 1980s and the first half of the 1990s, when the term "the four tigers" [sometimes, confusingly, the four dragons instead] became popular for South Korea, Taiwan, Hong Kong, and Singapore. There are also in a further confusion of the metaphor, "aspiring Tigers" in Malaysia and Indonesia.
It was in 1994 that Foreign Affairs posted an interview of the long-time prime minister of Singapore (then in retirement) Lee Kuan Yew which has been much-quoted in this line.
Eastern societies are different from Western ones, he said, because easterners believe "the individual exists in the context of his family. He is not pristine and separate. The family is part of the extended family, and then friends and the wider society."
Tu Wei-Ming, a philosophy professor at Harvard University, is one of the scholars who has helped promulgate similar arguments about the connection between "Confucian values" and the dynamism of certain societies such as Singapore.
While it's too easy to bloviate in these areas, it may be safe to say there was a dispersion after 1949. The entrepreneurial segment of China's population left ahead of the communist takeover. The sizeable Chinese minorities in several adjacent countries have become relatively prosperous and politically influential there. This in turn has left them open to periodic bouts of race-baiting, but it has proved beneficial in terms of the growth of the host societies.
Two of the dragons, of course, ARE Chinese. Hong Kong and Taiwan. The other two, Singapore and South Korea, have benefitted from this dispersion, as have the aspirants.
The post-1949-dispersion model appeals better to my own intuitive sense of how the world works than does the sort of Kiplingesque East/West dichotomies of former prime minister Lee.
At any rate, it does seem likely that amidst the dispersants and their descendants there would develop interpersonal connections that would be more important than the impersonal market operations one experiences through a stock exchange. When a company borrows money from a bank, one person speaks directly to another, they discuss the terms, they fill out the forms together. In issuing stock to raise money, abstraction of a different order is at work. So we're bank to the passage in the Cross and Prentice book with which we began -- a preference for bank lending over stock market financing might have become a feature of the development of some nations, and might even have been praised as an element in their success.
The crisis of 1997-98 would naturally have put the kibosh on such talk. Can we infer, then, that stock exchanges have become more important in the countries I've named over the last ten-eleven years?
Yes, we can. We can also see as a matter of fact that some of the phenomena that come with public markets for equity, including proxy fights, have become more prominent in east Asia recently. I'll say something about South Korea in particular tomorrow.
I'm not going to review it here, but I would like to quote one passage from the first chapter that piqued my interest and that relates to the issues I discuss on this blog.
"The value of stock market financing was disputed for some time, when East Asian countries' success was fueled by bank lending and cross-ownership arrangements for investment, without much in the way of freely traded national equity markets. Some even suggested that the developed equity markets of countries such as the United States could be counter-productive, by creating demands for short-term performance at the expense of long-run economic success. Time has not been supportive of these theories, though, and empirical research generally bears out the importance of developed and free equity markets, although the incentive for short-term focus by American companies remains a concern."
He gives no citation for the ideas he's referencing there. As I understand it, though, he's referencing the 1980s and the first half of the 1990s, when the term "the four tigers" [sometimes, confusingly, the four dragons instead] became popular for South Korea, Taiwan, Hong Kong, and Singapore. There are also in a further confusion of the metaphor, "aspiring Tigers" in Malaysia and Indonesia.
It was in 1994 that Foreign Affairs posted an interview of the long-time prime minister of Singapore (then in retirement) Lee Kuan Yew which has been much-quoted in this line.
Eastern societies are different from Western ones, he said, because easterners believe "the individual exists in the context of his family. He is not pristine and separate. The family is part of the extended family, and then friends and the wider society."
Tu Wei-Ming, a philosophy professor at Harvard University, is one of the scholars who has helped promulgate similar arguments about the connection between "Confucian values" and the dynamism of certain societies such as Singapore.
While it's too easy to bloviate in these areas, it may be safe to say there was a dispersion after 1949. The entrepreneurial segment of China's population left ahead of the communist takeover. The sizeable Chinese minorities in several adjacent countries have become relatively prosperous and politically influential there. This in turn has left them open to periodic bouts of race-baiting, but it has proved beneficial in terms of the growth of the host societies.
Two of the dragons, of course, ARE Chinese. Hong Kong and Taiwan. The other two, Singapore and South Korea, have benefitted from this dispersion, as have the aspirants.
The post-1949-dispersion model appeals better to my own intuitive sense of how the world works than does the sort of Kiplingesque East/West dichotomies of former prime minister Lee.
At any rate, it does seem likely that amidst the dispersants and their descendants there would develop interpersonal connections that would be more important than the impersonal market operations one experiences through a stock exchange. When a company borrows money from a bank, one person speaks directly to another, they discuss the terms, they fill out the forms together. In issuing stock to raise money, abstraction of a different order is at work. So we're bank to the passage in the Cross and Prentice book with which we began -- a preference for bank lending over stock market financing might have become a feature of the development of some nations, and might even have been praised as an element in their success.
The crisis of 1997-98 would naturally have put the kibosh on such talk. Can we infer, then, that stock exchanges have become more important in the countries I've named over the last ten-eleven years?
Yes, we can. We can also see as a matter of fact that some of the phenomena that come with public markets for equity, including proxy fights, have become more prominent in east Asia recently. I'll say something about South Korea in particular tomorrow.
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