Tech Trader Daily, a blog under the Barron's umbrella, recently posted a story about Iridium, a satellite telephone company that hyped itself in the midst of the irrational exuberance of the 1990s as on a mission to change the world.
It didn't change the world. Indeed, its dreams collapsed ahead of the rest of the high-tech bubble of that time -- it petitioned for the protection of the bankruptcy court (Delaware) in 1999.
To summarize the TTD story: Iridium is a comeback success. It remained in bankruptcy for two years, until it emerged as the property of a private group of buyers led by Dan Colussy, who paid about $25 million for it to read TTD click here.
Colussy's group has since repositioned it. It no longer wants to change anything fundamental about the way people communicate, but it has found a few profitable niche markets -- as a back-up service for truck fleets, for example.
Anyway, Iridium plans an initial public offering for some time in 2009. Projects wuld be a better word there than "plans," since the projection seems vague. Still, here are two cheers for them. Hooray! Hooray! They formerly offered evidence that even when space launches are under discussion, grandiosity is a hindrance to profitability. Now they offer evidence, instead, that scaled-down practicality is the solution.
Let's hope we get more of such a less.
Monday, February 25, 2008
Sunday, February 24, 2008
CSX
The hedge fund TCI contends that the railroad company CSX (which I backgrounded for you in the previous entry of this blog) should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.
Much of the heat of this still-developing proxy fight was generated in single remark in the context of a teleconference last October (the 17th) called to discussed third-quarter earnings with the stock analysts.
One of the analysts on the line, Christian Wetherbee of Merrill Lynch, noted that CSX was measuring its return-on-investment figures against book value. He asked:
"Where do you think you stand on a replacement cost basis? I'm sure you guys have done the analysis. I'm kind of curious. Is it half that level? Is it, you know, somewhere in between? higher or lower?"
Book value: how much the RR paid for its locomotives and other assets, minus depreciation for their age.
Replacement value: how much it would have to pay for equivalent assets today.
Michael Ward, the chairman and CEO of CSX, replied: "Chris, what industry looks at their ROIC on a replacement cost basis? I don't know of any industry that does that."
TCI considers that remark fatuous: just short of a declaration that Mr. Ward is running a non-profit. They've got a point. It seems intuitively obvious that replacement cost is the more sensible market-driven measure, that book value allows more scope for slushy numbers. And surely somebody at CSX is keeping track of replacement value, even if that somebody isn't Mr. Wald!
Stock price? From the summer of last year until the start of this month, CSX stock was zig-zagging about in a range between $40 and $46. In recent weeks it has broken out of that price on the upside, going above $50. I won't try to give reasons for that move here.
One of the contentions of TCI is the classic corporate goo-goo point that the roles of CEO and chairman of the board ought to be separated, that the coach and the quarerback ought to be different folk. What's behind that contention in this case is chiefly that Mr. Ward is both of those things, and TCI doesn't trust him to do either job, but would rather have him stay on in just one of them than in both.
Much of the heat of this still-developing proxy fight was generated in single remark in the context of a teleconference last October (the 17th) called to discussed third-quarter earnings with the stock analysts.
One of the analysts on the line, Christian Wetherbee of Merrill Lynch, noted that CSX was measuring its return-on-investment figures against book value. He asked:
"Where do you think you stand on a replacement cost basis? I'm sure you guys have done the analysis. I'm kind of curious. Is it half that level? Is it, you know, somewhere in between? higher or lower?"
Book value: how much the RR paid for its locomotives and other assets, minus depreciation for their age.
Replacement value: how much it would have to pay for equivalent assets today.
Michael Ward, the chairman and CEO of CSX, replied: "Chris, what industry looks at their ROIC on a replacement cost basis? I don't know of any industry that does that."
TCI considers that remark fatuous: just short of a declaration that Mr. Ward is running a non-profit. They've got a point. It seems intuitively obvious that replacement cost is the more sensible market-driven measure, that book value allows more scope for slushy numbers. And surely somebody at CSX is keeping track of replacement value, even if that somebody isn't Mr. Wald!
Stock price? From the summer of last year until the start of this month, CSX stock was zig-zagging about in a range between $40 and $46. In recent weeks it has broken out of that price on the upside, going above $50. I won't try to give reasons for that move here.
One of the contentions of TCI is the classic corporate goo-goo point that the roles of CEO and chairman of the board ought to be separated, that the coach and the quarerback ought to be different folk. What's behind that contention in this case is chiefly that Mr. Ward is both of those things, and TCI doesn't trust him to do either job, but would rather have him stay on in just one of them than in both.
Wednesday, February 20, 2008
Working on the railroad
CSX Corp., a railroad headquartered in Richmond, Va., is in an increasingly bitter dispute with TCI, a British hedge fund, over what the hedge fund sees as CSX' incompetent management, and what the railroad sees as the hedge fund's potentially ruinous effirt to produce a perpetual running recall election.
CSX this month has amended its bylaws to provide that a special meeting would be called only after the company received a written request from shareholders representing at least 15 percent of its voting power.
I'll wait until next week to detail this fight somewhat for you. For now, here is a little history. Its corporate ancestors include The Baltimore and Ohio Rail Road Company, one of the four railroads known to every enthusiast of Monopoly, the famous board game.
The B&O, America's first common carrier, was chartered in 1827. Its first rails were useful only for the purpose of assisting the horses, making the carriage-pulling work a bit easier. Steam replaced horses three years later.
The B&O was acquired by the Chesapeake & Ohio -- which had been a canal company in the old days, when proponents of canals and rail debated over who represented the future -- the acquisition didn't happen until the early 1960s, and the present name, CSX, was originally suggested by the phrase, "Chesapeake, Seaboard, and many things more."
Last year, CSX spent $3.2 million on Washington lobbyists. At least some of that money went into the company's support for legislation that would require hedge funds to register with the SEC -- oops, we've wandered back into the TCI/CSX controversy again, haven't we?
Til we meet again.
CSX this month has amended its bylaws to provide that a special meeting would be called only after the company received a written request from shareholders representing at least 15 percent of its voting power.
I'll wait until next week to detail this fight somewhat for you. For now, here is a little history. Its corporate ancestors include The Baltimore and Ohio Rail Road Company, one of the four railroads known to every enthusiast of Monopoly, the famous board game.
The B&O, America's first common carrier, was chartered in 1827. Its first rails were useful only for the purpose of assisting the horses, making the carriage-pulling work a bit easier. Steam replaced horses three years later.
The B&O was acquired by the Chesapeake & Ohio -- which had been a canal company in the old days, when proponents of canals and rail debated over who represented the future -- the acquisition didn't happen until the early 1960s, and the present name, CSX, was originally suggested by the phrase, "Chesapeake, Seaboard, and many things more."
Last year, CSX spent $3.2 million on Washington lobbyists. At least some of that money went into the company's support for legislation that would require hedge funds to register with the SEC -- oops, we've wandered back into the TCI/CSX controversy again, haven't we?
Til we meet again.
Tuesday, February 19, 2008
Non-core acquisitions
Sometimes the management of a company will come under fire from its shareholders for a policy of "non-core acquisitions."
The idea is that a company should "stick to its knitting," should do what it does best. If a company has been successful in the past in the "core" area, then it has an edge there -- not just the initial success itself, but the institutional know-how built up over time, and the fact that suppliers and customers in that field have both presumably grown accustomed to its face.
There is another thought behind the complaint about "non-core acquisitions." This is the idea that "we, the stockholders don't pay you, the managers, to diversify our portfolios for us. We'll do that for ourselves."
Let's get back to the point at which we left the matter yesterday. Presumably, if I've just bought stock in Comcast, it is because I wanted some exposure in my portfolio to the risk-reward profile found historically in the type of business I know Comcast to be in. If I also want something safe (or something more risky but promising) in there, I'll also buy that. It impedes my ability to get the balance I want if the managers of the particular stocks involved are shifting their own profile.
Now we can move forward a step. I can't say I have much sympathy with this sort of complaint. After all, managers are also often criticized for failing to diversify. Suppose Blockbusters had stuck doggedly to its brick-and-mortar stores (its "core assets") and ignored the fact that the technology for movie-purchase was changing on them. They'd be defunct. But they did anticipate the change and diversify in time, doing "non-core" things in the process, which is why they're a tenable company today. Of course, along the way they made a few false steps, such as a deal with Enron but ... hey ... that's show biz.
My point then is simply that the core/non-core distinction is not itself very useful, and that when we find it being invoked, we should try to look more closely at what is really at stake.
The idea is that a company should "stick to its knitting," should do what it does best. If a company has been successful in the past in the "core" area, then it has an edge there -- not just the initial success itself, but the institutional know-how built up over time, and the fact that suppliers and customers in that field have both presumably grown accustomed to its face.
There is another thought behind the complaint about "non-core acquisitions." This is the idea that "we, the stockholders don't pay you, the managers, to diversify our portfolios for us. We'll do that for ourselves."
Let's get back to the point at which we left the matter yesterday. Presumably, if I've just bought stock in Comcast, it is because I wanted some exposure in my portfolio to the risk-reward profile found historically in the type of business I know Comcast to be in. If I also want something safe (or something more risky but promising) in there, I'll also buy that. It impedes my ability to get the balance I want if the managers of the particular stocks involved are shifting their own profile.
Now we can move forward a step. I can't say I have much sympathy with this sort of complaint. After all, managers are also often criticized for failing to diversify. Suppose Blockbusters had stuck doggedly to its brick-and-mortar stores (its "core assets") and ignored the fact that the technology for movie-purchase was changing on them. They'd be defunct. But they did anticipate the change and diversify in time, doing "non-core" things in the process, which is why they're a tenable company today. Of course, along the way they made a few false steps, such as a deal with Enron but ... hey ... that's show biz.
My point then is simply that the core/non-core distinction is not itself very useful, and that when we find it being invoked, we should try to look more closely at what is really at stake.
Monday, February 18, 2008
Comcast update
I last wrote about Comcast on January 23. It's time for an update on that situation.
Last week Comcast, the cable operator, announced a revision in its compensation package for the company founder, Ralph Roberts. He was paid $1.85 million in 2007. His salary for 2008 will be a little bit less. $1,849,999 dollars less.
The company will also eliminate a benefit that was to have continued payments to Mr. Roberts' estate for five years after his death.
These moves are widely attributed to the influence of Chieftain Capital Management, which owns about 2% of the company's equity.
Executive compensation issues are, generally, eyewash. In a more substantive move, though, Comcast said that it will buy back $6.9 billion of its stock over two years and pay its first dividend in almost a decade, sending the shares up the most since 2002.
A Bloomberg reporter, Todd Shields, interviewed Glenn Greenberg (Chieftain's managing director) last week. Greenberg told Shields: "They certainly hit on all the important points, which we and others had been discussing with them. Now it's up to them to create value, which they have not done in the past 10 years."
Another issue that has arisen in the Comcast context recently is that of "core" versus "non-core" acquisitions as growth strategy. I'll have a few words to say on that theme tomorrow. Until then, enjoy President's Day.
Last week Comcast, the cable operator, announced a revision in its compensation package for the company founder, Ralph Roberts. He was paid $1.85 million in 2007. His salary for 2008 will be a little bit less. $1,849,999 dollars less.
The company will also eliminate a benefit that was to have continued payments to Mr. Roberts' estate for five years after his death.
These moves are widely attributed to the influence of Chieftain Capital Management, which owns about 2% of the company's equity.
Executive compensation issues are, generally, eyewash. In a more substantive move, though, Comcast said that it will buy back $6.9 billion of its stock over two years and pay its first dividend in almost a decade, sending the shares up the most since 2002.
A Bloomberg reporter, Todd Shields, interviewed Glenn Greenberg (Chieftain's managing director) last week. Greenberg told Shields: "They certainly hit on all the important points, which we and others had been discussing with them. Now it's up to them to create value, which they have not done in the past 10 years."
Another issue that has arisen in the Comcast context recently is that of "core" versus "non-core" acquisitions as growth strategy. I'll have a few words to say on that theme tomorrow. Until then, enjoy President's Day.
Sunday, February 17, 2008
Subprime mortgages
Now that the world of finance has decided that "subprime mortgages" and the fall of the great superstructures of paper and abstraction built thereon are yesterday's news, a stale old crisis, everybody's attention has moved on to a newer, fresher, crisis. Bond insurance.
That's fine with me. Every news cycle has its own pace.
But before we consign it all to the memory hole, let us pause for a laugh, appreciating this stick figure account of what happened.
(Keep pressing the arrow on the bottom left hand side of your screen to go from one slide to the next.)
That's fine with me. Every news cycle has its own pace.
But before we consign it all to the memory hole, let us pause for a laugh, appreciating this stick figure account of what happened.
(Keep pressing the arrow on the bottom left hand side of your screen to go from one slide to the next.)
Wednesday, February 13, 2008
Shuffling about on NYT board
The grey lady, the New York Times, is shuffling her own board membership around, in anticipation of a proxy fight at the annual meeting scheduled for April.
They presumably want to offer the strongest slate they can, and it appears that Brenda Barnes and James Kilts don't count as among the strongest in their eyes.
Of course, press releases never put things that way. The good news is that this time we're also being spared the usual pap about how Mr. Kilts and Ms Barnes have simultaneously decided they need to spend more time with their respective families. We're told simply that they won't stand for re-election.
Instead, Dawn Lepore and Robert Denham will join the incumbents on the slate. In a statement, the chairman, Mr. Sulzberger, said: "The skills, expertise and leadership qualities of these two nominees will greatly benefit our company during this time of tremendous change in the media world."
Meanwhile Harbinger and Firebrand between them now own 10% of the company's equity. Representatives of those two funds apparently met with Sulzberger Friday, but the subsequent manuveuring would certainly seem to indicate that nothing was resolved.
They presumably want to offer the strongest slate they can, and it appears that Brenda Barnes and James Kilts don't count as among the strongest in their eyes.
Of course, press releases never put things that way. The good news is that this time we're also being spared the usual pap about how Mr. Kilts and Ms Barnes have simultaneously decided they need to spend more time with their respective families. We're told simply that they won't stand for re-election.
Instead, Dawn Lepore and Robert Denham will join the incumbents on the slate. In a statement, the chairman, Mr. Sulzberger, said: "The skills, expertise and leadership qualities of these two nominees will greatly benefit our company during this time of tremendous change in the media world."
Meanwhile Harbinger and Firebrand between them now own 10% of the company's equity. Representatives of those two funds apparently met with Sulzberger Friday, but the subsequent manuveuring would certainly seem to indicate that nothing was resolved.
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