Two different hearings on Capitol Hill last week pointed in two very different directions.
On Wednesday, the subcommittee on railroads -- a panel of the Transportation Committee -- held a hearing chiefly for the purpose of excoriating activist investors, especially the UK based fund TCI, who have lately been agitating for management changes at CSX. The general attitude of the solons doing the questioning (especially the subcommittee's chairwoman, whose district includes CSX's headquarters) was that the railroad has been doing a fine job, employs a lot of people, and how dare these Londoners come into this picture to mess things up.
On Friday, another house committee -- this time a full committee, Oversight and Government Reform -- held a hearing about CEO salaries. It turns out they're shockingly high. The general attitude of these solons was that managements get out of control, grant themselves salaries not checked by market forces, and it would be good to have some more activist investors holding them in check.
Do these two sets of committee members never even talk to each other?
Sunday, March 9, 2008
Wednesday, March 5, 2008
Melnyk and a Comeback
On February 28, Eugene Melnyk wrote the board of directors of the company he founded, Biovail, indicating that he's unhappy with their current direction.
He was the chairman of that board until last June, when he quit as part of a settlement with Canadian regulators over insider trading allegations.
Eight months of idleness appears to have been wearying, though. Melnyk, who owns 18.2 million shares (about 11% of the outstanding) writes: "I am at this juncture formally informing the Board that I have decided to explore, and am exploring, various options available to me in connection with my interest in Biovail, including the possibility of joining with a partner or partners to acquire the remaining shares of Biovail, selling all or a portion of my current Biovail shares to a third party, continuing to hold my shares for investment, or seeking changes to the composition of the Board of Directors."
Biovail is a pharmaceutical company specializing in making time-release versions of medicines (or, as their website puts it, "drug-delivery technologies.")
Between May and mid-July of last year, Biovail stock was trading in the neighborhood of $25. There was a sharp downward move in July, when the US FDA refused to approve a once-daily salt formulation of an anti-depressant. In August it found a floor at $16.
It fell trough that floor in December, when it announced it expected to settle a class-action lawsuit in the federal courts by making a payment of $85 million. The settlement, as is customary, includes no admissionof wrong-doing.
The stock price didn't find its new floor until mid January 2008, when it reached $12. It has rebounded a bit since then. But so far as I can tell, Melnyk believes that his successor has been inadequately aggressive as a litigant, leading to his 'decision to explore options.'
My own guess? (Just a guess folks, and don't take anything I say as investment advice -- if you do, you're an idiot!) My guess is that Biovail is better off without him, and ought to resist any "options" he explores that might put him back in a decision to make decisions. Melnyk was part of the problem, he isn't part of the solution. They can work their way through the tough times they've encountered.
"Once you went away, I was petrified/ Kept thinking I would never live without you by my side ... I will survive/ I will survive."
He was the chairman of that board until last June, when he quit as part of a settlement with Canadian regulators over insider trading allegations.
Eight months of idleness appears to have been wearying, though. Melnyk, who owns 18.2 million shares (about 11% of the outstanding) writes: "I am at this juncture formally informing the Board that I have decided to explore, and am exploring, various options available to me in connection with my interest in Biovail, including the possibility of joining with a partner or partners to acquire the remaining shares of Biovail, selling all or a portion of my current Biovail shares to a third party, continuing to hold my shares for investment, or seeking changes to the composition of the Board of Directors."
Biovail is a pharmaceutical company specializing in making time-release versions of medicines (or, as their website puts it, "drug-delivery technologies.")
Between May and mid-July of last year, Biovail stock was trading in the neighborhood of $25. There was a sharp downward move in July, when the US FDA refused to approve a once-daily salt formulation of an anti-depressant. In August it found a floor at $16.
It fell trough that floor in December, when it announced it expected to settle a class-action lawsuit in the federal courts by making a payment of $85 million. The settlement, as is customary, includes no admissionof wrong-doing.
The stock price didn't find its new floor until mid January 2008, when it reached $12. It has rebounded a bit since then. But so far as I can tell, Melnyk believes that his successor has been inadequately aggressive as a litigant, leading to his 'decision to explore options.'
My own guess? (Just a guess folks, and don't take anything I say as investment advice -- if you do, you're an idiot!) My guess is that Biovail is better off without him, and ought to resist any "options" he explores that might put him back in a decision to make decisions. Melnyk was part of the problem, he isn't part of the solution. They can work their way through the tough times they've encountered.
"Once you went away, I was petrified/ Kept thinking I would never live without you by my side ... I will survive/ I will survive."
Tuesday, March 4, 2008
GenCorp meeting date set
GenCorp's shareholder's meeting is now set for March 26 at the Ritz-Carlton in Washington, DC. The record date is February 1.
To their credit (in my humble opinion) the board of GenCorp has made some moves over the last couple of years to modernize their system of governance. It has separated the role of chairman from that of chief executive; it has allowed the expiration of an old "poison pill" provision; and it has declassified its board.
Of course, it has done these things under pressure. Still, it has done them.
Also, over the same two year period the price of a share of GenCorp (NYSE: GY) has been in decline. It was worth about $19 two years ago, and is worth somewhat less than $11 today.
The dissident slate available to voters at this month's meeting is backed by hedge fund Steel Partners.
To their credit (in my humble opinion) the board of GenCorp has made some moves over the last couple of years to modernize their system of governance. It has separated the role of chairman from that of chief executive; it has allowed the expiration of an old "poison pill" provision; and it has declassified its board.
Of course, it has done these things under pressure. Still, it has done them.
Also, over the same two year period the price of a share of GenCorp (NYSE: GY) has been in decline. It was worth about $19 two years ago, and is worth somewhat less than $11 today.
The dissident slate available to voters at this month's meeting is backed by hedge fund Steel Partners.
Monday, March 3, 2008
New York Times stock price
On Friday, both the New York Times and Harbinger filed their preliminary proxy statements with the SEC. One thing that piques my interest in the Harbinger filing is the disclosure of an equity-swap deal Harbinger has made with a London company doing business as TradIndex.
On January 17, around the time the NYT price was hitting $15. "TradIndex agreed to pay the Special Fund an amount equal to any increase, and the Special Fund agreed to pay TradIndex an amount equal to any decrease, in the official market price of 320,455, 300,000 and 390,480 notional shares, respectively ...."
This sounds like a "contract for difference," a way of separating voting interest from the economic significance of stock ownership. I'm guessing (and that's all I'm doing at this point) that Harbinger entered into the deal to protect itself against the further decline in the value of Times' stock that it plans to use to get some seats on the Times board.
It certainly had reason to worry, based on the charts. In June of last year, the stock price of the New York Times was at $26. That was a gain of $4 per share from its value as of a year before. But it was not to last.
By August the stock (NYSE: NYT) was back at summer of 2006 levels. It continued to fall, right through them.
By mid-October, it was near $18, then rallied briefly, up to $21, before falling back to $18 at the start of November.
Once we were into the new year, the newspaper company reported a December revenue drop off of 22.4%, and the stock price quickly came to reflect this news, getting to below $15 in mid-January. That, as I say, was when Harbinger entered into this hedge.
There's been something of a rally since then, in part at least because the January revenue results were an improvement over those for December, and in part because of the interest Harbinger and Firebrand have show. The price is now back above $18. So it appears that Harbinger could close out its deal with TradIndex for a profit.
Nothing untoward about this -- it all seems to be a Marquis of Queensbury proxy fight, and civil enough so far to sound like some of the Clinton/Obama debates. Should somebody get Mr. Sulzberger a pillow?
Still, the whole idea of CFDs and the separation of economic from voting interest raises policy/regulatory issues.
On January 17, around the time the NYT price was hitting $15. "TradIndex agreed to pay the Special Fund an amount equal to any increase, and the Special Fund agreed to pay TradIndex an amount equal to any decrease, in the official market price of 320,455, 300,000 and 390,480 notional shares, respectively ...."
This sounds like a "contract for difference," a way of separating voting interest from the economic significance of stock ownership. I'm guessing (and that's all I'm doing at this point) that Harbinger entered into the deal to protect itself against the further decline in the value of Times' stock that it plans to use to get some seats on the Times board.
It certainly had reason to worry, based on the charts. In June of last year, the stock price of the New York Times was at $26. That was a gain of $4 per share from its value as of a year before. But it was not to last.
By August the stock (NYSE: NYT) was back at summer of 2006 levels. It continued to fall, right through them.
By mid-October, it was near $18, then rallied briefly, up to $21, before falling back to $18 at the start of November.
Once we were into the new year, the newspaper company reported a December revenue drop off of 22.4%, and the stock price quickly came to reflect this news, getting to below $15 in mid-January. That, as I say, was when Harbinger entered into this hedge.
There's been something of a rally since then, in part at least because the January revenue results were an improvement over those for December, and in part because of the interest Harbinger and Firebrand have show. The price is now back above $18. So it appears that Harbinger could close out its deal with TradIndex for a profit.
Nothing untoward about this -- it all seems to be a Marquis of Queensbury proxy fight, and civil enough so far to sound like some of the Clinton/Obama debates. Should somebody get Mr. Sulzberger a pillow?
Still, the whole idea of CFDs and the separation of economic from voting interest raises policy/regulatory issues.
Sunday, March 2, 2008
The New York Times
It's on. The proxy fight is official.
The Times' January results show a steep drop in advertising sales and a weakening of online growth, and that led S&P to indicate that it may downgrade the NYT's credit rating.
It went further, S&P's statement said, "the downgrade may not be limited to one notch." How ominous is that?
This will certainly feed the rebellion by the Harbinger-Firebrand group, which has now put forward four nominees for the board of directors.
The rebels' problem is that the New York Times board is designed so as to perpetuate the control of the Ochs-Sulzberger clan. Class A stock, which is the sort Harbinger etc. own, can elect only up to four members of the board. The rest of the 13-member body is determined by Class B stock, which is privately held. In fact, 88% of the Class B stock is held by members of the controlling family.
This is the sort of self-perpetuating elitist structure that would normally be denounced in the editorial pages of, say, The New York Times.
Cheap irony to the side, though, there are ways of losing these things even when the fix seems to be in. Think of the way Eisner was run out of Disney.
More on this tomorrow.
The Times' January results show a steep drop in advertising sales and a weakening of online growth, and that led S&P to indicate that it may downgrade the NYT's credit rating.
It went further, S&P's statement said, "the downgrade may not be limited to one notch." How ominous is that?
This will certainly feed the rebellion by the Harbinger-Firebrand group, which has now put forward four nominees for the board of directors.
The rebels' problem is that the New York Times board is designed so as to perpetuate the control of the Ochs-Sulzberger clan. Class A stock, which is the sort Harbinger etc. own, can elect only up to four members of the board. The rest of the 13-member body is determined by Class B stock, which is privately held. In fact, 88% of the Class B stock is held by members of the controlling family.
This is the sort of self-perpetuating elitist structure that would normally be denounced in the editorial pages of, say, The New York Times.
Cheap irony to the side, though, there are ways of losing these things even when the fix seems to be in. Think of the way Eisner was run out of Disney.
More on this tomorrow.
Wednesday, February 27, 2008
Auto parts industry
The continuing story of the wholesale reorganization of the US-based auto parts industry is worth another look this month.
GM is trying to get a divorce decree from its parts supplier, Delphi, but the alimony figures keep going up.
Indeed, the "ex" has started a familiar cry, "I'm melting, I'm melting!" The reorganization in the Manhattan bankruptcy court seems to be turning by decrees into a liquidation.
On December 31, Delphi reported to the court that it has discontinued its steering business, "Previously recognized impairment charges recorded with respect to these businesses are included in the loss from discontinued operations during 2007."
In January, the court approved Delphi's plan, which would have had the remainder of the company emerge from bankruptcy next month, but the credit crunch and some balking on the part of GM as to the role it would have to play in that emergence have held things up.
Accordingly on Monday, February 25, the court took another step in the ad hoc liquidation. It authorized Delphi to sell the assets of its recently discontinued steering business to an outfit called Platinum Equity.
Other auto parts companies have passed through the creaky revolving door of chapter 11 recently -- Federal-Mogul emerged in December, Tower Automotive last summer -- but Delphi likely isn't too lonely -- Dana Corp is there to keep it company for the nonce.
A lot might be said about all this. The usual take is that its all so much fall-out from labor/management disputes. If you're symapthetic to the unions, you say the managements have used the bankruptcy courts to reverse the hard fought gains of working folk, and so forth. If you're skeptical about the social value of unionism in its current form, though, you might prefer this account by blogger David Welch..
Don't expect resolution here. I'll see you all at Pragmatism Refreshed through the weekend.
GM is trying to get a divorce decree from its parts supplier, Delphi, but the alimony figures keep going up.
Indeed, the "ex" has started a familiar cry, "I'm melting, I'm melting!" The reorganization in the Manhattan bankruptcy court seems to be turning by decrees into a liquidation.
On December 31, Delphi reported to the court that it has discontinued its steering business, "Previously recognized impairment charges recorded with respect to these businesses are included in the loss from discontinued operations during 2007."
In January, the court approved Delphi's plan, which would have had the remainder of the company emerge from bankruptcy next month, but the credit crunch and some balking on the part of GM as to the role it would have to play in that emergence have held things up.
Accordingly on Monday, February 25, the court took another step in the ad hoc liquidation. It authorized Delphi to sell the assets of its recently discontinued steering business to an outfit called Platinum Equity.
Other auto parts companies have passed through the creaky revolving door of chapter 11 recently -- Federal-Mogul emerged in December, Tower Automotive last summer -- but Delphi likely isn't too lonely -- Dana Corp is there to keep it company for the nonce.
A lot might be said about all this. The usual take is that its all so much fall-out from labor/management disputes. If you're symapthetic to the unions, you say the managements have used the bankruptcy courts to reverse the hard fought gains of working folk, and so forth. If you're skeptical about the social value of unionism in its current form, though, you might prefer this account by blogger David Welch..
Don't expect resolution here. I'll see you all at Pragmatism Refreshed through the weekend.
Tuesday, February 26, 2008
AIG Guilty Verdict
A jury in Hartford, Conn. has found one of AIG's executives guilty in a scheme to manipulate that company's financial statements.
The man at the defense table was Christian Milton, formerly AIG's vice president of re-insurance. He was convicted along with four executives from the General Re Corp., whom I won't name here because my own interest is in the AIG side of the case.
Milton remains free on bond pending a sentencing hearing in May. His attorney, Frederick Hafetz, said he'll appeal. No doubt one of his contentions on appeal will be precisely that Milton shouldn't have been lumped in with the General Re crowd. Interestingly, each of the General Re defendants was higher-ranking in their organization than Milton was in his.
The other reason to focus on Milton rather than the General Re defendants is that the scheme is supposed to have been for his company's benefit, not theirs. The General Re folks were supposedly just trying to accomodate AIG, given its importance in the industry. The government charged that General Re agreed to assist AIG in accounting shenanigans that inflated its (AIG's) loss reserves figure. That, in turn, presumably calmed the nerves of investors and helped sustain AIG's stock price.
So why only a lowly vice-president in the dock from AIG? The prosecutor said he hopes to work "up the ladder," and presumably at the top of that ladder is the fellow who was CEO at the time, Hank Greenberg.
Getting up those rungs is by no means a foregone conclusion. Assuming just for the purpose of discussion (a) that Milton is guilty as charged, and (b) that he was committig crimes because his superiors told him to ... the inference would have to be that he has NOT ratted out those superiors yet, and that its unlikely the prosecution has more to offer him now in return for co-operation than whatever they were offering him in the pre-trial and pre-verdict negotiations.
Still, the whole thing might have a chilling effect on Greenberg's desire (one he tentatively expressed in November) to start playing an active role again at his old company.
The man at the defense table was Christian Milton, formerly AIG's vice president of re-insurance. He was convicted along with four executives from the General Re Corp., whom I won't name here because my own interest is in the AIG side of the case.
Milton remains free on bond pending a sentencing hearing in May. His attorney, Frederick Hafetz, said he'll appeal. No doubt one of his contentions on appeal will be precisely that Milton shouldn't have been lumped in with the General Re crowd. Interestingly, each of the General Re defendants was higher-ranking in their organization than Milton was in his.
The other reason to focus on Milton rather than the General Re defendants is that the scheme is supposed to have been for his company's benefit, not theirs. The General Re folks were supposedly just trying to accomodate AIG, given its importance in the industry. The government charged that General Re agreed to assist AIG in accounting shenanigans that inflated its (AIG's) loss reserves figure. That, in turn, presumably calmed the nerves of investors and helped sustain AIG's stock price.
So why only a lowly vice-president in the dock from AIG? The prosecutor said he hopes to work "up the ladder," and presumably at the top of that ladder is the fellow who was CEO at the time, Hank Greenberg.
Getting up those rungs is by no means a foregone conclusion. Assuming just for the purpose of discussion (a) that Milton is guilty as charged, and (b) that he was committig crimes because his superiors told him to ... the inference would have to be that he has NOT ratted out those superiors yet, and that its unlikely the prosecution has more to offer him now in return for co-operation than whatever they were offering him in the pre-trial and pre-verdict negotiations.
Still, the whole thing might have a chilling effect on Greenberg's desire (one he tentatively expressed in November) to start playing an active role again at his old company.
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