Hedge Fund Management Pay Moves Back Above $1 Billion Per Man

24/7 Wall St.
April 1, 2010

According to the annual pay survey done by AR: Absolute Return+Alpha magazine and reviewed by The New York Times, the top 25 hedge fund managers made $25.3 billion in 2009.

David Tepper was at the top of the list with a $4 billion pay day. His main fund was up 130% last year. Hedge fund legend George Soros made $3.3 billion, adding to a string of unprecedented good years. Carl Icahn, a perennial member of the group made $1.3 billion. Other big players where back as well, including Steven Cohen, who runs huge fund SAIC and Eddie Lampert, the man who bought a controlling interest in Sears (SHLD) and nearly brought the company to its knees through a series of bad decisions.

The news will likely rattle Washington which has tried to create the image, especially The White House and Democratic lawmakers, that big pay on Wall St. must be vanquished.

Washington’s problem is that, unlike many bank and investment bank CEOs, whose firms received huge sums of money from the TARP to survive and who otherwise might have no jobs at all, the hedge fund managers are beholden to no one other than their own investors. These investment groups are usually made up small groups of sophisticated institutional investors.

A hedge fund manager can lose in one year what he made in the year before. Hundreds of hedge funds closed in 2009, so the risks of running the funds can be extraordinary.

The one move that Washington can do to keep hedge fund management under control is to cap the lending that large banks make to funds that allow them to leverage their bets. These loans are often risky, but they are also often profitable to the institutional divisions of the bank, and curbing them could cost banks money at the bottom line.

For now at least, capitalism has its day in the sun, a day when an individual can make $1 billion and not be bothered by any public shareholders, the government pay czar, or anyone in Washington who is unhappy about the situation.

M&A Hits $2.2 Trillion as 2011 Looms

24/7 Wall St.
December 17, 2010

Data from Reuters shows that global M&A activity rose to $2.2 trillion in 2010. The 2010 improvement was the first since 2007. Most comments about the news said that 2011 should be an even better year for bankers.

“Senior executives on average expect $3 trillion of M&A next year, a recent Thomson Reuters/Freeman survey found,” the news service wrote.

The excitement may be overheated.

News outlets which cover M&A reported the same optimistic comments three years ago. Stocks were rising so quickly that shares in public companies could be used to close many transactions.

Private equity funds had access to so much capital that they could finance deals like the $33 billion HCA buyout or the $18 billion Clear Channel transaction. Those deals did not do as well as expected. The recession was part of the cause. The overpayments for the companies, brought on by potential private equity and bank profits, undermined many of the private equity forecasts within two years.

The new cycle of M&A is likely to be helped by two things. The first is historically low interest rates. The second is the rush to buy assets in Asia. IPOs in that region often soar in their first few days of trading. That further encourages bankers to believe that many companies in Asia are undervalued.

It is easy to forget when deals are plentiful that there is a large body of evidence that most mergers and acquisitions do not work. Companies overpay for acquisitions because of overly optimistic forecasts. On the other hand, combining two cultures and two complex sets of operations is often too much for even the most talented executives. Recent M&A in the pharmaceutical industry shows that not all transactions, such as the Pfizer (NYSE: PFE) $69 billion buyout of Wyeth, work. The problems each firm had due to operational difficulties and aging products could not be addressed by a marriage.

The greatest enemy of M&A has always been the economy. Asia appears like a fertile ground for M&A deals, but there are already some cracks in the Chinese economy. Inflation appears to be accelerating. The value of corporate assets may change overnight if China has to apply breaks to its economy. That would bring down the value of many companies in the People’s Republic. Bankers may argue they can seek deals in India and other smaller countries, but China’s problems are not unique to China. Growth in the entire region could be hurt by inflation or an ongoing recession in Europe, Japan, and the US.

Bankers say every year that the number of IPO and M&A transactions will be better in the next year. History show that is not the case.

New Frontier for Dynegy Post-Blackstone

24/7 Wall St.
November 23, 2010

Dynegy Inc. (NYSE: DYN) is one of the country’s largest electric power producers. In August, the company’s board announced an offer from the world’s largest private equity firm, Blackstone Group LP (NYSE: BX), to buy Dynegy for $4.50/share, a premium of more than 60% to the company’s share price at the time. That deal is now dead, as Dynegy’s two largest shareholders, Seneca Capital and Icahn Associates, have refused to sign on.

As part of the deal for Dynegy, Blackstone had agreed to sell four of the company’s power plants to NRG Energy Inc. (NYSE: NRG) for $1.36 billion once Blackstone had completed the acquisition. The sale of the plants to NRG was contingent on a successful acquisition. NRG’s CEO has said that the outlook for power prices has fallen since August, and that NRG would not offer the same price today.

The deal between Dynegy and Blackstone failed primarily on the objections of both Seneca Capital and Icahn Associates, both of which believed that Dynegy was worth more than the $5/share that Blackstone ultimately offered on November 17th in an effort to win over shareholders. Both Seneca and Icahn were holding out for around $7/share.

Dynegy has decided to open a formal process to sift through strategic alternatives and “to solicit proposals from potentially interested parties and carefully review its standalone restructuring alternatives,” according to the company’s press release. Under the terms of the Blackstone deal, Dynegy had 40 days to seek competing bids, and none turned up. Maybe this time will be different, but that seems unlikely.

Dynegy also announced today that it had adopted a new Stockholder Protection Rights Plan under which each current shareholder receives one stock purchase right for each share owned at close of business on December 2, 2010. According to the press release, the board “adopted this short term, narrowly tailored Rights Plan to prevent any person from obtaining control or de facto control of Dynegy without offering a control premium to all Dynegy stockholders.” In other words, Carl, don’t even think about making a solo offer for Dynegy. Icahn has already offered to supply a $2 billion line of credit to Dynegy

Blackstone is scheduled to receive a $16.3 million break-up fee if Dynegy is sold for more than $4.50/share within the next 18 months. Dynegy shares are off about -4.5% this morning, and Blackstone shares are off about -2%. Dynegy shares went from under $3 to above $4.50 after the merger announcement. Shares later on went to above $5.00 as the deal was expected to grow in size. Now that the deal is off, Dynegy shares are still up at $4.93.

Tech/Comm Acquisition Target Updates

24/7 Wall St.
October 26, 2010

Mergers and Acquisitions are still coming in the world of technology and communications. Many deals have been announced in technology that are around the Ciscoization of the data center and around cloud computing and software. We wanted to review several technology and communications companies we have covered as potential M&A targets in the recent past to discuss what the outlook is and what sort of progress has been made at each company. You will notice the Cisco Systems, Inc. (NASDAQ: CSCO) theme throughout this potential tech M&A, but that is merely a sign of the times as tech giants like H-P, IBM, and Dell have gone after IT-management, cloud, storage, and networking operations. We want to evaluate and update the outlook for Brocade Communications Systems, Inc. (NASDAQ: BRCD), Novell Inc. (NASDAQ: NOVL), Premiere Global Services, Inc. (NYSE: PGI), Seagate Technology PLC (NASDAQ: STX) and Western Digital Corp. (NYSE: WDC). We also wanted to see how these compared to the Technology Select Sector SPDR (NYSE: XLK) as the tech/comms key ETF.

Brocade Communications Systems, Inc. (NASDAQ: BRCD) rose as an M&A potential target in late-Summer and shares have held their own despite the thought that many feel a merger here would have to come at too high of a premium for a buyer. This was one of our picks for stocks which could double earlier this year before the cloud and M&A craze came, and the buyout thesis for a low-cost provider in networking and storage was a part of that call.

The company is effectively half Brocade in storage and half Foundry in communications and networking. Shares were at $5.15 on our first go-round, now shares trade around $5.80. The 52-week trading range is $4.64 to $9.45 and the market cap is roughly $2.6 billion. Brocade is not meant to be an earnings report play as shares are often volatile around earnings. The status of a deal is currently “possible, but nothing set on the books.” Analysts also have an average price target of $6.35 for Brocade.

Novell Inc. (NASDAQ: NOVL) has been a long road of excitement that has so far led to nowhere. The pending merger offer and pending auction or divesting plan has been on hold for about a month now,and frankly from the start we expected that Novell would need a higher buyout price to secure shareholder approval. There were reports that Novell was having a hard time selling its NetWare and identity management products because private equity firms would not pay Novell’s asking price.

When the first merger offer came, shares popped to $6.08 from $4.75 on over 140 million shares in a single day in March. Shares have traded as high as around $6.50 but the stock is back to about $6.00. Unfortunately, that is the long road to nowhere. One key issue is that much of Novell’s cash is tied up internationally and cannot be easily accessed in a tax-efficient manner of repatriation. The company had been a potential buyout candidate in the minds of many investors on several occasions over the last 10 to 15 years. Here we are, Novell is small with a $2.1 billion market cap and it is still an independent company with over $1 billion in cash and equivalents if the cash can be tapped.

Premiere Global Services, Inc. (NYSE: PGI) is one we featured earlier in the year as “an easy bolt-on acquisition for any of the larger communications and behind-the-scenes IT players.” Much of its business has been mistakenly considered legacy communications when that is not the case any longer. The company just last week announced the divestiture of its Xpedite Systems to EasyLink for $105 million in cash. Premiere also last week reported third quarter revenues of $142.3 million (including $109.5 million from PGiMeet solutions), earnings from continuing operations of $0.06 EPS and non-GAAP earnings of $0.18 EPS. Guidance was put at revenue from continuing operations of $107 to $109 million, and non-GAAP earnings of $0.09 to $0.11. Shares were at $7.18 before earnings, fell to $6.72 after earnings, and are down to $6.35 now. Shares were at $6.65 and had been down over 30% since the April peak when we covered it in July.

Now the company will effectively be a pure-play on conferencing and enterprise collaboration solutions. The company is going to pay down debt and may repurchase stock along with investing in core communications technology. This divestiture makes Premiere a potential stealth M&A target now that it is easier to analyze, and the company had long been overlooked because of its fax business. The $383 million market cap here could make for an easy integration for any of the larger communications providers that want to keep competing against Cisco.

Seagate Technology PLC (NASDAQ: STX) is one we covered among our dirt cheap value stocks in technology even before the rumors were flying high that the hard drive and storage device maker was considering going private (again). Now shares are up significantly and the valuations are still dirt cheap with a current and forward P/E ratio of under 10. Ditto for rival Western Digital Corp. (NYSE: WDC). Both are attractive on valuations, although Western has a leaner balance sheet,

The difference between Seagate and the others mentioned here is that Seagate IS in talks to go private with a private equity firm. Are flash-drives a threat ahead? Sure, but imagining that neither of these storage leaders will play in the field seems unlikely even if they are not leaders there. There is also a poor earnings trend with no guidance as you would expect from its low valuations. The problem is that the cost of 1 terabyte of external storage is now under the $100 mark, and this is likely to at a minimum keep fears up that margins will decline. Seagate traded nearly at $10 during the August lows and traded up to almost $13 in early October. Now that the buyout talks have been confirmed, shares are now north of $15.00. We have no updates on the merger as of yet, but we continue to see Seagate as likely bait.

Technology Select Sector SPDR (NYSE: XLK) has been on fire rising from under $21 at the end of August to above $24 currently. Keep in mind that the top six components here account for roughly 45% of the entire ETF weighting. The index ETF recently hit a 52-week high that is now technically a 2-year high and you have to go back to early-2008 to get higher share prices now.

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GNC: Chinese Food Company Wants to Muscle Up

24/7 Wall St.
December 7, 2010

It appears that the talk about China’s Bright Food Group Co. wanting to buy US nutritional retailer GNC Holdings Inc. is about to prove true. The Wall Street Journal is citing “people familiar with the matter” as saying that Bright Food will offer between $2.5 and $3 billion for GNC. If the deal goes through at that level, it will be the largest takeover by a Chinese company of a US firm, at least doubling the price paid by Lenovo for the PC business of IBM Corp. (NYSE: IBM) in 2004.

According to Bloomberg, Blackstone Group LP (NYSE: BX) is “teaming up” with the Chinese to make the deal happen. That seems a little odd, given that Blackstone and Bright Food have been unable to reach a deal for United Biscuits, a company that Bright Food wants to buy from Blackstone and private equity firm PAI Partners.

GNC is owned by private equity firm Ares Management LLC and the investment division of the Ontario Teachers’ Pension Plan, which bought the company in 2007 for $1.65 billion from Apollo Management LP. Apollo failed twice to take GNC public.

GNC sells its products through a global network of about 7,100 stores, of which 4,800 are located in the US with the rest operating as franchises in 48 international markets. Earlier this year, Bright Food and GNC had agreed to form a joint venture to help GNC gain entry to the Chinese market.

Bright Food is majority-owned by the municipal government of Shanghai, which holds just over 50% of the company. Shanghai DaSheng Holdings Co. Ltd. holds just over 40%, and four other Chinese companies hold the rest. Four Bright Food subsidiaries are listed on the Shanghai stock exchange.

If the deal is made, it would need approval from the federal government’s Committee on Foreign Investment in the United States. But if a PC business jumped that hurdle, there’s no reason to think a vitamin and nutritional supplement business won’t. Unless of course the US government fears that the Chinese will bulk up and take over the NFL too.

A New Patent Troll on the Scene?

24/7 Wall St.
December 17, 2010

When Novell, Inc. (NASDAQ: NOVL) agreed to be acquired by privately held Attachmate Corp. in late November, part of the deal included the concurrent sale of some of Novell’s intellectual property to CPTN Holdings LLC for $450 million. CPTN was identified in Novell’s press release as a “consortium of technology companies organized by Microsoft Corporation” (NASDAQ: MSFT). The other members of the consortium are Apple Inc. (NASDAQ: AAPL), Oracle Corp. (NASDAQ: ORCL), and EMC Corp. (NYSE: EMC).

So far, that’s about all anyone knows for sure about the mysterious CPTN Holdings. The most obvious question is whether or not CPTN plans to make it easier or more difficult to license the 882 patents once held by Novell.

One possible reason for the purchase could be that the four companies want to assure themselves that they hold the legal rights to components of their own technologies that they either licensed or should have licensed from Novell. Without getting into the alphabet soup of computer software development, it is probably safe to say pending lawsuits among CPTN companies and Novell will disappear, and that companies outside the consortium face some pretty formidable opposition should they be the least bit vulnerable to a patent infringement charge.

The target here has to be Google Inc. (NASDAQ: GOOG). Oracle has already filed suit against Google for infringing intellectual property related to Java that Oracle acquired with its purchase of Sun Microsystems. Google is already the main target of patent infringement suits over its Android smartphone operating system, and now that the company has released a preview version of its Chrome operating system, the target painted on its back just got bigger.

Microsoft, especially, and Apple could feel the impact of Google’s cloud-based Chrome OS. Early reviews of Chrome are lukewarm, to be sure, and many doubt that the OS will ever amount to much. But if you’re Microsoft, you can’t be too careful.

Oracle’s lawsuit against Google goes right to the heart of Android, seeking to enjoin Google from distributing the OS and destroying all copies that are already out there. On top of that, Oracle wants statutory and treble damages. Google has to fight this lawsuit, but may choose to pony up some cash if the CPTN group gets lawyered up.

At the very least, the CPTN group’s purchase will save them from potential lawsuits related to the 882 patents and it gives them the right to enforce their own rights should they choose to do so. A good guess is that they will choose to do so, and very aggressively too.

Prime Acquisition Corp. Focusing on Greater China Region

24/7 Wall St.
January 21, 2011

SPACs, the special purpose acquisition companies, were very popular during the private equity bubble and before the recession took hold. You hardly ever hear about them now. This week brought on a new SPAC filing to come public, with the focal region being in the Greater China Region.

Prime Acquisition Corp. has filed to raise $40 million in stock and warrant units at $10.00 a piece, but the filing is actually for more if you look at the details. The maximum proposed aggregate securities offering is listed as $70.495 million. The company has also applied to list its units, ordinary shares and redeemable warrants on the NASDAQ Capital Market under the “PACQ” ticker.

Prime Acquisition Corp. is a newly formed exempted company organized under the laws of the Cayman Islands. The company is a blank check company that will acquire (through a merger, capital stock exchange, asset acquisition, stock purchase or similar business combination, or control through contractual arrangements) one or more operating businesses. The company says that it is not limited to any particular geographic region or any specific industry, but it also says that it will focus on operating companies in the Greater China region (China, Hong Kong, Macau and Taiwan).

This is the initial public offering of our units. Each unit has a public offering price of $10.00 per unit and consists of one ordinary share, par value $0.001 per share, and one-half of a redeemable warrant. Each full redeemable warrant entitles the holder to purchase one ordinary share at a price of $7.50.

Management is deeply tied to and has deep overlaps with AutoChina International Ltd. (NASDAQ: AUTC) and other public companies. Its Chairman & CEO, Yong Hui Li, has the same position at both companies, and others are tied to each company as well. The underwriters are listed as Chardan Capital Markets, Rodman & Renshaw, and Maxim Group. Its full SEC filing from this week is available.

Carl Icahn Buys the Electric Power Company

24/7 Wall St.
December 15, 2010

Carl Icahn usually makes his headlines by criticizing management for not rewarding shareholders. This morning he is in the news because he is buying Dynegy Inc. (NYSE:DYN) for a higher price than had been previously agreed to. An announcement was made this morning that Dynegy’s board of directors has unanimously approved a definitive agreement to be acquired by Icahn Enterprises, L.P. (NYSE: IEP).

Dynegy’s buyout is a tender offer that will follow with a formal merger that pays Dynegy shareholders $5.50 per share in cash. IEP and its affiliates own approximately 9.9% of Dynegy’s outstanding shares and have previously acquired options to purchase approximately 5% of Dynegy’s outstanding shares.

This is a deal where the plot has thickened and thickened. The Blackstone Group (NYSE: BX) originally tried to buy Dynegy for $4.50 per share in an August offer and then raised its offer to $5.00 per share.

There is an out here and a go-shop provision: “IEP has also agreed that, in certain circumstances, if a ‘superior’ all cash offer is made and supported by Dynegy, and IEP does not wish to top the ‘superior’ offer, it will support it.” Dynegy will continue its ongoing open strategic alternatives process where Dynegy will solicit superior proposals until January 24, 2011.

As far as what Icahn will get, the company provides electricity to markets and customers in the United States; as of December 31, 2009, its power generation portfolio consisted of approximately 12,300 megawatts of baseload, intermediate, and peaking power plants fueled by a mix of natural gas, coal, and fuel oil.

The equity value is listed as only $665 million, but Dynegy has approximately $3.95 billion in outstanding debt.

Investors are hoping for a higher deal yet. Shares are up 4.7% at $5.71 in pre-market trading versus a 52-week range of $2.76 to $10.15.

As Leonard Green Takes All of Retail Private

24/7 Wall St.
December 29, 2010

The rumors and thought of private equity in retail is going on and on, oddly enough with the same player. BJ’s Wholesale Club Inc. (NYSE: BJ) is the newest target according to many web reports, and the buyer is said to be none other than Leonard Green & Partners, L.P. If you need a reminder of who Leonard Green is, this is the outfit that is already buying the crafts and fabrics retail outfit of Jo-Ann Stores Inc. (NYSE: JAS) and also in a management-led buyout partnering to buy J. Crew Group Inc. (NYSE: JCG).

Leonard Green already had a 9.5% stake in BJ’s back in the summer. There was already an expression of interest back then, and this new report seems to be that a BJ’s sale process is coming after the holidays and that Leonard Green remains an interested party.

Leonard Green & Partners, L.P. is well known private equity firm and its website shows current assets under management of approximately $9 billion in equity capital. The firm was founded back in 1989 and it claims that it has invested in 53 companies with aggregate value of $44.4 billion.

As far as how BJ’s compares in size against Costco Wholesale Corporation (NASDAQ: COST), Costco has a market cap of $31.5 billion. For annual sales estimates from Thomson Reuters: Costco is expected to post annual sales of $85.02 billion for the fiscal-year about to end and expected to post $92.01 billion for next year, which is way above the BJ’s estimates of $11.04 billion for this year and $11.86 billion next year.

BJ’s Wholesale Club Inc. shares are indicated up 6% at $47.20 in the pre-market. Its 52-week range is $32.36 to $48.43 and its market cap based on a $44.47 close was listed as $2.43 billion.

J. Crew Buyout, An Unfair Price to Many

24/7 Wall St.
November 23, 2010

Retail and apparel mergers are still alive and well for good brands. J. Crew Group, Inc. (NYSE: JCG) is reportedly close to being acquired in a private equity buyout led by TPG Capital and Leonard Green & Partners in a deal valued around $3 billion. The proposed price that is being reported is $43.50 per share in cash. While this is roughly a 16% premium to the $37.65 close on Monday, the 52-week trading range is $30.06 to $50.96.

Over the last year, it looks like there were about six different months that J. Crew shares traded above $40.00 per share. If you go back to its IPO of late 2006 and go into 2008 there were either 16 or 17 months that J. Crew shares traded above $40.00 and it looks like about 7 of those months were above $50.00.

TPG is the former owner and would end up with close to 75% of the company and Leonard Green would own a 25% stake per reports from New York Times and Bloomberg. The belief is also that the buyout firms plan to work with CEO Millard Drexler with his 5% stake.

A 16% premium may sound like a lot for an overnight pop. For many shareholders, this won’t be enough. There will be law firms which initially file inquiries and investigations into whether or not $43.40 is a fair price. Those inquiries and investigations will likely turn into class action suits thereafter.

Thomson Reuters has earnings estimates of $2.24 EPS for this year and estimates of $2.45 EPS for next year. That $43.50 generates forward earnings multiples of 19.4 for Jan-2011 and 17.75 for Jan-2012. Those are premium multiples for many retail and apparel companies on a standalone basis. The issue at hand is whether far more earnings power can be milked out of the J. Crew chain.

After looking at the numbers, many will refer to this proposed buyout as a lackluster deal. There is an old saying: “An offer is as good as a take.” That is not always true.

Another Retailer Going Private

24/7 Wall St.
December 23, 2010

Fabrics and craft retailer Jo-Ann Stores Inc. (NYSE: JAS) has agreed to accept a buyout offer of $61.00 share from private equity firm Leonard Green & Partners that values the retailer at about $1.6 billion. Jo-Ann stores have until February 14th to seek a better offer. The offer from Leonard Green is expected to close in the first half of 2011.

Last month Green teamed with private equity firm TPG Capital to make a $3 billion offer for J. Crew Group, Inc. (NYSE: JCG). That deal has come under intense scrutiny since it was revealed that J. Crew’s CEO had unreported early contacts with representatives of Leonard Green and that TPG was given confidential information about J. Crew in September.

Recent interest in retailers is a little difficult to fathom. Retailing is, at best, a low-margin business that is very susceptible to changes in the economy. A fabrics and craft store like Jo-Ann could be seeing an uptick as the economy encourages people to make rather than buy clothing and other items for a home. But all the signs are that the economy is in for a boost in 2011, which should lower interest in sewing, although it could raise interest in craft hobbies like scrapbooking.

Jo-Ann’s CEO noted that going private would enable renovation of the stores and quicker expansion to increase market share. Maybe that will happen, but Jo-Ann is betting the ranch on it.

Jo-Ann Stores are seeing a jump in share prices of more than 30% on very heavy volume. Shares of J. Crew are also up marginally.

That Was Fast: Gymboree Bought by Bain

24/7 Wall St.
October 11, 2010

The Gymboree Corporation (NASDAQ: GYMB) has hardly been on the market for much time after shares had a great ten days or so on word that it was reviewing alternatives in hope of getting a private equity buyout. It already came. Bain Capital Partners has entered into a definitive agreement for affiliates of Bain Capital to acquire all the outstanding stock of Gymboree for $65.40 per share, or $1.8 billion.

The merger has been unanimously approved by Gymboree’s board of directors. The price represents a 57.4% premium to the ‘unaffected share price’ on September 30, 2010 before market rumors of a transaction. Furthermore, this represents a 23.5% premium to Friday’s closing price.

Under the terms of the agreement, it is anticipated that affiliates of Bain Capital will commence a tender offer for all of the outstanding shares of Gymboree shortly following the execution of the agreement. Gymboree has a 40-day go-shop provision in the deal.

Some deals happen fast, others happen faster than fast. The 52-week trading range is $37.26 to $55.27, or at least it was before the deal reaction this morning. Shares are indicated up about 30% around $69.00 as some hope a higher buyout price will be offered. Keep in mind, this is an all-time high for Gymboree and that goes back to the mid-1990′s.

M&A Alerts: MBO Heads Harbin’s Way

24/7 Wall St.
October 11, 2010

Harbin Electric, Inc. (NASDAQ: HRBN) is going private, at least that is if the deal is accepted. The company has received a proposal letter from its Chairman and CEO, Mr. Tianfu Yang and Baring Private Equity Asia Group Limited. The offer is for $24.00 per share in cash, subject to certain conditions. The company is a developer and manufacturer of electric motors in China and products include industrial rotary motors, linear motors, and specialty micro-motors.

Mr. Yang currently owns 31.1% of Harbin’s common stock and an acquisition vehicle will be formed and the deal is intended to be financed with a combination of debt and equity capital. In addition, the equity portion of the financing would be provided by Mr. Yang, the Baring Fund and related sources. Goldman Sachs (Asia) LLC is acting as financial advisor to the acquisition vehicle.

Harbin’s Board of Directors has already formed a special committee of independent directors (David Gatton, Boyd Plowman and Ching Chuen Chan) to consider this proposal. The special committee will retain independent advisors to assist in a decision and no decisions have been made by the special committee over this proposal.

Management buyouts have a mixed history when it comes to independent committees approving such mergers. The fact that this is more of a Chinese operation may only make predicting whether a buyout would allowed only that much more difficult. The company did note, “There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.”

Harbin’s shares closed at $19.96 on Friday and the 52-week trading range is $15.26 to $26.00. Shares are up more than 21% at $24.30 in thin-volume trading.

Over $100 Billion in Buybacks and M&A in August

24/7 Wall St.
August 31, 2010

$100 billion… That is roughly the combined tally of August share buyback announcements and merger announcements. This may not be a record, but it has to be one of the most active months of announcements that intend to return capital to shareholders.

Share buyback announcements were led by Hewlett-Packard Co. (NYSE: HPQ), Intuit Inc. (NASDAQ: INTU), Lorillard, Inc. (NYSE: LO), VeriSign Inc. (NASDAQ: VRSN), DIRECTV (NASDAQ: DTV), Discovery Communications Inc (NASDAQ: DISCA), Gap Inc. (NYSE: GPS), Nordstrom Inc. (NYSE: JWN), Marvell Technology Group Ltd. (NASDAQ: MRVL), and RadioShack Corporation (NYSE: RSH).

M&A activity was led by deals for 3PAR, Inc. (NYSE: PAR), Genzyme Corporation (NASDAQ: GENZ), Potash Corp. of Saskatchewan (NYSE: POT), Intel Corporation (NASDAQ: INTC), Charles Schwab Corporation (NASDAQ: SCHW), 3M Co. (NYSE: MMM) and Dynegy Inc. (NYSE: DYN).

While you can not expect all of the set buybacks to be accelerated and while some may never be completed, combined announcements of more than $26 billion (not including many smaller buybacks announced) are hard to ignore even if $10 billion was via Hewlett-Packard Co. (NYSE: HPQ). Some of these were add-on amounts and some were new combined announcements.

The merger front is also a slippery slope in the named deals (not including some smaller deals) because some of these are being challenged. The lion’s share of M&A revolves around Genzyme Corporation (NASDAQ: GENZ) by Sanofi-Aventis (NYSE: SNY) and Potash Corp of Saskatchewan (NYSE: POT) by BHP Billiton plc (NYSE: BHP), both of which deals have the targets trading at a premium because the companies want more money.

The table below was geared down to only account for the larger deals. Many smaller deals and smaller buybacks were left off, which is why the tally is just shy of the $100 billion mark. Below is a table summary of the combined share buybacks and the combined acquisition targets:

BUYBACK ANNOUNCEMENTS	SIZE (MIL$)
Fossil, Inc. (NASDAQ: FOSL)	$750
Qlogic Corp. (NASDAQ: QLGC)	$200
Oil States International Inc. (NYSE: OIS)	$100
White Mountains Insurance Group, Ltd. (NYSE: WTM)	$180
Veeco Instruments Inc. (NASDAQ: VECO)	$200
Myriad Genetics Inc. (NASDAQ: MYGN)	$100
Ann Taylor Stores Corporation (NYSE: ANN)	$400
Dillard’s Inc. (NYSE: DDS)	$250
Gap Inc. (NYSE: GPS)	$750
Hewlett-Packard Co. (NYSE: HPQ)	$10,000
Lorillard, Inc. (NYSE: LO)	$1,000
Marvell Technology Group Ltd. (NASDAQ: MRVL)	$500
Intuit Inc. (NASDAQ: INTU)	$2,000
The Children’s Place Retail Stores, Inc. (NASDAQ: PLCE)	$100
Nordstrom Inc. (NYSE: JWN)	$500
RadioShack Corporation (NYSE: RSH)	$500
Rambus Inc. (NASDAQ: RMBS)	$90
Research In Motion Limited (NASDAQ: RIMM)	$80
Flextronics International Ltd. (NASDAQ: FLEX)	$200
RenaissanceRe Holdings Ltd. (NYSE: RNR)	$500
TD AMERITRADE Holding Corporation (NASDAQ: AMTD)	$500
Advance Auto Parts (NYSE: AAP)	$300
The Scotts Miracle-Gro Company (NYSE: SMG)	$500
Polo Ralph Lauren (NYSE: RL)	$250
VeriSign Inc. (NASDAQ: VRSN)	$1,100
DIRECTV (NASDAQ: DTV)	$2,000
Discovery Communications Inc (NASDAQ: DISCA)	$1,000
Gartner Inc. (NYSE: IT)	$500
WMS Industries Inc. (NYSE: WMS)	$300
Focus Media Holding Limited (NASDAQ: FMCN)	$300
Plum Creek Timber Co. (NYSE: PCL)	$200
Atmel Corporation (NASDAQ: ATML)	$200
W. R. Berkley Corporation (NYSE: WRB)	$260
Skyworks Solutions (NASDAQ: SWKS)	$200
Owens Corning (NYSE: OC)	$285
WebMD Health Corp. (NASDAQ: WBMD)	$150
Total Counted Buybacks	$26,445
MERGER ANNOUNCEMENTS	SIZE (MIL$)
Deere & Company (NYSE: DE) sale of wind to Exelon	$900
3PAR, Inc. (NYSE: PAR) by HP	$1,900
Genzyme Corporation (NASDAQ: GENZ) by Sanofi	$18,500
Potash Corp of Saskatchewan (NYSE: POT) by BHP	$39,000
Intel Corporation (NASDAQ: INTC) Infineon wireless	$1,400
McAfee, Inc. (NYSE: MFE) by Intel	$7,700
New Alliance Bancshares Inc. (NYSE: NAL)	$1,500
Charles Schwab (NASDAQ: SCHW) for Windward	$150
Cogent Inc. (NASDAQ: COGT) by 3M	$943
3M Co. (NYSE: MMM) buys Attenti from Francisco Partners	$230
Dynegy Inc. (NYSE: DYN) by Blackstone	$542
Total Counted M&A	$72,765

Barnes & Noble Settles With Burkle–To What End?

24/7 Wall St.
August 12, 2010

Failing bookstore company Barnes & Noble (NYSE: BKS), maker of the also-ran e-reader, the Nook, has settled with raider Ron Burkle, who bought enough shares in the company so that he could claim that he needed a board seat.

The Wall Street Journal reports that “As part of the settlement, Barnes & Noble will add two independent directors to the board, in addition to a director affiliated with Yucaipa Cos., the investment firm run by Mr. Burkle, these people said.”

Burkle believed that the founding Riggio family, which holds a controlling interest in the firm, would act in their interests and not those of other shareholders. Burkle will end his proxy fight against the company in exchange for those board seats and support the re-election of chairman Leonard Riggio. Apparently, Barnes & Noble will pay the raider’s legal costs for his challenge. It is hard to imagine why this is a good deal for shareholders who will watch Burkle pick the company’s pocket in exchange for a seat at the table.

Riggio is already acting in his best interests and those of Burkle as well by putting the book company up for sale. Riggio has indicated that he may be a buyer, probably with a private equity firm which could borrow most of the purchase price from unwitting banks which have already lost tens of billions of dollars on LBOs.

Barnes & Noble has been thrashed by Amazon.com which has sold books online for more than a decade and does not have the costs of maintaining store locations. Amazon has also launched its Kindle e-reader which controls that market with a share that is estimated at 70% or better.

Even with a potential private sale of the company, its shares are only up to $14.48, well below their 52-week high of $25.07 and their five-year high of $48 reached in May 2006 when selling books out of physical locations was as good a business as selling DVDs from stores. Blockbuster found out the hard way that its sales would suffer when DVD sales moved to the Internet and the same now holds true of books, both paper and digital.

It is hard to see what Burkle gains by his new-found seat at the table. Barnes & Noble can hardly be broken up. The company’s online business many be attractive, but its stores are an albatross which have very little value at all.

Burkle may regret that he got what he wanted.

GE’s Cleantech Venture Fund Targets Grid, Batteries, and Electric Vehicles

24/7 Wall St.
July 13, 2010

General Electric Co. (NYSE: GE) is touting its new initiative for smarter power usage, which is from the power grid to plug-in electric vehicles, and a home energy command center. More importantly, it is starting a $200 million venture fund that will be used to fund and partner with start-ups with new ideas in the field. GE’s Jeff Immelt told us in our exclusive interview at GE’s annual meeting that the company sees big opportunities in battery technology. This furthers that push.

The fund is focused toward the clean-tech researchers, entrepreneurs and start-ups that have some of the best ideas to transform creating, connecting, and using power. Yes, this is an Ecomagination initiative.

The move is part of GE’s clean technology showcase, which also included two new smart grid product launches and what the company called “a host of innovations that are either deployed or in the pipeline.”

GE WattStation was debuted to help accelerate the adoption of plug-in electric vehicles, designed to significantly cut the time needed for charging. It will also allows utilities to better manage the impact of the vehicles on power grids.

GE also unveiled Nucleus, the company’s home energy command center. This is only size of a cell phone, and can be used for communication between smart meters, smart appliances, and the household computer or smartphone.

A $200 million venture fund will not likely make a huge dent in the nation’s power troubles nor will it make a huge impact on GE’s finances. What this will do is assure investors that GE has a shot of owning stakess in emerging cleantech power companies that will potentially be IPOs down the road or allow GE to profit from the power savings initiatives.

Citigroup’s Ongoing Exits… Still Room to Double

24/7 Wall St.
July 7, 2010

Citigroup, Inc. (NYSE: C) had a surprisingly small reaction today considering that when banks rise it tends to rise even more. Thomson Reuters, via PEHub, reported today that Citi has agreed to sell a portfolio of private equity interests for more than $900 million.

The report cited “multiple sources” calling Lexington Partners the buyer. We are looking beyond a single sale issue here.

There is something far more important here at stake. It is not just that we have said Citi could still see shares double. It is not even that hedge fund great Bill Ackman mirrored our call.

Citi is still paring its operations. It will probably take years for this to happen. It should as well, when you consider that selling off assets should be done through time for the best prices rather than a series of ongoing fire-sales at distressed prices.

Citi’s unofficial closing bell price was up 2.90% at $3.90. The volume was light at “only” 460 million shares.

New Economy: Dollar Stores Becoming The Next Wal-Mart

24/7 Wall St.
July 7, 2010

Today may seem like a poor example of growth and sector dominance when you consider that the news catalyst has a shadow over its peers. Family Dollar Stores Inc. (NYSE: FDO) beat earnings, but its shares are lower after issuing lackluster guidance. This is acting as drag on Dollar General Corp. (NYSE: DG), and it is having a muted reaction in Dollar Tree, Inc. (NASDAQ: DLTR), and 99¢ Only Stores (NYSE: NDN) is actually having a green day. Wal-Mart Stores Inc. (NYSE: WMT) might argue against this notion, but the trend of the current economy is that dollar stores could actually become (or may have already become) the next Wal-Mart.

Family Dollar Stores Inc. (NYSE: FDO) reported that quarterly earnings rose 19% and were $0.77 EPS, which beat Thomson Reuters by $0.01; and revenue rose by over 8% to $1.9 billion, which met estimates. The dollar store chain also said that sales strength continued into June with same store sales showing a 5.5% gain. The company sees 5% to 7% sales growth this quarter, but the problem came when it projected a profit view below analyst estimates. The company also said that it anticipates further caution from shoppers. Family Dollar shares are down over 8% at $36.11 on over 11 million shares so far today. Interestingly enough, S&P’s equity research just raised the stock to Buy from Hold after earnings.

The big notion about dollar stores being the new Wal-Mart may spark at least some controversy. It shouldn’t. If you have a recession, there are still things that have to be bought on the low-end of the spectrum. And dollar stores of the 2000′s are not dollar stores of the 1990s. They now sell many food items and consumer staples. For a buck. Wal-Mart’s big growth came from two major pushes: a focus on having the lowest prices around, followed by moving into areas where individual and smaller proprietors were natural “targets on price efficiency” or they were just small specialty shops rather than destinations. In short, Wal-Mart had the lowest prices and it killed many smaller competitors because they could not win even if they were able to compete on price.

Now you have Wal-Mart and the dollar stores which have to become impeccable at managing their entire supply chains so that they can have lower and lower prices. At Wal-Mart, the trick is that you have to compete on price with Target, Costco, Sears, and other large outfits. For dollar stores, the price target is fairly self explanatory outside of their ‘higher-end’ items. It is still funny to ask the cashier at the register how much each item costs. Dollar stores have much room for growth if you use the Wal-Mart comparison. In its last fiscal year, Wal-Mart’s annual sales were over $408 billion. The combined sales at these four dollar store leaders were almost $26 billion for the last fiscal year of each.

Wal-Mart’s 2000 Annual Report shows that sales were $165 billion, and that compares to $25.8 billion per the 1990 Annual Report. In short, the dollar store leaders combined today are still only where Wal-Mart was in 1990 (unadjusted for inflation and cost of living). Are we likely to see more than tenfold rise in dollar store sales over the next one or two decades? Let’s hope not, but this is meant as a starting point for trend analysis and reference.

Dollar stores have an implied and mandatory price target of its products regardless of what is going on between Target and Wal-Mart. They are also not destinations. For much of America, Wal-Mart is a destination on top of it having consistently lower prices than the companies it considers peers.

As far as a classification for a stock, we are not alone in calling Wal-Mart a classic example of being a dead-money stock. While there have been some exceptions to this, Wal-Mart’s stock has traded from $40 to $60 for a decade. At $48.72 today, that is not even close to any hope for a breakout. Wal-Mart’s most recent stock hay day was the 1990′s, where shares rose about tenfold. That performance has not exactly been seen by the dollar store sector, but there are some interesting factoids:

* Dollar Tree is up close to 150% in the last 5-years;
* 99¢ Only Stores has had a hard time getting and staying above $15.00 since 2004 and it used to be a $20 and even $30 stock earlier in the decade;
* Dollar General ran almost 50% from trough to peak since its late 2009 re-IPO;
* Family Dollar rose almost 20-fold from trough to peak during the 1990′s, and its shares before this last leg down had shown a double from the start of 2008.

Wal-Mart was supposed to be the winner of the recession as customers leaving Target, Sears, and elsewhere had to flee to comparable items (or sometimes the same items) for lower prices. The real recession winners were the dollar stores… Maybe you have to pick and look and can’t count on your go-to items, but a buck is hard to beat. If there is a double-dip recession that drags millions of more Americans back down that slide of misery, the dollar stores might actually get to become a destination after all.

Dollar General Corp. (NYSE: DG) recently had its own earnings and shares have slid since it reported solid earnings as well. Shares are down 1% at $27.72 today. One of the biggest overhangs here is that despite coming back to as a public company it is still mostly owned KKR. The big fear is that private equity firms sell into any strength after an IPO, and there is a whole history of that happening in post-IPOs from private equity firms to back up those fears. Since its IPO last year, Dollar General shares have traded in a range of $21.30 to $31.41.

Dollar stores will not ever equate a Wal-Mart. Even if these dollar stores double in the coming years, they may only pass Sears at $44 billion in its latest annual sales if the company does not get back on growth.

Dollar Tree, Inc. (NASDAQ: DLTR) is down 2.5% at $41.86, but it has held up the best of the entire group. Its 52-week range is $27.05 to $44.14. 99¢ Only Stores (NYSE: NDN) is actually UP 0.6% at $15.03 today, although its 52-week range is $11.21 to $18.10. It is interesting that 99¢ Only Stores is up on the day when you consider that it is viewed by many as the least attractive of the group.

Restructuring World: Major Spin-Offs From Major Companies

24/7 Wall St.
June 21, 2010

Restructuring never ends in many large corporations. After a week’s worth of reading through dozens of corporate deals in the pipeline and analyzing others which could be close, it seems that many of America’s (and ex-US) largest companies are about to go through major changes because of asset sales, spin-offs, and unit dispositions. These can be major events for the underlying companies and can create huge opportunities for investors to buy units inside the business rather than the whole company .

The list of corporations for 2010 is major and includes companies such as American International Group Inc. (NYSE: AIG), Prudential plc (NYSE: PUK), AMR Corp. (NYSE: AMR), Bank of America Corporation (NYSE: BAC), Barclays plc (NYSE: BCS), BP plc (NYSE: BP), General Electric Co. (NYSE: GE), Genzyme Corporation (NASDAQ: GENZ), HSBC Holdings (NYSE: HBC), Lockheed Martin Corporation (NYSE: LMT), McDermott International Inc. (NYSE: MDR), Motorola Inc. (NYSE: MOT), Questar Corporation (NYSE: STR), Sunoco Inc. (NYSE: SUN), Verizon Communications Inc. (NYSE: VZ) (NASDAQ: VZ), Frontier Communications Corporation (NYSE: FTR), and Vishay Intertechnology Inc. (NYSE: VSH).

This comes to about 15 deals in the spin-off and disposition category that is part of special situation and value investing. This is also key for dividend investors. We have outlined the units up for grabs or pending in each company. We have also tried to look for relative value comparisons and financial comparisons on each where applicable and when possible.

American International Group Inc. (NYSE: AIG) lost out on its $35.5 billion sale of the its main Asian unit and crown jewel, AIA Group. If you read reports, it looks as though the secondary bidders behind Prudential plc (NYSE: PUK) were lower than what AIG would accept. The company has toyed with spinning assets off, and that looks to be one of the biggest issues today. If AIG was getting a cash sale of $35.5 billion, who knows where this would come of it was parceled off in an IPO. It could get a few strong minority shareholders and secure many more today for that growing unit. What the price tag will be, that is another question and one that is dependent upon the DJIA and the world markets. The company has little choice to spin the company off and CEO Benmosche is at the point that he’d probably like to offer some proof to taxpayers that he’s ready to start paying back that huge debt owed. This is not the first sale or divestiture inside AIG, and it won’t be the last.

AMR Corp. (NYSE: AMR) may be an unlikely spin-off company considering that the industry is consolidating. The parent of American Airlines said recently that it may revive plans to jettison its regional air-carrier arm of American Eagle. This is partly in response to criticism over its long-term strategy. The company has gone as far as putting one of its more senior and well-respected executives in charge of American Eagle. AMR tried this before and the two companies were not solid enough. It is also a safe bet that the two may be more intertwined than they would believe just on the surface. After going through the spin-off candidates out there, this is one to watch.

Bank of America Corporation (NYSE: BAC) is not going to be a game-changer, but it is expected to bring in around $4 billion by selling off its stake in Brazilian bank preferred shares and common stock in Itau Unibanco Holding SA. This is part of the company’s effort to raise additional capital by June 30 and helps BofA meet a capital requirement to lift its common equity level by about $3 billion, via asset sales and holdings sales, as part of a regulatory agreement from when it paid back $45 billion for its bailout.

Barclays plc (NYSE: BCS) has a spin-off or sale coming, maybe. Barclays Private Equity is expected to be spun out of the bank as soon as this summer. That will allow its management to raise between €1.5 billion and €2 billion for their next fund, something that is going to be hard to do under the coming financial regulatory changes coming in the U.K. and in the U.S. Talks have been ongoing and it seems that a management buyout is the likely end game.

BP plc (NYSE: BP) is in the pending-pending category. Telling you about the Gulf of Mexico woes is not even needed, but the talk over the weekend is that now BP may look to raise as much as $50 billion. This would be from bank loans, bond sales, and even from asset sales. BP solar would be one of the world’s largest independent solar companies, and you know that employees now at this unit aren’t feeling as proud of their name as they were about 60 days ago. BP has toiled with consolidating before, and BP solar is one of the operations some feel could make the grade. It is still too soon to know if even could get anything sold off. It is not as if there are not creative enough of attorneys in the United States that know how to try to enjoin assets even after a disposition of those assets.

General Electric Co. (NYSE: GE) is probably not a huge shock that it is on the list of spin-offs and unit divestitures. Recent reports put GE as shopping around its Latin American bank and credit card business called BAC-Credomatic GECF. Reuters noted that the proposed sale is part of a plan already outlined in April aimed at trimming down financial services as a percentage of the company. Reuters also sourced about $1.5 billion as a price tag in today’s markets versus about $500 million paid for the near-half stake in BAC-Credomatic in 2005 before then raising the stake to 75%. Is this one a done deal for sure? Probably not. The $170 billion market cap makes this one of a gesture of goodwill on the surface.

Genzyme Corporation (NASDAQ:GENZ) used to have tracking stocks for the Genzyme Biosurgery and Genzyme Molecular Oncology units, and it ended that by acquiring the units in 2003. But the new recent shareholder value plan shows Genzyme is now considering strategic options for its Genetic testing, Diagnostic products, and for its pharmaceutical intermediates operations. The company said the consideration involves a sale, a spin-off or even a management buyout. The company said that it has already selected some possible partners for the units and that it has even received some initial inquiries. The company also contacted Goldman Sachs and Credit Suisse for assistance. With a $14 billion market cap, and a $2 billion share buyback plan ($1 billion just accelerated now), this could greatly change the focus of Genzyme in a more narrow manner.

HSBC Holdings (NYSE: HBC) has announced that it was in talks in recent weeks to sell off its private equity fund management businesses in England, Hong Kong, the United States, Canada and elsewhere. This sale appears to be similar to Barclays as being management buyouts. After looking around for figures, the private-equity businesses under consideration have close to $8.8 billion in funds under management, but the kicker is that about 20% of the assets are HSBC’s. Predicting a sale price here at this juncture may be far too soon, but there is now way it could be sold for under 1% of assets under management and probably not more than 10% of assets under management.

Lockheed Martin Corporation (NYSE: LMT) has already begun to brace for different forms of military spending in the future. The company has begun to reshape its portfolio to drive its longer-term performance. Up for grabs are most of the Enterprise Integration Group and also Pacific Architects and Engineers, which are both under its Information Systems & Global Services operations today. EIG provides independent systems engineering and integration products and services and the PAE unit is in mission readiness, global infrastructure support, and in disaster relief activities; the two units are said to comprise only about 3% total revenue and less than 3% of operating profits. With close to a $30 billion market cap, straight-line accounting would put this being close to $1 billion on the market at current prices.

McDermott International Inc. (NYSE: MDR) has been given a tax-free spin-off status under IRS ruling for its Babcock & Wilcox Company, its power generations systems unit and government operations. McDermott and B&W are continuing to work to satisfy all the conditions to the spin-off transaction, including obtaining applicable governmental approvals, and the company expects the spin-off to be completed in the third quarter of this calendar. The engineering and construction company said in May that spin-off costs ended up taking a bite out of earnings, but a 21% revenue decline worked its magic too. The company is also set to spin out the J. Ray McDermott S.A. unit into another independent and publicly traded company. Due to sector issues and due to a $5.6 billion market cap, McDermott is probably not one to ignore.

Motorola Inc. (NYSE: MOT) has restructured literally for almost the entire time I have covered equities. The mobile communications technology giant is about to be much different after its cell phone spin-off comes. Unfortunately, that is not expected until 2011. As disappointment as lingered here forever, it is probably safe to assume that Hello-Moto could always yell “Do-Over!” and change its mind. Motorola recruited Sanjay Jha in 2008 as the turnaround man by making him co-CEO and the head of mobile phone and cable set-top box operations. If this sounds familiar, it should. The first spin-off (or sale) was expected in 2008 but things in the markets caused that spin-off to get delayed.

Questar Corporation (NYSE: STR) recently announced that its board of directors approved and set the record and distribution dates for its tax-free spin-off of its natural gas and oil exploration and production and midstream field services businesses to shareholders on June 30, 2010 to Questar shareholders of record as of the close of business on June 18, 2010. Questar’s shareholders will receive one share of QEP common stock for each share of Questar common stock held as of the record date, and this includes fractional shares. With an $8.7 billion market cap, the Questar deal is oe to watch. In the spin-off are:

* QEP Energy Company, formerly Questar Exploration and Production, a diversified natural gas and oil-exploration, development and production company;
* QEP Field Services Company, formerly Questar Gas Management, a midstream field services company that gathers and processes natural gas in the Rocky Mountain region and northwest Louisiana;
* and QEP Marketing Company, formerly Questar Energy Trading, which markets natural gas and oil on behalf of QEP Energy Company and others and operates a natural gas storage facility in western Wyoming.

Sunoco Inc. (NYSE: SUN) is going to separate its coke business to unlock shareholder value. The company also said it anticipates its refining segment to report a profit for the quarter ending June 30, so things at the core business may be improving. With the woes of refining margins seen at competitors like Valero, a focus here may not be such a surprise. The $4 billion market cap might not be changed drastically here, but a recent upgrade to “Overweight” by Barclays with a $45 per share price target make it less surprising that Sunoco is close to 52-week highs while refining stocks are generally lower.

Verizon Communications Inc. (NYSE: VZ) (NASDAQ: VZ) has established a record date of June 7, 2010 for the proposed spin-off of shares of subsidiary New Communications Holdings Inc. to Verizon stock holders. This spin-off and the merger of New Communications with Frontier Communications Corporation (NYSE: FTR) is expected to occur on July 1, 2010, at last look and is subject to closing conditions in the merger agreement(s) among Verizon, Frontier and New Communications. Immediately after the completion of the merger, Verizon holders will own between about 66% and 71% of the shares of Frontier common stock; and Frontier’s common holders will collectively own 29% to 34% before accounting for the elimination of fractional shares. Verizon common holders will not be required to pay for any shares of Frontier common stock that they receive and will also retain all of their shares of Verizon common stock. Verizon has spun-off Idearc and the biggest change that could ever come down the road is that Vodafone plc (NYSE: VOD) relationship over Verizon Wireless.

Vishay Intertechnology Inc. (NYSE: VSH) has six major business lines: Automotive, Computer, Consumer, Industrial, Medical, and Telecom. Last week the company said it has set tentative spin-off dates for Vishay Precision Group Inc., its measurements and foil resistor business, of July 6, 2010. This is subject to satisfaction of all conditions and will give stockholders one share of the new company for every 14 of Vishay Intertechnology shares owned. Vishay Precision shares will trade under the stock ticker “VPG” on the NYSE. As it stands today it seems that Vishay has over 22,000 employees, and Vishay has a market cap of only $1.64 billion as of Friday.

Asset sales, spin-offs, divestitures, distributions and more are all part of corporate strategies. This also becomes the “special situation” category of investing. If units can enhance shareholder value more by being sold or by being put on their own, hen that is the job of management to decide. But these also are brought up often after pressure from activist shareholders. These also often create many more shareholder opportunities in either the old parent company or in the spin-co. Stay tuned.

Primerica Comes To America, Above Price and Range

24/7 Wall St.
March 31, 2010

Citigroup Inc. (NYSE: C) or Primerica Inc. (NYSE: PRI)?… The answer is both or either. The financial supermarket is about to have one less aisle. Citi is spinning off the life-insurance and mutual-fund brokerage arm via an initial public offering that raised close to $320 million. The offering will be 21.36 million shares at $15.00 per share, which is a higher share count than the 18 million shares originally projected and above the $12.00 to $14.00 range after the offering saw strong investor demand.

In addition to the spin-off via an IPO, Citigroup will sell 17.21+ million shares of Primerica to private equity firm Warburg Pincus LLC along with warrants for up to another 4.3 million shares at an exercise price per share equal to 120% of the per share public offering price.

Primerica’s 2009 profit was up almost 200% to about $495 million after seeing fewer write-offs, writedowns, and lower charges against its investments.

After the IPO, depending upon overallotments and dilution, Vikram Pandit and friends at Cit will have a stake of 32% to 46% stake. The total shares outstanding will be 75 million shares.

For those who like to see firms coming public receiving all the proceeds, this may be a different IPO than that. Primerica receives no new working capital nor any operating capital.

The underwriting group is huge here. Citi is the book-runner; co-lead managers are UBS, Deutsche Bank, and Morgan Stanley. Co-managers are KBW, Macquarie Capital, Raymond James, Sanler O’Neill, SunTrust Robinson Humphrey, ING, and Willis Capital Markets

KKR IPO… Private Equity’s Return

24/7 Wall St.
March 12, 2010

KKR & CO. L.P. is back. At least its IPO ambitions are. Long live private equity! Long Live leveraged buyouts! At least that is what the company wants you to think. KKR plans to sell up to 204,902,226 shares worth more than $2.2 billion in its common equity units in an underwritten initial public offering.

On a fully diluted basis, KKR has 683,007,420 common units outstanding and will trade on the NYSE under the “KKR” ticker.

If you can believe it after the crash, 2009 was a record year in total assets under management. 2009 saw $52.2 billion in total assets under management, $38.8 billion of which was private equity under management. After breaking out the public and private markets separately, both were a record in 2009.

On October 1, 2009, it completed the acquisition of the assets and liabilities of KKR Guernsey and completed a series of transactions where the business of KKR was reorganized into a holding company structure.

You can expect more to follow. If history is a yardstick, KKR will probably go for an expedited time frame here. This private equity giant tried to come public in 2007 at the peak of the private equity craze. We won’t bother telling you what happened as far as ‘market conditions’ are concerned.

More Key SPAC and Blank-Check Developments

24/7 Wall St.
February 25, 2010

We are seeing more and more deal news in the land of special purpose acquisition companies and in blank check companies. Some is good, while some is not. SPACUpdate.com sent us some exclusive coverage in BPW Acquisition Co. (AMEX: BPW), Talbots (NYSE: TLB), Hambrecht Asia Acquisition Co. (OTC: HMAQF), BBV Vietnam SEA Acquisition Co. (OTC: BBVVF), Western Liberty Bancorp (AMEX: WLBC), Ultimate Escapes Inc. (OTC: ULEI), and China Fundamental Acquisition Co. (OTC: CFQCF).

BPW Acquisition Co. (AMEX: BPW) shareholders overwhelmingly approved the SPAC’s deal to merge with Talbots (NYSE: TLB) with a 91% approval. The SPAC’s warrants traded up, to about $1.40, and common shares remained above trust at the close of trading Wednesday. However, BPW is not yet out of the woods: its deal also hinges on a warrant holder conversion vote. The SPAC is has amended its warrants so that only half of them would need to agree to a restructuring, instead of 90 percent.

Hambrecht Asia Acquisition Co. (OTC: HMAQF) now has a deal to buy LCD maker Guanke (Fujian) Electron Technological Industry Co. and the SPAC seeks to now extend its deal deadline. Despite having little volume recently, the SPAC’s management is committed to completing its deal and SPACupdate.com anticipates the blank check’s deadline delay will be approved, paving the way for a lengthy buybacks campaign. The SPAC’s warrants traded up immediately, to $0.55.

BBV Vietnam SEA Acquisition Co. (OTC: BBVVF) has been besieged by shareholders intent on buying up shares to withhold from the SPAC until it agrees to buybacks. Victory Park Capital Advisors, a hedge fund that has typically worked with SPACs to sell shares back above trust value, took a stake in the blank check; its warrants have seen value slide as nervous investors have begun dumping their positions. BBV warrants were recently being offered in the $0.16 range. In 2009, BBV announced plans to buy Migami Inc., which sells cosmetic products and licenses drug-delivery systems and technologies to pharmaceutical companies.

Both Western Liberty Bancorp (AMEX: WLBC) and Ultimate Escapes Inc. (OTC: ULEI) announced exchanges would be de-listing them. Western Liberty, which has a re-scheduled vote date to bring public a portion of its initial target, will try to appeal the exchange’s final decision, but Ultimate Escapes is already trading Over-The-Counter.

China Fundamental Acquisition Co. (OTC: CFQCF) completed its deal to bring public Beijing Wowjoint Machinery Co. Ltd.; since then, the SPAC’s shares have faltered, slightly losing value.

While the US SPAC pipeline remains clogged, in Korea, blank checks are being welcomed there by investors. Mirae Asset Securities, Hyundai Securities, Tong Yang Investment Bank and Daewoo Securities are all in the process of having SPACs listed on the Korean Stock Exchange. Most of the SPACs are about $20 million in size, aside from Daewoo’s, worth about $75 million.

14 IPO Updates for 2010

24/7 Wall St.
January 28, 2010

The IPO market is off to a rough start so far in 2010. We have seen very recent developments in deals on deck to price from CBOE Holdings Inc., Convio Inc., Everyday Health Inc., FriendFinder Networks Inc., Generac Holdings Inc., Graham Packaging Co., HealthPort Inc., IFM Investments Ltd., Ironwood Pharmaceuticals Inc., JinkoSolar Holding Co. Ltd., Motricity Inc., Prometheus Laboratories Inc., QuinStreet Inc., and Ryerson Holding Corp. all have significant developments in their quests to come public.

This has many implications for public companies such as The Blackstone Group (NYSE: BX), Intel Corp. (NASDAQ: INTC) via Intel Capital and Qualcomm Inc. (NASDAQ: QCOM) via Qualcomm Ventures, and Novartis (NYSE: NVS). Below is a brief update on each IPO on the docket.

CBOE Holdings Inc., the parent of the Chicago Board Options Exchange, has seen a tapering off of the pre-IPO value based upon two exchange seat sales in the last week. A seat at the CBOE sold for $2.625 million this week according to Dow Jones, after a seat went for $2.7 million last week. Earlier this month a seat sold for $2.825 million. According to our calculations on a all-in seat value of 930 seats, that generates an implied exchange value of $2.441 billion versus $2.627 billion earlier this month. This IPO is not due until mid-year, so this may be premature.

Convio Inc. is an online constituent relationship management provider that sells mainly to non-profit groups. This will trade under the ticker “CNVO” on NASDAQ and Piper Jaffray and Thomas Weisel were co-lead managers. It plans to raise $57.5 million in the IPO, although this needs to be double-checked because we saw up $86 million in an IPO filing that was withdrawn after a 2007 filing. You know why… unfavorable market conditions.

Everyday Health Inc., a VC-backed health information site for health-conscious consumers, recently filed for a $100 million IPO. The company plans to trade under the stock ticker “EVDY” on NASDAQ. Goldman Sachs and J.P. Morgan are the co-lead managers of the deal.

FriendFinder Networks Inc. has reportedly moved its IPO to next week (if not later). The social network, sort of, for dating and finding sex hook-up partners will trade under the ticker “FFN” on the NYSE. We had already noted how the size of the offering was cut severely. The reason the deal is delayed is because of requests from the SEC according to reports.

Generac Holdings Inc. is a maker of standby and portable generators. This is a private equity-backed IPO bought in late 2006. It has bumped up the proposed IPO size to over $427 million from $300 million and the proposed ticker is “GNRC” on NYSE… J.P. Morgan and Goldman Sachs are co-lead managers.

Graham Packaging Co. is a maker of plastic containers, and owned by The Blackstone Group (NYSE: BX). Terms were initially set at 23.3 million shares between $14 and $16 per share under the NYSE ticker of “GRM”… Citigroup, Goldman Sachs, and Deutsche Bank are the lead underwriters.

HealthPort Inc. has recently canceled its plans for an IPO because of poor market conditions. The medical record management company had planned a stock sale of up to $100 million.

IFM Investments Ltd. is set to trade Thursday under the stock ticker “CTC” on the NYSE. The Chinese real estate player is under a Century 21 franchise agreement to sell real estate in China. It now plans to sell 12.5 million ADSs between $7 and $8 per share, but this is under a prior range of $8.75 to $10.75 and under the prior 16+ million shares originally shown. If China is cutting down on its loans, how good can business be?

Ironwood Pharmaceuticals Inc. filed at the end of 2009 for an IPO and has recently set the terms of the IPo at 16.6 million shares in a range of $14 to $16 per share. This one will trade as “IRWD” on NASDAQ and joint book-runners are J.P. Morgan, Morgan Stanley, and Credit Suisse. This company is the parent of Microbia, Inc., with a validated technology platform that enables it to produce specialty ingredients and industrial biomaterials from renewable resources.

JinkoSolar Holding Co. Ltd. is a VC-backed developer of silicon wafers in China for use in solar panels. The company filed to raise up to a $100 million and plans to trade on the NYSE with the “JKS” stock ticker. Goldman Sachs and Credit Suisse were listed as the co-leads on the deal.

Motricity Inc. is a provider of mobile data solutions that enable wireless carriers and enterprises to deliver mobile data services to their subscribers and customers. It has recently filed recently to raise up to $250 million in a sale of common stock in its IPO and plans to trade under the “MOTR” stock ticker on NASDAQ. Goldman Sachs and J.P. Morgan are the co-lead managers. Intel Corp. (NASDAQ: INTC) via Intel Capital and Qualcomm Inc. (NASDAQ: QCOM) via Qualcomm Ventures are VC-backers, and Carl Icahn was listed as a backing owner as well.

Prometheus Laboratories Inc. is a drug and diagnostics company that acquired the U.S. licensing rights covering the Novartis (NYSE: NVS) kidney cancer drug Proleukin for terms that were not seen but include up-front payment(s) and potential payments upon reaching certain milestones. We have the registration being up to $100 million stock being sold by the VC-backed company.

QuinStreet Inc. is a provider of vertical marketing solutions online and will sell 10 million common shares at $17 to $19 per share. We had penciled in up to $250 million originally. The firm will trade under the “QNST” stock ticker on NASDAQ. Credit Suisse, Bank of America Merrill Lynch, and J.P. Morgan are co-lead underwriters.

Ryerson Holding Corp. is a recently filed IPO for the metals processor to raise up to $350 million under the stock ticker “RYI”on the NYSE. This one was taken private by Platinum Equity in 2007 with a price tag of close to $2 billion. Its S-1 filing with the SEC showed us no listed underwriters.

Billionaire Investor Carl Icahn Snaps Up CIT Debt; CIT Pays Goldman Sachs $285 Million to Trim Its Rescue Loan

Reuters
October 30, 2009

* CIT pays $285 million in fees to Goldman
* Counting votes on restructuring plan, debt exchange
* Shares fall almost 12 percent to 84 cents in pre-market

Goldman Sachs Group plans to trim the rescue loan it arranged for CIT Group Inc by $875 million to $2.125 billion, CIT said on Friday.

CIT, which has been struggling to finance itself amid the credit crunch and recession, said it is effectively removing the part of the loan it hadn't taken, according to a filing with regulators.

The commercial lender paid $285 million as a fee to Goldman for reducing the loan and it has posted an initial $250 million in collateral, according to the filing. In return, Goldman has agreed it will not terminate the loan should CIT file for bankruptcy.

Goldman had been seeking to amend the loan since earlier this month, according to reports. The bank had been due a payment of $1 billion if CIT filed for bankruptcy, a source told Reuters.

CIT is likely to file for bankruptcy in the coming days, analysts have said.

If struggling U.S. commercial lender CIT Group Inc were to collapse it would be a "drastic mistake" as the small businesses that rely on it would have few alternate sources of funding... "I have a great fear of the collapse of CIT and that people don't understand the ramifications of what that can be. I think it would be a very, very drastic mistake in this country to allow CIT to go under." - Lynn Tilton, chief executive of distressed investment firm Patriarch Partners, CIT Collapse Would Be a Mess, Turnaround Experts Say, October 1, 2009

The lender has offered investors two options: an exchange of bonds for new securities and equity, avoiding a bankruptcy filing; approval of a reorganization plan before the company files for bankruptcy.

Separately, in a statement on Friday, CIT said an independent balloting company is counting more than 150,000 ballots from investors on the exchange and restructuring plan, which expired on Thursday.

The company did not say how long this process might take.

CIT shares fell almost 12 percent to 84 cents in pre-market trading.

CIT Presses Bondholders to Agree to Restructuring

Reuters
October 23, 2009

CIT Group Inc warned bond holders that if they failed to exchange their debt or approve a prepackaged bankruptcy, the commercial finance company -- and its debt investors' returns -- could suffer mightily.

The company said that, without a debt exchange or an orderly bankruptcy, the company would have to liquidate, an expensive process that could leave unsecured bondholders with somewhere between 6 cents and 37 cents on the dollar. These bonds were trading just above 60 cents on the dollar earlier on Friday.

"Let's be clear. A free-fall bankruptcy will ... result in a lower recovery for today's unsecured bondholder," CIT Chairman and Chief Executive Jeffrey Peek said in a pre- recorded webcast presentation.

CIT's restructuring plans were almost immediately slammed by billionaire investor Carl Icahn, who snapped up CIT debt in the past few months to become what he says is the company's largest bondholder.

New York-based CIT is trying to restructure its debt through getting debt holders to exchange their debt, or to agree to a pre-packaged bankruptcy. It is also looking to boost a $3 billion secured credit facility by another $4.5 billion.

Once the company restructures its liabilities, it can try to move some of its businesses into its regulated bank subsidiary and fund them with deposits instead of bonds.

Icahn said a better plan is to try to move businesses into the bank within nine months. If that does not happen, the company should wind itself down and pay out proceeds to debt holders. Icahn said that, if the company pays off its debt with money from maturing assets, his bonds could be worth 80 cents to 85 cents on the dollar.

"CIT would have you believe that a bankruptcy would be calamitous. We do not believe this to be the case," said Icahn, who made much of his fortune over the years buying controlling stakes in distressed companies.

Icahn has been increasingly active in companies in bankruptcy court this year. This summer, he was approved by a court to provide part of the bankruptcy financing for auto parts maker Lear Corp, a company he had once had a large equity position in and tried to acquire. He also received approval from a bankruptcy court to buy Tropicana Casino and Resort in Atlantic City.

Time is running out for CIT. The company has until Oct. 29 to restructure its debt or get approval for a prepackaged bankruptcy. In the beginning of November, about $1 billion of its debt matures...

CIT makes loans mostly to small and medium sized businesses and also has a large factoring business that services the retail sector.

CIT Debt Swap Struggles, Bankruptcy Looms

Reuters
October 13, 2009

CIT Group Inc (CIT.N) is seeing little interest from bondholders in a debt exchange offer aimed at repairing its fragile balance sheet, making bankruptcy increasingly likely, sources familiar with the matter said.

The lender to small and medium-sized businesses said earlier this month it was looking for investors to approve a large debt exchange that would reduce its borrowings, or to approve a prepackaged bankruptcy.

CIT is now more likely to try a prepackaged bankruptcy, two people familiar with the matter said. They declined to be identified because the exchange offer is ongoing and information about its progress is private.

But separately, investors in CIT securities said it is possible the company will not find enough debtholder approval for a prepackaged bankruptcy, which requires sufficient support before the company files for protection from creditors. Instead, CIT might have to aim for a prenegotiated bankruptcy, which typically has less support before the actual filing.

CIT spokesman Curt Ritter declined to comment.

CIT has limited time to work out its debt difficulties. It has about $3 billion of debt to repay in the fourth quarter, including both secured and unsecured obligations, according to a CIT quarterly filing with regulators.

CIT has lost access to unsecured debt markets, but has billions to refinance in coming years. In three of the next four years, it will have more debt to repay than cash to pay it back. CIT has roughly 1 million customers and more than $70 billion of assets, but many of its borrowers are struggling amid the worst recession since the Great Depression.

The company's debt exchange aims to reduce CIT's borrowings by at least $5.7 billion, with specific targets for lowering the company's liabilities through 2012. The exchange offer expires on October 29.

AT LEAST TWO WANT MORE

At least two groups of investors are pushing for better terms in a bankruptcy than those suggested by the company earlier this month, one of the sources and investors said.

A subordinated debt holder said last week he was hoping to press for either more equity, or for a promise from the company to pay extra money to current subordinated debt holders if the company's assets perform well enough.

Separately, investors holding debt that funded CIT business in Canada are pushing for greater consideration in any bankruptcy plan, too. These investors are entitled to recover money from Canadian assets and the parent company in the United States and could therefore get close to 100 cents on the dollar in any bankruptcy.

One investor that would take a hit in a CIT bankruptcy is the U.S. government. The United States' Troubled Asset Relief Program invested $2.3 billion in CIT in December and much or all of that could be lost if the company files for bankruptcy, analysts said.

But many debt investors are likely to end up with much more than zero if CIT files for bankruptcy. One group of bondholders lent $3 billion to the company in July. That loan is collateralized by an estimated $30 billion of assets, which would ensure that the July loan could likely be paid back in full.