Daily Archives: May 13, 2007

Cablevision (CVC) Conundrum

The list of investors who believe that the founding Dolan family is offering too little to take Cablevision private (NYSE:CVC) is fairly long. According to Barron’s, it includes large shareholders T Rowe Price and Gamco. Mario Gabelli, the head of Gamco, believes that the cable company is worth $51 a share. The stock trades near $36, very close to the $36.26 that the Dolans offered. But, in the months immediately before Cablevision’s board was asked to evaluate the Dolan deal, the shares traded between $30 and $32.

The Gabelli break-up model for Cablevision yields a value-per-share of $48, or 33% more than where the stock is now. But, the number is a pipe dream.

If Cablevision is worth substantially more that the Dolans are willing to pay, it would seem almost certain that a private equity firm or one of the two largest cable companies, Comcast (CMCSA) and Times Warner Cable (TWC) would make an offer. No such alternate offer has emerged.

And, then there is the question of whether Wall St. has been efficient in valuing cable companies in general. Over the last six months, Cablevision’s shares are up over 25%. Before the Dolan offer, that number was over 15%, During the same period, Comcast’s shares are down about 1% and Time Warner Cable is off about 8% (TWC did not trade as a public company until four months ago). Granted, the companies have different balance sheet ratios, but these are not great enough to account for the disparity in stock price performance. At Gabelli’s valuation, Cablevision stock would be up closer to 50% over the last six months compared to the flat performances of its two closest rivals.

Wall St. may think that Cablevision is being stolen by the Dolans, but, if so, it is very odd that no one else has stepped forward.

Douglas A. McIntyre

Posted on: May 13, 2007 – 2:25 pm in Mergers and Buy Outs

Why Daimler Wanted Out Of Chrysler

S&P auto analysts came out with a report late last week that indicated a poor US economy could derail any attempt by the Big Three automakers to fix their North American operations. That seem obvious, but it may have been the reason that no one quickly stepped up to pay billions of dollars for Chrysler.

But, Daimler appears to have been willing to part with Chrysler at almost any price.

Reuters quoted WirtschaftsWoche business weekly as saying that Magna International and Canadian financial firm Onex would each by 40% of the car maker. DaimlerChrysler (NYSE:DCX) was to hold the balance. Magna, a large car parts supplier, knows the dangers of buying a troubled auto firm in the US, but appeared to want to move ahead. Magna just took an investment from a Russian billionaire who allegedly has ties to the mob in his home country. The move may have made Magna’s bid less attractive.

But, the Reuters report was wrong.

Over at The Wall Street Journal, the handicapping was that private equity firm Cerberus would get Chrysler. Daimler might get little cash under the arrangement, but would part with $18 billion in pension and benefit liabilities. Daimler would keep a minority interest under this plan.

The UAW does not like the idea that private equity could own Chrysler, which means that they may attempt to block the sale through lobbying Daimler’s board or even threatening a strike.

But, this is the perplexing thing. If private equity firms and a Canadian car parts company think they can fix Chrysler, and may even be willing to take on a huge liability for the privilege, what is wrong with the people who run Daimler? DCX management could certainly claim to be in the top tier of auto executives in the world. Daimler has the financial resources to attempt a fix at its US arm, and, it has fixed it once before.

The answer is probably that Chrysler has almost no sales outside the US, and Daimler thinks this is essential to its overall future. Overseas sales have certainly been critical to GM’s (GM) and Ford’s (F) abilities to remain viable, and they are at the heart of Toyota’s (TM) strategy to keep growing.

Ninety percent of Chrysler’s cars are sold in North America. It sold only 207,000 cars overseas last year. Fifty-five percent of GM’s sales were outside the US.

Daimler’s Mercedes unit is an international brand. Chrysler is not. Going forward, DCX is not willing to have that many eggs in one market basket.

Douglas A. McIntyre

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Posted on: May 13, 2007 – 9:22 am in Mergers and Buy Outs

24/7 Wall St.’s Look Ahead – What to expect the week of May 14th

Another great week on Wall Street and some encouraging words from the Federal Reserve Bank that inflation appears to be under control and future Interest Rate cuts could happen in 2007. However everyone seems to be interpreting the Fed’s words and actions differently. On Friday retail sales fell and former Federal Reserve chairman Alan Greenspan issued a fresh warning that we could be heading for recession. Greenspan who clocks $100,000 for each speaking engagement, sees a 2-to-1 chance the U.S. will avoid a recession even as the economy slows. Speaking of making money, on Sept. 17th, Greenspan will have his memoir The Age of Turbulence: Adventures in a New World published by Penguin Press. The unit of Pearson reportedly paid him an $8.5 million advance for the book, which is believed to be the No. 2 advance for a nonfiction book, second only to the $10 million advance given to former President Bill Clinton for his memoir. Enough about Greenspan, let’s take a quick look ahead at the companies reporting next week:

Reporting on Monday (5/14):
- Canadian Solar Inc. (CSIQ)
- Ducati Motor Holding S.p.A. (DMH) – and on the 7th day, after God rested, he created Ducati motorcycles, and thus it was so.
- PokerTek, Inc. (PTEK) – Their PokerPro® poker table that shuffles, deals, splits pots and generates side pots instantly. Forget tipping and dealing with crappy dealers, the future will be ruled by Terminators, R2-D2’s, and PokerPros.
Smurfs
- Smurfit Sisa (SMU.MI) – How carefully did they think about naming that company, at least do a Google search before you file for a corporation? Feeling Smurfy? Visit Smurf.com and if you can stand it for more than 10 minutes you win a free Ducati Bike. Not from us, but I’m sure someone will buy you one.

- Meridian Bioscience (VIVO) splits before market open with a 3:2 ratio (expect to see a full analysis next week to inform you if you should think about picking up some shares after the split)

Reporting on Tuesday (5/15):
- DaimlerChrysler (DCX) – Smart Car anyone?
- Applied Materials (AMAT)
- Cinemark Holdings, Inc. (CNK) – Because movie tickets aren’t expensive enough. Maybe if they miss the quarter they can just make all tickets $20, that would raise net income.
- eLong Inc (LONG) – They can’t do much worse on this call, or can they?
- Fossil, Inc. (FOSL)
and big boys…
- Home Depot (HD)
- Wal-Mart (WMT) – If you missed Jon Ogg’s article or CNBC interview, take a quick look at Defending Wal-Mart on CNBC (WMT, TGT, BRK/A). If you have a position in Wal-Mart heading into the earnings call I would suggest reviewing Jon’s latest articles and interviews regarding the retail giant – here’s more.

Wednesday (5/16) is all Hewlett-Packard (HPQ)
- Federated Department Stores Inc. (FD)
- Jack in the Box (JBX)
- Napster (NAPS)
- PetSmart (PETM) – Remember the Pet Food Crisis in March? By the end of March, veterinary organizations reported more than 100 pet deaths amongst nearly 500 cases of kidney failure. Think PetSmart profited by that?

Reporting on Thursday (5/17):
- J.C. Penney (JCP)
- Kohl’s (KSS)
- Nordstrom (JWN) – Same-store sales in April rose 3.1 percent and last quarter they blasted the estimates. Think they can do it again?
- Marvell Technology Group Ltd. (MRVL)

Reporting on Friday (5/18):
British Airways (BAB) – The most unique and strongest Airline company on earth. Shares of BAB have risen 51% in the last year.
Dr. Reddy’s Laboratories (RDY) – catchy name.

Frank Lara Jr.

Frank Lara Jr. can be reached at franklara@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 13, 2007 – 8:24 am in Uncategorized