Effectively, the CME is lowering the cost to trade crude oil, gold, silver, copper, and a few other commodities. So far this has had no impact on prices of the SPDR Gold Trust (NYSE: GLD), United States Oil Fund (NYSE: USO), iShares Silver Trust (NYSE: SLV), nor in the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC).

In the past, margin costs were raised on traders as an effort to curb runaway trading to the upside by making it more expensive for traders and speculators to trade energy and metals.  In short, driving up the cost of poker creates fewer gamblers. So what happens when they make it cheaper to trade?

The full details are here.

JON C. OGG

The casino and resort giant sold 1,811,313 shares of its common stock at $9.00 per share to raise gross proceeds of about $16 million before fees and discounts.  Keep in mind that this is the Harrah’s-Caesars deal which was a $15 billion buyout back at the peak of private equity.

$16 million… $15 billion… $28 billion.  Whatever it boils down to…  The figure we were counting on was up to $223.4 million in additional stock, the overwhelming majority of which would be coming from private equity owners. Apollo Global Management, LLC (NYSE: APO) is not even reacting positively to the news with a 0.8% drop down to $14.97 so far today, probably because it is not selling shares.  Paulson & Co. has the right to sell along with affiliated groups of Goldman Sachs Group Inc. (NYSE: GS).

Even a $500 million offering could have set the pace for up to a decade for all of the backers to exit their positions.

The reason that the company chose this model is likely to keep an initial higher value for a limited share float.  That establishes a fair market value that is probably higher than if the firms all sold shares in a huge offering for the market to absorb.  It allows private equity firms to liquidate in batches and it also gives those private equity firms an ability to peg a true market value to the shares rather than a theoretical value of the shares based solely upon other casino stock values.

Our take: The private equity firms should dismantled the assets into separate companies and sold them off or brought them public as smaller casino properties.

In some manner of speaking, this is far less transparent than exactly the ‘unlocking of Singapore and Macau’values from Wynn Resorts, Limited (NASDAQ: WYNN) and Las Vegas Sands Corporation (NYSE: LVS).

Does us calling it a sham of an IPO mean that it will flop?  Not at all.  As we are publishing this, the value is up 50% from the $9.00 pricing at $13.70 on almost 3.9 million shares.  With such a low float, who knows how high it could go.  Still, if you are a ‘widows and orphans’investor you probably better look elsewhere.

At least this IPO did not launch on the Ides of March.

JON C. OGG

Jon Marino of PEHub.com noted that P.E. firms are hiring and referenced a follow-up report for BDO USA’s third annual private equity “PErspective” report… 57% of private equity executives increased professional staffing and 62% plan to hire again this year.  This is a complete reversal from the layoff waves of prior years.  Here is more detail from that report.

Whether you like millionaires or billionaires or hate them, the one aspect that is so unfairly portrayed about companies bought by private equity firms is as follows: Most businesses bought by private equity firms need to be turned around or need to be run better.  Sure, they get leveraged up and they scrap inefficient operations.  The dirty secret that private equity firms are not defending enough is that many of these companies would have headed for bankruptcy in the long-term if they had not stepped in.  If that results in a liquidation rather than a pure bankruptcy, guess how many jobs get lost at those companies… all of them, rather than some.

The business sector is not just a one-way street.  Companies hire workers in good times and most fire in bad times.  We even ran our own 2011 Layoff Kings.

JON C. OGG

We want to know what you think below.  Look at how much some banks have paid to settle overdraft charges and then decide in our poll below…. Should banks have overdraft fees???

So here are some recent settlements and other overdraft fee news…

J.P. Morgan Chase & Co. (NYSE: JPM) was asked by the U.S. District Court of Southern Florida in Miami to pay $110 million over a class suit for charging of inappropriate overdraft fees to its customers. Zions Bancorp. (ZION) was accused in late 2011 of improper overdraft fees over its policies in place from 2005 to 2010.

Bank of America Corporation (NYSE: BAC) and Commerce Bancshares Inc. (NASDAQ: CBSH) were ordered to make payments over unfair trade practices in overdraft situations: Commerce Banc paid $18.3 million; Bank of America was asked to pay $410 million to settle unfair overdraft fees charges.

Now go back to 2010. Wells Fargo & Co. (NYSE: WFC) was ordered to pay $203 million by a California court to compensate customers suing over unfair overdraft fees.

JON C. OGG

A fresh filing is one that frankly shows desparation or the agony of defeat.  The combined outfits are worth billions of dollars.  While the total to be sold by Caesars Entertainment Corporation on a continuous basis is listed as being $500 million, the company noted, ” We are selling an aggregate of 1,811,313 shares in this offering. The initial public offering price of our common stock is expected to be between $8.00 and $10.00 per share.”

Wait one second here.  That is about $18.1 million in gross proceeds.  If you look back at the Top IPOs to watch you will be mystified.  The stock will trade on the Nasdaq Global Select Market under the symbol “CZR.”

Caesars has the following underwriters: Credit Suisse; Citigroup; BofA Merrill Lynch; Deutsche Bank Securities; KeyBanc Capital Markets; Lebenthal & Co.; and Ramirez & Co. The underwriters will have a 30-day option to purchase up to 271,697 additional shares from the company at the initial public offering price less underwriting discounts and commissions.

In the amended prospectus, the company does note that the selling shareholders may sell up to $223.4 million in common stock in the offering.  The problem is that the prospectus does not read in the normal way of other prospectus filings. The private equity firms are currently a wild card when it comes to how much may be sold.  Why the private equity owners have not broken Caesars up into bits and pieces is a mystery.  The Harrah’s acquisition is now part of the Caesars group and here is the description (as of September 30, 2011):

owned, operated or managed 52 casinos in 12 U.S. states and seven countries primarily under the Caesars, Harrah’s and Horseshoe brand names and the facilities had an aggregate of approximately three million square feet of gaming space and approximately 42,000 hotel rooms; its Total Rewards customer loyalty program had over 40 million members.

If the private equity companies were to somehow get the maximum sale off of $500 million, it could take a decade or more to exit. Maybe our idea is a silly one.  Maybe this is the private equity value game at work where the private equity firms can use the public market value of a small float for the entire organization without unloading it.  What are the odds?

FULL SEC FILING

JON C. OGG

While Facebook has said that it is choosing the “FB” stock ticker, it did not specify whether or not the NYSE or NASDAQ would get the listing.  Keep in mind that Mark Zuckerberg is where the buck stops if you evaluate the share structure.

Be advised that there is a dual-class of stock with A shares and B shares.  Each share of Class A common stock is entitled to one vote per share. Each share of Class B common stock is entitled to ten votes per share and is convertible at any time into one share of Class A common stock.

The underwriting group is as follows: lead book-runners are Morgan Stanley, J.P. Morgan, and Goldman Sachs; co-managers are BofA/Merrill Lynch, Barclays Capital, and Allen & Company.

BASIC STATS:

• 845 million monthly active users,
• 2.7 billion likes and comments per day,
• 250 million photos uploaded per day,
• and 100 billion friendships.
• The company also has 483 million daily active users.
• It also had roughly 3200 employees as of December 31.

Microsoft Corporation (NASDAQ: MSFT) is listed as a competitor and it is an owner, while Google Inc. (NASDAQ: GOOG) is not an owner and is listed as a key competitor.  Twitter is competitor.  As a reminder, GSV Capital Corporation (NASDAQ: GSVC) is an owner of stock as well.  Interpublic Group of Companies, Inc. (NYSE: IPG) still owns a small stake as well.

We are now finally getting to see at least some of the preliminary figures from Facebook to use for financial analysis:

• 2009 revenues $777M, $122M net income for shareholders;
• 2010 revenues $1.974B, $372M net income for shareholders;
• 2011 revenues $3.711B, $668M net income for shareholders.
• The company’s cash and marketable securities at the end of 2011 was $3.908 billion.

Zynga Inc. (NASDAQ: ZNGA) accounted for about 12% of 2011 total revenues for Facebook.

Mark Zuckerberg owns 28.4% of the total voting power, but he has a proxy over insider shares that gives him 56.9% of the total voting power.  Other big holders are James Breyer at 11.4% and Peter A. Thiel at 2.5%.  Large Class B share holders (1 million or more shares) are Sheryl Sandberg, David Ebersman, Mike Schroepfer. Theodore Ullyor, Marc Andreesson…

T. Rowe Price Associates, Inc. (NASDAQ: TROW) owns over 6 million class A shares and affiliates of Goldman Sachs Group Inc. (NYSE: GS) own over 65.9 million Class A shares.

As of December 31, 2011 there were outstanding:

• 117,097,143 shares of our Class A common stock held by approximately 110 stockholders;
• 1,758,902,390 shares of our Class B common stock held by approximately 1,070 stockholders;
• 258,539,434 shares issuable upon exercise of outstanding stock options;
• 378,772,184 shares subject to outstanding restricted stock units (RSUs).

RISK FACTORS AS FOLLOWS:

• “If we fail to retain existing users or add new users, or if our users decrease their level of engagement with Facebook, our revenue, financial results, and business may be significantly harmed;”
• “We generate a substantial majority of our revenue from advertising. The loss of advertisers, or reduction in spending by advertisers with Facebook, could seriously harm our business;”
• “Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results;”
• “Facebook user growth and engagement on mobile devices depend upon effective operation with mobile operating systems, networks, and standards that we do not control;”
• “We may not be successful in our efforts to grow and further monetize the Facebook Platform;”
• “Our business is highly competitive, and competition presents an ongoing threat to the success of our business;”
• “Improper access to or disclosure of our users’ information could harm our reputation and adversely affect our business;”
• “Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could harm our business;”
• “Our CEO has control over key decision making as a result of his control of a majority of our voting stock;”
• “The loss of Mark Zuckerberg, Sheryl K. Sandberg, or other key personnel could harm our business;”
• “We anticipate that we will expend substantial funds in connection with tax withholding and remittance obligations related to the initial settlement of our restricted stock units (RSUs) approximately six months following our initial public offering;”
• “The market price of our Class A common stock may be volatile or may decline, and you may not be able to resell your shares at or above the initial public offering price;”
• “Substantial blocks of our total outstanding shares may be sold into the market as “lock-up” periods end, as further described in “Shares Eligible for Future Sale.” If there are substantial sales of shares of our common stock, the price of our Class A common stock could decline.”

Again, the Top 17 IPOs to Watch in 2012 is here.

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JON C. OGG

The full S-1 SEC FILING is here.  PS… The traffic to the SEC.gov website was severely limited for almost an hour due to excessive traffic flooding the site due to readers wanting to read the Facebook S-1.

Keating has been a Director of the Group Finance.  The strategy change is to effect a split in the Irish and U.K. Retail Division into separate units for each country.  Each unit will be led by separate chiefs and both chiefs will be members of the group executive committee.  U.K. Retail will be led by Des Crowley; Ireland Retail will be led by Liam McLoughlin. The new structure’s implementation date is expected to be in mid-March of 2012.

Shares at the local level in Dublin were up 5.2% on last look, but the ADRs in New York were up 3.1% at $6.46 against an adjusted 52-week range of $3.99 to $27.00 if you account for the reverse split.

Our take: This could lead to more of a break-up or allow asset sales more easily down the road.  It certainly is not growth ambitions, but whatever adds to survival chances right now is what matters the most.

JON C. OGG

FULL PRESS RELEASE FROM THE P.R. DEPT. BELOW:

The Governor and Company of the Bank of Ireland (the “Bank of Ireland”)
1 February 2012

Bank of Ireland Announces Board and Executive Management Changes

Bank of Ireland has today announced changes to its Group Structure and to its Senior Executive Team.

Board Change
Andrew Keating has been appointed an Executive Director of Bank of Ireland and Group Chief Financial Officer with immediate effect, replacing John O’Donovan who has retired from that role.  Andrew was formerly Director of Group Finance where he spearheaded a major transformation of the Finance Division in the Bank of Ireland Group.  He joined Bank of Ireland in 2004, prior to which he held a number of senior finance roles with Ulster Bank having qualified as a chartered accountant with Arthur Andersen.

Andrew is also a Director of Bristol & West plc, which is a wholly owned subsidiary of Bank of Ireland.

There are no details requiring disclosure for Andrew under paragraph 6.6.7 (2) to (6) of the Listing Rules.

Changes to Group Structure
Having embedded considerable benefits from the sharing of best practice and synergies in areas such as segment/product propositions, operational management and infrastructure the Group is enhancing the visibility of and focus on two of our most significant businesses.  Accordingly, for strategic management purposes we will split our Retail (Ireland & UK) Division into Retail Ireland Division and Retail UK Division.  Each will be headed up by separate Divisional Chief Executives who will be members of the Group Executive Committee.

Changes to Group Executive Committee
Des Crowley will be Chief Executive of the Retail UK Division where he will be responsible for the various UK based retail businesses within our subsidiary Bank of Ireland (UK) plc and outside the subsidiary.  Prior to this he held a number of positions on the Group Executive Committee since 2000, including Chief Executive, Retail Financial Services and Chief Executive UK Financial Services, having joined Bank of Ireland from Arthur Andersen.  As we work through the revised structure we will need FSA regulatory approval for key changes/appointments which we make during the course of transition.

Liam McLoughlin will be Chief Executive of the Retail Ireland Division, where he will be responsible for the Branch Network, Business Banking, Mortgages, Personal Lending, Debit & Credit Cards and Wealth Management.  Liam has been Head of Group Manufacturing since July 2009.  Prior to that he held a number of senior positions in the Capital Markets and Finance Divisions.  He joined Bank of Ireland in 2004 from Ulster Bank Group prior to which he had been Financial Controller with the National Treasury Management Agency.  Qualifying with PricewaterhouseCoopers he is a fellow of Chartered Accountants Ireland.

Senan Murphy joins Bank of Ireland to become Head of Group Manufacturing.  Senan , a chartered accountant , was most recently Chief Operating Officer and Finance Director at Ulster Bank whom he joined in 2008 having previously been Finance Director at Airtricity. Before that Senan worked in a number of senior roles in General Electric in both the US and Ireland.  In his role with Bank of Ireland, Senan will be responsible for managing and enhancing the Group’s infrastructure (including its technology), customer service and contact centres, collection activities, its customer payment activities and cash distribution.  Senan will be a member of the Group Executive Committee.

Mr Murphy will join the Bank shortly and will transition into his new role for the implementation date of the new Group Structure at which time Mr Crowley and Mr McLoughlin will formally take on their new roles.

The new Group Structure will have an implementation date of mid March 2012.

1 February 2012
 
Enquiries:
Dan Loughrey, Head of Group Corporate Communications Ph: 00-353-623-4770
Helen Nolan, Group Secretary Ph: 00-353-76-623-4710

Cornell is 52 years of age, so this is not retirement.  He is being replaced by Rosalind G. Brewer, who is 49 years old, as president and CEO of Sam’s Club.  She will report directly to Mike Duke and her effective date will be February 1.  She was most recently president of the Walmart U.S. east business unit.

• The company also noted that Rollin Ford, who is 49 years old, is being promoted to chief administrative officer (CAO) for the company, effective February 1.  ‪
• Another change is that Gisel Ruiz is being promoted to executive vice president and chief operating officer for Walmart U.S. with an effective date of February 1.  She is 41 years of age.
• Karenann Terrell is being promoted to chief information officer for the company with an effective date of February 1. She is 50 years of age.

Today may not seem like much of an event-driven stock moving event.  It may be more symbolic than anything.  Still, it stood out.  Wal-Mart stock is also at a crossroads right now as it is looking as though it wants to break out of a very long-term trading range.  Wal-Mart shares are up 0.4% today at $60.87 and the 52-week trading range is $48.31 to $61.06.

JON C. OGG

Because we have covered this merger and because we cover financial news, we receive many emails on this topic.  While we have received little to no great emails on how the merger will benefit the public, we have received ample emails from industry watch groups and public outreach groups which have stated their opposition to this merger.  Take a look at the headline summaries from MergerInvesting.com and you can see just how much opposition there is compared to support.

The merger arbitrage spread in this deal today is right at 13% when other normal mergers carry traditional merger arbitrage spreads of 1% to 4%.  Part of the arbitrage is because Express Scripts has offered to buy Medco in cash and stock, but there is a serious degree of approval uncertainty priced in here. 

With a deal that is not expected to receive approvals until the first or second quarter (if then), it sure seems as though the merger-arb community is not overly convinced that this merger will go through.  If the deal does go through, there could be many divestitures or asset sales which are required.

One institutional broker who covers some merger-arbitrage and index-arbitrage accounts gave a bit of a funny quote here when we asked for feedback.  His answer, from one of his clients, about whether or not the merger would be allowed was simply “Give me one second, there is no easy answer.”

The Department of Justice noted as far back as September of 2011 that this merger was going to face an extended review period.  Medco holders will own about 41% of the combined interest after this merger, if it is approved.

The company with the highest degree of flux before and after this deal could be Catalyst Health Solutions, Inc (NASDAQ: CHSI) with a market cap of under $3 billion.  Much of the public (and investing public) is not even aware of it under the name Catalyst Rx.

There is one interesting merger ETF to consider in arbitrage.  It is the IQ Merger Arbitrage ETF (NYSE: MNA).  Unfortunately, it is very thin trading volume.

Keep in mind that there are no assurances that the DOJ, the FTC, nor other agencies will actually try to block this acquisition.  There are no assurances of approval either.  A chart of the spreads from Bloomberg has been shown below.

JON C. OGG

Google’s brand value increased by 27%, the third largest gain among the top 100 brands. The second largest gain was posted by Amazon.com (NASDAQ: AMZN), which jumped 32% and moved up from 36th on the list to 26th.

The biggest loser was Nokia, which fell -15% and from 8th to 14th in the league table. Another smartphone maker, Samsung Electronics, moved up from 2 places, from 19th, on the strength of a 20% jump in brand value.

Toyota, ranked 11th, is the top automaker, barely ahead of Mercedes-Benz, with BMW in third. Among US carmakers only Ford Motor Co. (NYSE: F) made the top 100 with its ‘Ford’ brand, at 50th place behind Honda Motor Co. (NYSE: HMC) and Volkswagen.

Three brands made the list for the first time: Nissan, John Deere & Co. (NYSE: DE), and HTC Corp.

The Interbrand study ranks the top ten brands by dollar value in this order:

1. Coca-Cola Co. (NYSE: KO) – $71.86 billion
2. IBM Corp. (NYSE: IBM) – $69.91 billion
3. Microsoft Corp. (NASDAQ: MSFT) – $59.09 billion
4. Google Inc. (NASDAQ: GOOG) – $55.32 billion
5. General Electric Co. (NYSE: GE) – $42.81 billion
6. McDonald’s Corp. (NYSE: MCD) – $35.59 billion
7. Intel Corp. (NASDAQ: INTC) – $35.22 billion
8. Apple Inc. (NASDAQ: AAPL) – $33.5 billion
9. Walt Disney Co. (NYSE: DIS) – $29.02 billion
10. Hewlett-Packard Co. (NYSE: HPQ) – $28.48 billion

Paul Ausick