Posts related to ‘Bait Shop’

Bogus Home Appraisals May Derail Real Estate Recovery

houseA huge number of home value appraisals may be wrong, with most of them being much too high. That is causing banks to back away from mortgages. A house that has been appraised for $400,000 might support a $350,000 home loan. If the bank looks a the property and says it is only worth $300,000 the mortgage application gets put into the waste basket.

The over-valuing of homes could kill a turnaround in real estate and make the persistent and hard drop in property values continue longer than many economists predicted that it would. Read More »

Posted on: June 24, 2009 – 5:10 am in Bait Shop, Housing

BEA Capitulates; Oracle Wins (BEAS, ORCL)

After essentially a near-decade of rumors, bids, rejections, and infighting, BEA Systems (NASDAQ: BEAS) is finally being acquired.  The company has capitulated and Larry Ellison’s empire is the winner.

Oracle Corp. (NASDAQ: ORCL) is acquiring the company for $19.375 per share entirely in cash of roughly $8.5 Billion (net of $7.2 Billion of BEA’s $1.3 Billion cash on hand).

The merger is set to close in mid-2008 and this is actually a definitive agreement that BEA Systems is capitulating to.

The merger is supposed to be accretive by $0.01 to $0.02 EPS on a non-GAAP basis in the first full year after this merger closes.

BEA has been under pressure of late after the company rejected the previous buyout attempt from oracle.  This $19.375 is actually a multi-year high that will make most shareholder money.  The 52-week trading range is $10.50 to $18.94, and shares closed at $15.58 yesterday.   

Jon C. Ogg
January 16, 2008

Posted on: January 16, 2008 – 7:40 am in Bait Shop, Mergers and Buy Outs, Software, ,

Hank Greenberg & AIG, Up A Rope & In The Wind (AIG)

Former head and oustered Maurice "Hank" Greenberg according to an SEC filing is leading a campaign to do a total makeover at his AIG (NYSE:AIG).  There is a problem besides the fact that Greenberg is 82 years old.  He was ousted in 2005 after Eliot Spitzer’s pre-Governorship probe of the industry that led to his demise as leader there. A key consideration is that Greenberg may in fact be blocked from being able to do very much on his own.  Here is the summary of the filing:

The Reporting Persons are considering and evaluating strategic alternatives designed to lead to the maximization of their investment in the Issuer.  The Reporting Persons believe that there are opportunities to significantly improve the Issuer’s performance and strategic direction, as well as the value of their investment.  In this connection, the Reporting Persons anticipate holding discussions with stockholders and third parties that may address a number of issues, including without limitation, their respective views on the Issuer’s business and prospects, the suggested disposition of certain of its operations, investment opportunities and concerns over the direction and management of the Issuer generally, and other opportunities to improve or realize on the value of their investment in the Issuer.  At this time, the Reporting Persons have not made any decisions regarding their future intentions with regards to their plans and proposals with respect to the Issuer.

The Reporting Persons reserve the right to change their plans and intentions, including the right to increase or decrease their investment in the Issuer.  In particular, any one or more of the Reporting Persons may (i) purchase additional shares of Common Stock, (ii) sell or transfer shares of Common Stock in public or private transactions (including, without limitation, transfers among Reporting Persons or between any Reporting Person and any entity affiliated with such Reporting Person, which may include entities not in existence as of the date hereof), (iii) enter into privately negotiated derivative transactions and/or public purchases and sales of puts, calls and other derivative securities to hedge the market risk of some or all of their positions in the Common Stock and/or (iv) take any other action that might relate to or result in any of the actions set forth in response to paragraphs (a) – (j) of Item 4 of Schedule 13D…………….

Unfortunately, this will be a tough one for Mr. Greenberg, despite his approximate 13% ownership.  He may have been unjustly run out of his own company, but the path was already set some time ago.  Many people refer to behemoth companies as battleships that take a long time to turn.  It is hard to imagine that this can be affected immediately, but 24/7 Wall St. will run the math on it.  It is obvious thatthe new management team is not a strong one, at least not compared to when Greenberg was commander in chief of the financial and insurance conglomerate.

AIG traded up over 3.5% to $61.25 in after-hours trading on Friday.  The 52-week trading range is $56.37 to $72.97.  This will create one hell of a Special Situation newsletter report if we get to look at AIG as a break-up or activist candidate. 

One key issue Mr. Greenberg will have to consider is a good old cowboy euphemism: "Once you let the cat out of the bag, it’s hard to put it back in."  Shining light on the hidden financial woes internally may also create some temporary harm to the stock.

Jon C. Ogg
November 2, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he produces the 24/7 Wall St. subscriber-based Special Situation Investing Newsletter.

Posted on: November 3, 2007 – 5:02 am in Activist Investor, Bait Shop, Financial Stocks, Large Cap Stocks, Management Change, Mergers and Buy Outs,

If Seagate Won’t Sell, Why Not Buy Western Digital? (STX, WDC, KOMG)

Seagate Tech (NYSE:STX) has been a great performer today after it raised guidance.  But it also noted strongly that it wasn’t for sale.  This is in the 48 hours after rumors and hopes from some that Chinese companies might want to acquire Seagate.  As the leader in hard drives and with a near-$14 Billion market cap (and still 10% under yearly highs), that would be a stretch anyway.

But this leaves an obvious choice: the second company in the batch, Western Digital (NYSE:WDC).  Western Digital is a stock that has been a member of our BAIT SHOP, meaning it could be takeover bait, for quite some time.  Its shares rose 7% to $23.00 today, and Seagate shares rose almost 4% to $25.39.  The fact that Western Digital is acquiring Komag (NASDAQ:KOMG) should not hurt our stance that it would be a great company to acquire.  In fact it might even be better even if it is not as cheap as it used to be.

Western Digital (NYSE:WDC) would make a fine takeover target.  It isn’t as technologically advanced and doesn’t have the depth and breadth that Seagate (STX) has.  It would also be a far easier deal to absorb.  Western Digital has a $5.1 Billion market cap and the soon to be added Komag (KOMG) has right under a $1 Billion market cap. 

We first published a free version of Western Digital (NYSE:WDC) being a Bait Shop stock last November showing this one as a real buy (First added at $18.20 in September).  We frequently make some of the updates available for free after subscribers of the Special Situation Investing Newsletter have had their chance to review and make their decisions.    We even gave an update on this earlier in the year  when we got a bit cautious on technology stocks as a chance to lighten up and then to get back in cheaper.

Flash drives are not going to kill hard drive stocks.  We outlined before how hard drive makers are merely going to make or partner to make flash drives on their own.  Western Digital won’t give the business away.

We’ve been positive on Western Digital (NYSE:WDC) for some time, and there seems no reason to change.  If the Chinese or others want to buy a disk drive comapny, Western Digital is the one they should buy.  This probably wouldn’t face any of the regulatory scrutiny that Seagatemay have faced.  The IBM PC-unit to Lenovo got done and that was a fargreater risk to national security.  No one seems to care that thehelpless gateway is becoming part of Acer.

Jon C. Ogg
August 29, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: August 29, 2007 – 3:17 pm in Bait Shop, Earnings, PC Companies, Semiconductor, Technology Companies, , , , , , , ,

SanDisk Earnings Outlook: When Will They Rival Hard Drives (SNDK, INTC, WDC, STX)

SanDisk (NASDAQ:SNDK) is expected to post earnings of $0.15 EPS on revenues of nearly $793 million, according to First Call.  SanDisk usually offers guidance, and First Call pes next quarter at $0.28 EPS and almost $909 million in revenues. 

Intel (NASDAQ:INTC) already gave some mixed messages after saying flash memory prices have seen margin pressure, but it also noted the future of flash drives will ultimately rival much of the hard drive market that is currently dominated by Seagate (NYSE:STX) and lesser competitor Western Digital (NYSE:WDC).  As a reminder, Jim Cramer was talking up SanDisk yesterday ahead of today’s earnings, although shares are down 2% today.  We still think Moore’s Law has to come further into play for this to happen, but the trend has started in its its infancy stages.

Western Digital (NYSE:WDC) is still an active member of the 24/7 Wall St. BAIT SHOP of takeover candidates, despite it being involved in acquiring Komag (NASDAQ:KOMG).  We showed this as a position to lighten up half of the position in January and then noted on February 5 that shares might be getting close to a re-entry for that half of the stock.  Western Digital today is trading at 52-week highs and looks like it could make a run at the multi-year highs seen in early 2006.

Jon C. Ogg
July 19, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers. 

Posted on: July 19, 2007 – 1:36 pm in Bait Shop, Earnings, Mergers and Buy Outs, Semiconductor, Technology Companies, , , ,

Web.Com Buyout: Right Move, 2-Years Late (WWWW, WSPI)

Stock Tickers: WWWW, WSPI, GOOG, YHOO, EBAY, VRSN, AMZN

Web.com (WWWW-NASDAQ) last night finally made the right move, although they are doing it late and possibly with the wrong partner.  The company has signed an agreement to merge with Website Pros (WSPI-NASDAQ).  This is not at all meant to be negative against Website Pros at all.  More than two years ago I had noticed what was going on in the web hosting, domain registrations, e-commerce, video, blogging and the intro of an ‘ease of advertising’ were all starting to converge in a much faster manner than ever seen.  It was as if the goals of Internet-1999 were suddenly converging into a visible effort that had a lot of growth.

Register.com had either been given an offer or was rumored to be on the blocks, but the basis was the buyout of DoubleClick by Hellman & Friedman for starters.  Register.com was larger and tad a cheaper, but Web.com (then as Interland under the "INLD" ticker) was the obvious land grab.  Here we are two years later and the company is going for what is less money than it was potentially worth then.  As noted this is nothing against Website Pros, and as it hasn’t ever gotten this much coverage in the 20-ish months since its IPO this near-5% drop today is probably a gift for that company.

Web.com/Interland was name that at any time Google (GOOG-NASDAQ) could have acquired to ramp up its Blogspot, Google Checkout, Google Base, and the like.  Yahoo! (YHOO-NASDAQ) could have rolled it into its business services, 360, and more.  eBay (EBAY-NASDAQ) could have rolled it up for hosting, think e-commerce, Skype, automatic-buy and auto-auction links and the like.  VeriSign (VRSN-NASDAQ) could have rolled it up into the Network Solutions unit and even Amazon.com (AMZN-NASDAQ) could have used it for part of its e-commerce gateway and sales platform.  GoDaddy.com or a Register.com could have easily absorbed it, as could have Hellman & Friedman or others.  None of that matters now, and this is so small now that it probably won’t make much on headlines.

This was the sort of BAIT SHOP target we had looked for and the stock was under $2.00 at the time.  These are getting harder and harder to find, although we still have targets that are incrementally valuable such as this.  I had taked to a couple of San Francisco-based hedge funds about taking stakes in June 2006, and their thoughts were both that it was too small to matter.  We have several other smaller companies like this now that would be great incremental add-ons for much larger players, although they are micro-cap web stocks and eitherhave no stock options available for hedging or are too expensive to hedge.  Our buyouts and mergers newsletter 24/7 Wall St. "Special Situation Investing Newsletter" covers these, although these are probably worth revisiting in light of today’s reaction to the merger.   

This new company will have to the tune of 234,000 paid subscribers and more than $117 million in annualized revenues.  Unfortunately, Web.com has been seeing a steady drop-off and the value is not what it was.  This is one that I had removed from the BAIT SHOP last year as it became more expensive than what it looked worth and after it had exceeded the $5.50 mark. 

HERE ARE THE BUYOUT TERMS (unanimously approved by both boards of directors): Web.com shareholders may elect to receive for every Web.com share either 0.6875 shares of Website Pros stock or $6.5233 in cash, subject to proration so that the total cash paid shall equal $25 million. In the aggregate, Website Pros will issue approximately 9 million shares of Website Pros stock and pay $25 million in cash. Based on the closing price of Website Pros’ stock on June 26, 2007, the transaction is valued at an aggregate purchase price of approximately $129 million.

Jon C. Ogg
June 27, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: June 27, 2007 – 3:06 pm in Bait Shop, Internet, Mergers and Buy Outs, , , , , , ,

Gabelli Challenging the 24/7 Real Media Buyout Price?

THIS IS A DRAFT ONLY…….

The waiting period

Read More »

Posted on: June 19, 2007 – 8:19 am in Bait Shop, Internet, Mergers and Buy Outs

Finish Line Acquires Genesco; Too Much Diversity? (GCO, FINL)

It is always a bit puzzling when you see a $600 million company make an acquisition of a company for $1.5 Billion.  This morning, Finish Line (FINL-NASDAQ) has announced that it will acquire Genesco (GCO-NYSE) for $54.50 per share in cash valued at a total $1.5 Billion.  The Finish Line expects the transaction to be accretive to its net income, before consideration of incremental amortization resulting from the transaction, in the first full year after closing.

It will also now move from a sporting apparel company to having positions across multiple footwear and apparel categories, including athletic, sport casual, lifestyle, brown shoe and headwear: Finish Line, Man Alive and Paiva as well as Journeys, Journeys Kids, Shi by Journeys, Underground Station, Jarman, Johnston & Murphy, Hat World, Lids, Hat Shack, Hat Zone, Head Quarters, Cap Connection and Lids Kids.

The Finish Line expects the transaction to be funded through approximately $11 million in cash on hand and up to $1.6 billion in financing provided by UBS, consisting of a Revolving Credit Facility, a Senior Secured Term Loan and a Senior Bridge Facility.

Genesco is up 9% pre-market and Finish Line has not yet traded.  By the looks of the brands involved, it is possible that the company may turn around and sell some of the units to widdle down the debt used to finance the buyout.

Jon C. Ogg
June 18, 2007

Posted on: June 18, 2007 – 7:26 am in Apparel, Bait Shop, Mergers and Buy Outs, ,

Biomet Capitulates In Merger Fight, Accepts $46.00 Private Equity Buyout

Biomet, Inc. (BMET-NASDAQ) has recived and accepted a higher buyout price for shareholders.  The company announced that it has unanimously recommended to shareholders an increased offer from a private equity consortium to acquire Biomet for $46.00 per share in cash.  This $11.4 Billion deal is a sweetened offer from the private equity consortium including affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG.  This will commence on June 14, 2007.

Morgan Stanley provided the Board of Directors with its opinion that the revised merger agreement is fair from a financial point of view to holders of Biomet common stock.  Completion of the tender offer is subject to the condition that at least 75% of the Biomet common shares have been tendered in the offer, which is the same percentage approval requirement as with the previous merger structure. 

As a result, Biomet announced that it has cancelled the special meeting of shareholders previously scheduled for Friday, June 8 to consider and vote on the original merger agreement AND has agreed not to pay its annual dividend.  Sharesare trading up 3% at $25.60 in pre-market activity, which is a new 52-week and 24-month high.  It is also at the high-end of an old trading range from back in 2004, so this new improved merger price will essentially make just about all shareholders whole.

Jon C. Ogg
June 7, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: June 7, 2007 – 8:40 am in Bait Shop, Medical, Mergers and Buy Outs, Private Equity,

Big List of Private Equity Targets in Financial Services

There is a recent boutique research report from earlier in the week showing a list of potential private equity targets from a specialty brokerage firm that I was very positive on from even before its IPO: Keefe Bruyette & Woods (KBW).  The truth is that this company is probably only behind Goldman Sachs (GS) as far as its knowledge of what is going on in the North American financial services sector, and the argument is that KBW is considered the number one firm as far as independent coverage of the financial services sector.  It is too bad the company did not get this out at the end of last year to include many other names that have been gobbled up, but it really feels as though every firm is ‘cramming for finals’ in the M&A world with the private equity superstars.

Read More »

Posted on: May 31, 2007 – 9:32 am in Bait Shop, Banking, Financial Stocks, Mergers and Buy Outs, Private Equity, Research, , , , , , , , , , , , , , , , , ,

After aQuantive, 24/7 Real Media Deserves a Much Higher Price

The 24/7 Real Media (TFSM-NASDAQ) buyout price now looks silly after this premium that Microsoft (MSFT-NASDAQ) is paying to acQuire aQuantive (AQNT-NASDAQ).  Lets forget about the percentage premiums and just look at the multiples.  At a $6 Billion payout based on forward revenues and earnings, there is a huge discrepancy between TFSM/AQNT. 

Depending on what service you use for forward estimates you come up with roughly 77-times forward non-GAAP earnings and about 9-times forward revenues.  These numbers would not have been this high if the bidding for aQuantive wasn’t so high, but Microsoft’s price is the rule-setter.

If you apply the same numbers to TFSM it is pretty sick.  On the forward earnings estimate basis for TFSM you can derive in the vicinity of a theoretical $37.50 price.  On a forward revenue basis you could derive something nuts like a $45.80 price.  The truth is that there is debt and intangibles and all sorts of ‘exceptions’ that would skew these numbers and you would have to be a mad man to believe that TFSM would really sell for a premium like that.  But in a bidding war environment where Google paid up for DoubleClick and where Microsoft goes out this far and this high to buy Aquantive means that management agreeing to a $11.75 buyout price is nearly cowardice.

The basic multiple comparisons are just not as fair because the only two companies that were identical in the models were TFSM and DoubleClick, so trying to use an exact comparison would be flawed.  On May 10, we noted that the starting valuations could put TFSM at a $11.81 starting price and a value that at certain extremes could fetch $19.75.  We noted that somewhere in the middle at say $15.00 or higher could be feasible.  So why is TFSM selling so cheaply?

This leaves ValueClick (VCLK) as the last ‘independent’ man standing, and that is up 11% today.

Jon C. Ogg
May 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 18, 2007 – 8:59 am in Bait Shop, Internet, Media, Mergers and Buy Outs, Technology Companies, , , , , ,

aQuantive Massive Buyout Premium (AQNT, MSFT)

Stock Tickers: AQNT, MSFT, GOOG, TFSM, YHOO, VCLK

aQuantive Inc. (AQNT-NASDAQ) just recived a huge premium buyout by Microsoft (MSFT-NASDAQ).  This is one that was a 50/50 chance of happening via deductive reasoning after the Google (GOOG-NASDAQ) and after the WPP Group buyout of 24/7 Real Media (TFSM-NASDAQ) and after the Yahoo! (YHOO-NASDAQ) acquisition of a private Right Media.  So this only leaves ValueClick (VCLK-NASDAQ).

What is surprising is the premium: aQuantive is being acquired for roughly $6 Billion, or $66.50 per share.  This stock has never seen a price like that except back at the recombination price at the start of 2001.  Now if you have been a holder of AQNT you are guaranteed a huge profit. 

In all honesty this deal is not a surprise at all, but the price is very surprising since it is nearly a 90% premium.  Microsoft would have been able to have owned this one cheaper if they would have acted sooner.  Shares of ValueClick (VCLK) are trading up 17% pre-market at just under $33.00 as they are the last man standing independently, and that is above the $31.34 year-high.

Jon C. Ogg
May 18, 2007

Posted on: May 18, 2007 – 7:10 am in Bait Shop, Internet, Mergers and Buy Outs, Software, , , , , ,

24/7 Real Media Buyout: Is $11.75 High Enough?

Stock Tickers: TFSM, GOOG, MSFT, WPPGY, YHOO, AQNT, VCLK, TWX, IACI

24/7 Real Media Inc. (TFSM-NASDAQ) is trading up 3.5% this morning on news that it has agreed to be acquired by WPP Group for $11.75 per share.  The deal is being tallied up as a $649 million buyout net of cash received.  It says it is a 30% premium over the 60 trading average, which is irrelevant if you have been following this online advertising segment since before Google (GOOG) acquired DoubleClick.  Both boards have approved the deal but there are no go-shop or break-up fees that were made public.  The stock has recently traded as high as $13.00 because of rumors of another bidder.

We have covered this one since the stock was far lower.  On May 1, there were reports that Microsoft might pay up for it.  They were also noted in "Who’s next?" on April 13.  On May 10 we looked at what the company could fetch and came up with what would likely be an $11.81 starting price and one that could reach $15.00 or higher under the right circumstances.

The other two online ad firms are trading up this morning: ValueClick (VCLK) is trading up 2.5% at $28.00 and aQuantive (AQNT) is trading up 1.5% at $34.95.

This is one that could conceivable end up trading higher than the $11.75 price if the break-up fees or go-shop penalties aren’t insurmountable.  Microsoft (MSFT) and Yahoo! (YHOO) were supposedly in consideration here and you never know if Time Warner’s (TWX) AOL or IAC/Interactive (IACI) would consider jumping in before letting this one entirely go away.

Jon C. Ogg
May 17, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 17, 2007 – 7:18 am in Bait Shop, Internet, Mergers and Buy Outs, , , , , , , , ,

CME Bids Higher for CBOT AND Itself

Stock Tickers: CME, BOT, ICE, ISE, NMX, NYX, NDAQ

The Chicago Mercantile Exchange (CME-NYSE) decided it was not going to let the Chicago Board of Trade (BOT-NYSE) get acquired by The IntercontinentalExchange Inc. (ICE-NYSE).   This is further proof that the "Exchange Wars" are heating up, and that the value of exchanges is still there.

The CME is revising its offer by 16% to .35 shares and CBOT holders will own approximately 34.6% of the combined company.  The board of directors will also hav3 10 of the 30 seats filled with CBOT members.

To top it off, and to act as the final "you can’t compete with this offer" the CME has announced that it will make a cash self tender offer for approximately 12% of the combined company at a fixed price of $560.00 that will commence shortly after the close of the merger.  What that does is essentially takes some of the market risk out of the CME stock since this is an all stock deal.  That is a $3.5 Billion tender.

Both companies had already spent much time and money on the merger, and this should provide a lock-up for the deal.  IntercontinentalExchange (ICE) will have a hard time being able to compete with this, although its shares are now up 1.4% at $136.71.  CBOT (BOT) shares are up 2$ at $197.95 pre-market; CME (CME) shares are up 6% at $528.50 pre-market.

This is also spilling over into the other excnages, and here are their gains pre-market: NYMEX Holdings (NMX) up 1% at $120.50, International Securities Exchange (ISE) up 0.1% at $65.10, NYSE (NYX) up 0.7% at $82.38, and NASDAQ (NDAQ) unchanged at $31.53.

Jon C. Ogg
May 11, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 11, 2007 – 8:09 am in Bait Shop, Brokerage Firms, Exchange News, Financial Stocks, Mergers and Buy Outs, , , , , , ,

Alcoa Now Going After Alcan in a Takeover (AA, AL)

Alcoa (AA) has offered to buy Alcan (AL) for $73.25 in cash and stock with an actual breakdown of US$58.60 in cash and 0.4108 of a share of Alcoa common stock for each outstanding common share of Alcan.  This would be a complete game changing move for Alcoa, and it will likely eliminate them as a potential takeover target themselves.

Alcan shares are actually higher than the offer price now, indicating that there could be a higher offer; while Alcoa shares are indicating lower, mostly since this will essentially wipe out the chances that this gets acquired.

Here are the combination metrics according to Alcoa.  Between the stock and debt and assumption, this will represent a $33 Billion offer.  The company believes this will create a $1 Billion cost savings synergies. On an aggregate basis for 2006, the combined company would have had revenues of US$54 billion and EBITDA of US$9.5 billion, before synergies. In 2006, the combined company’s alumina capacity would have been approximately 21.5 million tonnes and its aluminum capacity would have been approximately 7.8 million tonnes. In addition, the combined company would have approximately 188,000 employees in 67 countries.

The transaction is subject to review by antitrust authorities in various jurisdictions including the U.S., Canada, the European Union, Australia and Brazil. It also requires foreign investment clearance in Canada, France and Australia.  Alcoa is targeting completion of the transaction by the end of 2007.

The offer and withdrawal rights are scheduled to expire at 5:00 p.m., Eastern Daylight Saving Time on July 10, 2007, subject to extension.  Alcoa has received a commitment letter from Citi, Goldman Sachs Credit Partners L.P. and Goldman Sachs Canada Credit Partners Co. to fully finance the proposed transaction. Skadden, Arps, Slate, Meagher & Flom LLP, Stikeman Elliott LLP, and Cleary Gottlieb Steen and Hamilton LLP are acting as legal counsel to Alcoa. Citi, Goldman, Sachs & Co., BMO Capital Markets, and Lehman Brothers are acting as financial advisors.

Jon C. Ogg
May 7, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 7, 2007 – 6:22 am in Bait Shop, Mergers and Buy Outs, Metals, ,

Is BEA Systems Any Closer To An Offer? (BEAS)

BEA Systems (BEAS-NASDAQ) is a name that just came back under fire yesterday after lowering its quarterly revenue projections.  The drop in the stock was not massive as estimates were $348+ million and the company guided to $342 to $347 million.  Shares closed down only 3% or more, but they had traded down over 10% early yesterday.  The licensing revenues are a disappointment: the guidance was as low as $111 million versus prior forecasts of $132 million. 

It is blaming the reorganization and saleforce realignment, but the likely issue is that Oracle (ORCL-NASDAQ) is taking more of the middleware market share away or that other competitors are winning.  The company also competes against H-P (HPQ) via H-P’s Mercury Interactive, SAP’s (SAP) NetWeaver, Tibco Software (TIBX), and IBM (IBM). You can now interpret that Salesforce.com (CRM) is more into the space than in prior years. BEA Systems has been a "rumored and speculated" takeover name literally back into the 1990’s and valuations were always in the way.  The balance sheet and income statements are both somewhat guesswork because BEA has been delinquent in filings over stock options and much of the current numbers are best ‘guestimates.’  If the balance sheet is still close to $900 million in tangible book value, we can at least take a stab at "valuations."

This has been a BAIT SHOP member in the past (of takover candidates) at much lower prices and before the options backdating was an issue, and has been removed because of valuations getting higher than a perceived buyer would have paid.  If the company is feeling more competitive pressures then it could finally decide to be more open to a deal.  That is most likely not yet the case.  The problem would boil down to the price: it would probably take close to $14.00 in today’s money as is for an "entry-level" bid that would keep the board from laughing a buyer out of the room.  This is one we have noted as needing to go lower and "staying lower" because of sales or industry pressure before management would be considered very vulnerable to a predator or before they would capitualte. 

Let’s take the warning a bit further to determine more conservative base-line forward valuations.  If we were going to price in competitive pressures and a slower environment and trim off 10% of earnings and revenues, then here is what the company would lool like in valuation (these numbers reflect a 10% discounting to forward street estimates): $0.55 EPS for JAN-08 fiscal year on revenues of $1.39 Billion; so forward multiples would come in at 20.5 times forward discounted EPS, 3.2-times forward revenues, and 17-times discounted cash flow from operations.  These levels aren’t exactly overvalued for a software company, but they aren’t good enough alone for a larger competitor to get a free assassination of a competitor.  They also might not be good enough without knowing what the real charges will end up being because of stock options, and it requires trusting the past financial data without current numbers being precise.

With a $4.45 Billion market cap today it is within the constraints of a doable deal.  The ‘unknowns’ probably still negate the "acquirable size."  Another problem is that the company has maintained that it wants to remain independent and a buyer might not be interested if the company begins implementing measures that could make the company less attractive.  As far as we are concerned, BEA Systems’ stock still needs to get current with the SEC and the stock needs to settle in at lower levels before we’d start looking at it as any serious takeover candidate with an actionable and hedged call. 

Jon C. Ogg
May 2, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 2, 2007 – 12:20 pm in Bait Shop, Mergers and Buy Outs, Software, , , , , , ,

BISYS: A Buyout? No, It’s Giving Itself Away (BSG, C)

BISYS Group Inc. (BSG-NYSE) is doing one of the more foolish things they could do.  The company is selling out to Citigroup (C-NYSE) for what would amount to a $12.00 price. The exact compensation is the $0.15 special dividend and $11.85 buyout price.

Citigroup is buying the BISYS Fund Services and Alternative Investment Services groups, but it is then turning around and immediately selling the Insurance and Retirement businesses to private equity firm JC Flowers for an undisclosed sum.  This follows the BISYS strategic alternatives review conducted by the Board of Directors and the Special Committee.

Robert J. Casale, BISYS’ Chairman, Interim CEO & President: "We are pleased at this outcome of the strategic alternatives process. We believe this deal is the best transaction for our shareholders and clients, while providing new opportunities to our employees. We look forward to working with our colleagues at Citi and JC Flowers to facilitate a timely close and an orderly integration."

Well, this is more than hard to get excited about.  Yes the company had some problems and yes the company was still being grilled because of irregularities with customers in the past. But this may be the weakest sale price and company give-away so far.  The stock is up a whopping 1.7% at $11.67 after the open.  The 52-week treading range is $7.92 to $15.95, but the range before the last year or so was usually $14 to $18 for 3 years before that and this stock spent 2002 to 2004 north of $20.00 (and even got as high as $30.00+).  Shares were just at $13.60+ in February.

If this is not just a step and give it all away, then what is?  “After an exhaustive review” must have been done in bars and on gold courses, because this is going to cost many shareholder some money, and many of the holders who purchased recently were buying this for a higher buyout price or a real turnaround.  This tangible book value multiple may have been high because of recent issues, but this deal looks incredibly cheap if Citigroup can at least get the cash flows back to historic levels.

There are probably two sorts of BISYS shareholders this morning.  There is the camp that is probably happy that the value is at least at the market and happy to walk away.  Then there is the camp that probably feels it just got fleeced.  By the tone here, you can guess what we think of the deal without even having any dogs in the fight. 

This stock was a member of our BAIT SHOP of potential and likely buyout targets, but the relative cash flows and a turnaround valuation to get a deal done for longer-term holders placed a $14.00 expected price on this.  It was not without risk, but that was a level that was based on what it would take to get the deal done (opinion and target price).  It looks like some companies can be bought for free with little to no reward for most shareholders.  Shareholders better ask who gets what parachute on backing this offer, because it sure isn’t them.   

Jon C. Ogg
May 2, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: May 2, 2007 – 9:09 am in Bait Shop, Financial Stocks, Mergers and Buy Outs, ,

What’s Valero Worth Now? Back to the Drawing Board… (VLO)

Valero (VLO) stock is breathing fresh all-time highs today, and it still trades at less than 10-times forward earnings projections.  The company reported net income for the March quarter of $1.1 billion (EPS of $1.86) – up 30% year-over-year – even though revenue fell slightly to $19.7 billion, down 5.9% from the first quarter of 2006.

The reason?  Simple – throughput margins grew nearly 20%, from $10.11 per barrel to $12.06 in the first quarter.  This is an absolutely huge expansion of margins, and while partly driven by short-term supply issues, many would argue that what we’re seeing in the short-term will continue unabated in the coming quarters.  This is helping to push the stock up more than 2% today to over $72.00 as of 12:00 EST.  The stock is up over 35% this year, but still trades for one of the lowest P/E’s in the S&P 500.   

Oil to $80 a barrel?  Gas prices at $4 this summer?  We’ll leave those predictions to the oil pundits as we look towards important ongoing story that may be answered in today’s conference call, schedule to begin at 3:00 EST.  Valero has been exploring the sale of one of their 18 refineries, at facility in Ohio that has a throughput of 147,000 barrels-per-day.  When we originally picked up this story a few weeks ago, we were hopeful that a sale would reflect the inherent value in these ultra-limited refineries.

We thought the refinery could fetch upwards of $600 million based on our calculations of asset sales in the past five years.  Well, it appears that our estimates were conservative, as some whisper numbers for the Ohio refinery are approaching $1.6 billion.  Valero has reportedly received more than 10 bids already for the facility, and if any color is added by management today, we will be revisiting our VLO break-up value.  In our opinion the value of the refineries is the key to valuing the company, and based on the whisper number above, the multiple of book value that we used may be significantly higher.  That , and higher oil prices, would explain why the stock has already greatly exceeded our original conservative break-up value analysis at the end of January when energy prices were lower.  If the refinery price is truly that much higher, then the value could be far higher.

Ryan Barnes
April 26, 2007

Ryan Barnes can be reached at ryanbarnes@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 26, 2007 – 12:15 pm in Bait Shop, Oil & Gas, Research, Value Investing

Alcoa: “We’re For Sale, Part Of Us Anyway!”

Alcoa (AA-NYSE) has just announced that it will explore strategic alternatives for the disposition (sale/spin-off/etc.) of its PACKAGING & CONSUMER segment.  This unit generated $3.2 Billion in revenues and $95 million after-tax operating income in 2006, which is roughly 10% of the entire organization’s revenues.  The company claims this unit is strengthening and that profit more than doubled after restructuring.

The CEO has said it is time to see if these operations may generate more value on their own or as part of another company.  Back on February 8, 2007, we issued our own break-up analysis for Alcoa shares, and we came up with a value that was even far north of current prices.   We also noted this as one of the most undervalued stocks in December 2006.

Here are the operations up for review, which have a combined 10,000 workers in some 22 countries:

    * Flexible Packaging, manufacturers of laminated, printed, and extruded non-rigid packaging materials such as pouch, blister packaging, unitizing films, high quality shrink labels and foil lidding for the pharmaceutical, food & beverage, tobacco and industrial markets.
    * Closure Systems International, a global manufacturing leader of plastic and aluminum packaging closures and capping equipment for beverage, food and personal care customers.
    * Consumer Products, a leading manufacturer of branded and private label foil, wraps and bags.
    * Reynolds Food Packaging, makers of stock and custom products for the foodservice, supermarket, food processor and agricultural markets including foil, film, and both plastic and foil food containers.

Separately, the company said it will explore strategic alternatives involving its Electrical and Electronic Solutions, and automotive castings businesses. These businesses had combined 2006 revenues of approximately $1.6 billion and were marginally profitable.

Alcoa says that it anticipates the process will be completed by the end of 2007.  If you add these up it looks like $4.8 Billion of the company’s $30.379 Billion in revenues are up for sale.  This is far from an outright bid, but the company is going for the "unlocking of value" strategy.  Alcoa shares are indicated up 6% at $36.00-ish, right up by a 52-week high of $36.96 ($26.39 lows). 

Jon C. Ogg
April 25, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 25, 2007 – 8:40 am in Bait Shop, Mergers and Buy Outs, Metals

Cramer & Another Bank Merger Pick

On today’s STOP TRADING segment on CNBC, Cramer said that he went back over the Merrill Lynch (MER-NYSE) conference call and he thinks that the other mergers in the sector have gone well enough and thinks that Merrill Lynch (MER-NYSE) will buy Countrywide Financial Corp. (CFC-NYSE).  He thinks when they would have liked to have bought it was 6-months ago and it would have been a mistake, but now he thinks this would make sense.  This is part of the fact that Countrywide is the last man standing in subprime loans and is the winner.  He’d buy the JULY CALLS on the stock (CFC-NYSE) as it is going higher and he thinks it could fetch $45.00 to $48.00.

Last night he noted Downey Financial Corp. (DSL-NYSE) as a merger pick, and that one is up almost 3% today on almost 4-times normal trading volume because of his stock tout.  He noted this one again today.

Jon C. Ogg
April 19, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: April 19, 2007 – 1:46 pm in Bait Shop, Banking, Cramer, Financial Stocks, Mergers and Buy Outs