24/7 Wall St. » Bait Shop

Bogus Home Appraisals May Derail Real Estate Recovery

Douglas A. McIntyre — Wed, 24 Jun 2009 10:10:29 +0000

A 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.

National Association of Realtors chief economist Lawrence Yun said the appraisal problem is serious.

One of the by-products of the appraisal problem is that sellers often have to take less money for their homes than they had planned. This further depresses the value of real estate and often makes sellers take on debt to pay the difference between their mortgages and the amount that they get for their homes. People who take on new, large debt burdens are not likely to be consumers. Real estate values are directly linked to consumer spending.

The problem is hard to solve. Banks almost always rely on outside firms to handle appraisals. If lenders believe that the information that they are getting is routinely inaccurate, they may sharply curtail their overall mortgage operations. Risk and leverage are not words that bankers want to hear right now. The financial debacle of the last two years has cut lending to unprecedented lows. Bogus home valuations will only make that worse.

Douglas A. McIntyre

Posted in Active Trader, Bait Shop, Housing

BEA Capitulates; Oracle Wins (BEAS, ORCL)

Douglas A. McIntyre — Wed, 16 Jan 2008 07:40:33 +0000

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

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

Douglas A. McIntyre — Sat, 03 Nov 2007 05:02:13 +0000

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.

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

Douglas A. McIntyre — Wed, 29 Aug 2007 15:17:39 +0000

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.

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

Douglas A. McIntyre — Thu, 19 Jul 2007 13:36:46 +0000

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.

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

Douglas A. McIntyre — Wed, 27 Jun 2007 15:06:57 +0000

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.

Gabelli Challenging the 24/7 Real Media Buyout Price?

Douglas A. McIntyre — Tue, 19 Jun 2007 08:19:43 +0000

THIS IS A DRAFT ONLY…….

The waiting period

Here is the link….
http://sec.gov/Archives/edgar/data/807249/000080724907000208/tfsm00.txt

                                   SCHEDULE II
                            INFORMATION WITH RESPECT TO
                 TRANSACTIONS EFFECTED DURING THE PAST SIXTY DAYS OR
                 SINCE THE MOST RECENT FILING ON SCHEDULE 13D (1)
                                      SHARES PURCHASED     AVERAGE
                        DATE              SOLD(-)          PRICE(2)
 COMMON STOCK-24/7 REAL MEDIA, INC.
          GABELLI SECURITIES, INC.
                       5/21/07           15,000            11.7457
                       4/17/07            2,000             8.8190
		  GABELLI ASSOCIATES LTD
                       6/15/07           10,000            11.7100
                       6/13/07           22,500            11.6810
                       6/12/07           13,000            11.6933
                       6/07/07            5,500            11.6819
                       6/01/07            2,000            11.6850
                       5/31/07           16,500            11.7342
                       5/31/07           29,000            11.7275
                       5/30/07            2,000            11.7050
                       5/29/07            7,500            11.7217
                       5/25/07           24,649            11.7250
                       5/24/07           25,500            11.7381
                       5/24/07           11,100            11.7305
                       5/21/07           15,000            11.7429
                       5/18/07            9,000            11.7416
                       5/17/07           95,500            11.7107
          	  GABELLI ASSOCIATES FUND II
                       6/15/07            1,500            11.7050
                       6/13/07            2,000            11.6810
                       6/12/07            1,000            11.6933
                       6/07/07            1,000            11.6819
                       6/01/07            1,000            11.6850
                       5/31/07            4,000            11.7275
                       5/29/07            1,000            11.7217
                       5/25/07            2,500            11.7250
                       5/24/07            3,500            11.7305
                       5/21/07            1,500            11.7429
                       5/17/07           10,000            11.7107
          	  GABELLI ASSOCIATES FUND
                       6/15/07           10,000            11.7050
                       6/15/07            2,500            11.7050
                       6/13/07           22,500            11.6810
                       6/12/07           15,000            11.6933
                       6/07/07            7,065            11.6819
                       6/01/07            6,000            11.6850
                       5/31/07           48,500            11.7342
                       5/30/07            2,000            11.7050
                       5/29/07            5,500            11.7217
                       5/25/07           28,917            11.7271
                       5/24/07           39,500            11.7381
                       5/21/07           16,500            11.7429
                       5/18/07            5,000            11.7350
                       5/18/07            4,500            11.7416
                       5/17/07          102,000            11.7107
	    MJG ASSOCIATES, INC.
          	  GABELLI PERFORMANCE PARTNERSHIP
                       6/06/07           25,000            11.7310
                       6/05/07           30,000            11.7400
                       6/04/07           45,000            11.7450
                       5/25/07           35,000            11.7546
                       5/24/07           22,000            11.7740
                       5/21/07           43,000            11.7457
          	  GABELLI INTERNATIONAL II LTD
                       5/18/07            5,000            11.7650
                       5/10/07            5,000            11.5628
          	  GABELLI INTERNATIONAL LTD
                       5/24/07           78,000            11.7740
                       5/21/07           27,000            11.7457
                       5/14/07            2,000            11.1150
                       5/10/07            5,000            11.5628
          GAMCO ASSET MANAGEMENT INC.
                       6/15/07            1,000            11.7050
                       6/13/07            1,400-           11.6948
                       6/13/07            3,000            11.6810
                       6/13/07          250,000            11.7119
                       6/12/07              700-           11.6848
                       6/12/07           21,000            11.6933
                       6/11/07            5,000            11.7130
                       6/07/07            1,000            11.6819
                       6/06/07           12,400-           11.7200
                       6/01/07            1,500            11.7833
                       6/01/07            1,000            11.6850
                       6/01/07           10,000            11.7550
                       5/31/07            7,000            11.7275
                       5/30/07            2,400            11.7429
                       5/29/07           10,000            11.7250
                       5/29/07            1,000            11.7217
                       5/25/07           10,000            11.7330
                       5/25/07            8,600            11.7399
                       5/25/07            2,000            11.7590
                      5/25/07           13,000            11.7315
                       5/25/07           20,000            11.7297
                       5/25/07            4,000            11.7427
                       5/25/07            3,000            11.7250
                       5/24/07           10,000            11.7430
                       5/24/07            1,000            11.7950
                       5/24/07            3,500            11.7305
                       5/24/07           30,000            11.7460
                       5/24/07            5,000            11.7700
                       5/24/07            6,000            11.7408
                       5/24/07            4,000            11.7625
                       5/24/07            8,000            11.7381
                       5/24/07            1,500            11.7366
                       5/24/07           10,000            11.7365
                       5/24/07            3,000            11.7733
                       5/23/07              400-           11.7548
                       5/22/07            1,700-           11.7966
                       5/21/07           15,000            11.7457
                       5/21/07            2,000            11.7429
                       5/21/07            8,500            11.7700
                       5/21/07           15,000            11.7793
                       5/18/07            8,000            11.7950
                       5/18/07            3,000            11.7717
                       5/18/07            1,500            11.7416
                       5/17/07           12,500            11.7107
                       5/15/07            1,200            11.0717
                       5/11/07            2,000            10.9500
                       5/11/07            2,700            10.9669
                       5/10/07            7,000            11.4927
          GABELLI FUNDS, LLC.
              GABELLI SMALL CAP GROWTH FUND
                       6/06/07           14,400            11.7380
                       6/05/07          368,000            11.7385
                       6/04/07           17,600            11.7450
                       5/29/07          197,000            11.7350
                       5/25/07            3,000            11.7150
                       5/17/07          140,000            11.7450
                       5/07/07           10,000            11.0499
                       5/02/07           50,000            12.0029
              GABELLI DIVIDEND & INCOME TRUST
                       5/24/07          100,000            11.7550
              THE GABELLI GLOBAL DEAL FUND
                       6/07/07          100,000            11.7077
                       6/05/07            9,100            11.7450
                       6/04/07              700            11.7450
                       6/01/07          190,200            11.7349
                       5/31/07          200,000            11.7496
              GABELLI ABC FUND
                       5/31/07          100,000            11.7496
                       5/25/07          100,000            11.7250
                       5/21/07          100,000            11.7550
                       5/18/07          100,000            11.7550
                       5/17/07           90,000            11.7450
                       5/10/07           10,000            11.4690

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

Douglas A. McIntyre — Mon, 18 Jun 2007 07:26:36 +0000

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

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

Douglas A. McIntyre — Thu, 07 Jun 2007 08:40:31 +0000

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.

Big List of Private Equity Targets in Financial Services

Douglas A. McIntyre — Thu, 31 May 2007 09:32:00 +0000

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.

PROCESSING: Fidelity National Information Services (FIS); FairIsaac (FIC); ChoicePoint (CPS). On a side note, Total SystemsSolutions (TSS) is Jim Cramer’s pick in the sub-sector. RATINGS: Moody’s (MCO). INSURANCE BROKERS (P&C): Marsh and McClennan (MMC), AON Corp. (AOC). INSURANCE: AFLAC (AFL), Conseco (CNO), and American Safety (ASI). MONEY MANAGEMENT: Legg Mason (LM), Janus Capital (JNS), Waddell & Reed (WDR), Federated Investors (FII), National Financial (NFP). LOANS, STUDENT LOAN: Nelnet (NNI).

We have our own list of targets in this financial services sector for our newsletter subscribers. Some of these companies make sense, and there are many others elsewhere in overlapping segments in financial services that may actually make more sense.

Jon C. Ogg
May 31, 2007

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