Tip For Roche: Pay For Genentech with Non-Cash CVRs

February 4, 2009

genentech logoIn an unhappy reminder of January 2008, deals continue to collapse or see reductions in price. After the trouble at Rohm & Haas (ROH), the acquisition of Genentech (DNA) by Roche is another large deal officially on the list of downward revisions in price. On Friday, Roche (RHHBY.PK) announced it would take a $86.50 per share tender offer directly to shareholders, Roche logodown from a $89/share proposal back in July. In the meantime, Genentech traded as high as $99.14 in anticipation of an increase in what was seen at the time as a lowball bid. Genentech’s board rejected the $89 bid as inadequate. Read the rest of this entry »


SPAC Liquidation Arbitrage: How To Profit From Hedge Fund Redemptions

January 28, 2009

Among the least-damaged victims of the boom’s unwinding are SPACs, which arguable were among the worst manifestations of the irrational exuberance driven by excess liquidity. Despite their relative resilience to the bust, their cash hoards coupled with limited life offer an interesting arbitrage opportunity with yields that, in some cases, reach well into the double digits.

SPACs are an outgrowth of blank check companies, which got a bad name when some were scams run through boiler room operations. The SEC Read the rest of this entry »


In Defense Of Securities Class Actions

September 24, 2008

Former shareholders of Chaparral Resources should receive the proceeds of the settlement with Lukoil (LUKOY) in the next few days. The settlement checks were mailed on Monday, we were told by a lawyer involved in the case. We have written about Lukoil’s shenanigans in the acquisition of Chaparral Resources before. As majority shareholder, Lukoil manipulated Chaparral to depress its stock price and acquire it at a low price. Shareholders filed a class action and are now, two years after the fact, finally receiving compensation. Read the rest of this entry »


Why Regulators Allow Banks To Invest In Fannie And Freddie Preferred Stock

August 27, 2008

From Sovereign (SOV) to JP Morgan (JPM) banks make headlines with writedowns on their holdings of Fannie’s (FNM) and Freddie’s (FRE) preferred stock, but the obvious question of how stock ever got onto banks’ balance sheets is only asked by Felix Salmon – and even he doesn’t know the answer. In general, banks are barred from investing in equity securities. However, the government made Fannie and Freddie preferred stock a “permissible” investment to create a sufficiently large market for these securities.

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An Evaluation Of The SEC’s Naked Short Selling Prohibition

August 14, 2008



So what exactly was the impact of the SEC’s July 15 emergency order against naked short selling? Not much, shows a study by Arturo Bris, a professor at Lausanne’s IMD business school. He shows that by some measures, it even had a detrimental effect on the market of the very stocks that the SEC sought to protect. For those who missed it, the list was:

Allianz Aktiengesellschaft (AZ), Bank Of America Corp (BAC), Barclays PLC (BCS), BNP Paribas (BNPQF/BNPQY), Citigroup Inc (C), Credit Suisse Group (CS), Daiwa Securities Group Inc (DSECY), Deutsche Bank Group AG (DB), Fannie Mae (FNM), Freddie Mac (FRE), Goldman Sachs Group Inc (GS), HSBC Holdings plc (HBC), JPMorgan Chase & Co. (JPM), Lehman Bros Holdings Inc (LEH), Merrill Lynch & Co Inc (MER), Mizuho Financial Gp Adr (MFG), Morgan Stanley (MS), Royal Bank of Scotland Group plc (RBS), UBS AG (UBS). Read the rest of this entry »


WAMU’s Numbers: Financial Restructuring Is Inevitable

July 25, 2008

Washington Mutual, WAMU

Washington Mutual’s (WM) announcement this week that it has no plans to raise additional capital sent the stock up temporarily, but as soon as investors did some simple math on the numbers, it came down to a more realistic, albeit still inflated, number. Wamu boosted its loss reserve to $8.46bn and expects to suffer losses “toward the upper end of the range it disclosed in April” of $12-19bn. If we add Wamu’s current excess capital of $7bn to its loss reserve, we find that Wamu is at risk of running short of capital to pay for the upper end of its own loss forecast. Read the rest of this entry »


Which Bank’s Problems Will Sink Angelica’s Buyout?

July 15, 2008

Angelica buyout mergerIn the pending buyout of Angelica (AGL) shareholders have not just the usual worry about the debt funding, but in an odd twist the equity portion could also be at risk. The financing consists of equity from an entity affiliated with stressed Lehman (LEH), while most of the debt is provided by struggling Regions Bank (RF), with some help from Apollo Investment Corporation (AINV) . Read the rest of this entry »


KeyBanc’s Poor Fairness Opinion In Max & Ermas Restaurants’ Buyout

June 24, 2008

Max & Erma'sLast week’s announcement that Max & Ermas Restaurants (MAXE) had a rough second quarter, with the weak economy and the March blizzard hurting top and bottom lines, made us wonder whether we should expect yet another busted buyout. After all, bad quarterly results have triggered quite a few merger cancellations, for the most part unjustifiedly. However, when we saw KeyBanc’s (KEY) deplorable fairness opinion we were convinced that the buyer is getting such a good deal that there is a lot of room for deteriorating performance before the deal will be called off. Read the rest of this entry »


Restoration Hardware Class Action Payout Still Leaves Shareholders Short Of Full Value

June 18, 2008

Restoration Hardware Logo

Shareholders of Restoration Hardware (RSTO) are the beneficiaries of a class action lawsuit against the buyout that saw the firm go to the low private equity backed bid rather than the higher bid from Eddie Lampert’s Sears Holdings (SHLD). Shareholders will receive an extra $0.19 per share from the litigation in addition to the $4.50 merger consideration. After legal fees, total payout should be roughly $4.63, a 2.9% increase over the price negotiated by the board. Nothing to make you rich, but a lot more than the annual dividend yield of the S&P index. The extra payout explains why Restoration Hardware trades currently a few cents above the $4.50 merger consideration.

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American Capital Strategies Pulls Out Of Merisel Buyout

June 10, 2008

Merisel logo

Another addition to the graveyard of busted mergers: business development company American Capital Strategies (ACAS) has terminated its agreement to buy Merisel (MSEL) under the “material adverse change” clause that has become a standard excuse for buyer’s remorse. After the exchang of multiple letters between the two firms, Merisel stock reacted predictably with a steep drop and now has a market capitalization below its net cash, despite generating positive earnings and cash flow in 2007. Read the rest of this entry »


Watchguard Private Equity Antitrust Litigation: The Sequel

May 19, 2008

Watchguard BuyoutThe dismissal of the anti-trust litigation against Watchguard and private equity funds Vector Capital and Francisco Partners got all the headlines (here, here, here) a couple of months ago, but a recently filed amendment to the lawsuit over directors’ breach of fiduciary duty makes much more fascinating reading than the somewhat dry anti-trust case. It is also likely to be another milestone in the unraveling of the private equity bubble, because it illustrates to what lengths some managers were able to go to do buyouts on their terms and not in the best interest of shareholders. Read the rest of this entry »


Insider Trading In Busted Buyout Of Trans World Entertainment?

May 13, 2008

Trans World EntertainmentOne of the risks of investing in small caps is lack of liquidity, and shareholders of Trans World Media Entertainment (TWMC), operator of f.y.e. (For Your Entertainment) stores, were reminded of how illiquid their stock is when CEO Robert J. Higgins withdrew his proposal to acquire the firm. The stock fell not only after the announcement, but was down already some 10% during the day just prior to the press release. Some shareholders seem to have known the news before it was published.

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