Archive for December, 2006

  • Biomet Goes Private Equity
    , December 18th, 2006 at 8:20 am

    At $44 a share. Here’s the press release:

    Biomet, Inc. to Be Acquired by Private Equity Consortium for $10.9 Billion or $44 Per Share in Cash
    WARSAW, Ind.–Biomet, Inc. a worldwide leader in the design and manufacture of musculoskeletal medical products, announced today that it has entered into a definitive merger agreement to be acquired by a private equity consortium in a transaction with a total equity value of approximately $10.9 billion. The consortium includes affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG.
    Under the terms of the merger agreement, Biomet shareholders will receive $44 per common share, representing a 27% premium over Biomet’s closing price on April 3, 2006, the trading day prior to public speculation, which was subsequently confirmed by Biomet on April 6, 2006, that it had retained Morgan Stanley to assist it in exploring strategic alternatives.
    The board of directors of Biomet has unanimously approved the merger agreement; the merger and the transactions contemplated thereby, and will also recommend approval by Biomet’s shareholders.
    The transaction will be financed through a combination of equity contributed by the private equity consortium and debt financing that has been committed by Bank of America and Goldman Sachs. There is no financing condition to the obligations of the private equity consortium to consummate the transaction.

    I’m not happy with this price, and I think it’s a lousy idea. This is just $2 a share above Friday’s close, and it’s lower than where Biomet was two years ago. Earlier I said that $45 a share was a minimum, but I didn’t think the board would consider anything below that. I don’t see how this deal helps shareholders.
    If I were in Medtronic’s shoes, I would consider making an offer. The worst they can say is no.
    Update: Speaking of Medtronic, Barron’s had a good piece on the stock last week.

  • Einstein and Keynes
    , December 17th, 2006 at 12:44 pm

    Here’s a fascinating article by James K. Galbraith, John Kenneth. Galbraith’s son, about the influence of Albert Einstein on John Maynard Keynes.

    One of the most intriguing and little-noted facts about John Maynard Keynes’s masterwork, The General Theory of Employment Interest and Money, concerns the first three words of its title. These are evidently cribbed from Albert Einstein. Alone that would be only a curiosum; but there is more. The parallels between Keynes’s economics and Einstein’s relativity theory are deep enough, and evidently intentional enough, to provide a useful framework for thinking about what Keynes meant to do with his scientific revolution.

  • What’s Alan Up to These Days?
    , December 16th, 2006 at 8:07 am

    From The Onion:
    onionmagazine_archive_61a.jpg

  • The Pessimism of Crowds
    , December 15th, 2006 at 10:48 am

    The Dow is at another all-time today. The index is now up to 12,468.
    Last year, Business Week asked its readers to vote on where the Dow would be at the end of 2006. Here are the results:

    10,000 or below…………………….15.1%
    Around 10,500……………………….13.1%
    Around 11,000……………………….24.3%
    Around 11,500……………………….28.3%
    12,000 or higher…………………….15.8%
    Not sure………………………………..3.4%

    Sheesh, what was everyone so gloomy about? For from being irrational or even exuburent, the crowd was very tame. Less than one in six got it right. Here’s what I wrote at the time:

    That means that the median is “around 11,000.” I won’t predict that the Dow will hit 12,000, but I think it’s entirely reasonable that it could. That’s a little over 10% from where it is today which is in the middle of the long-term average. Yet only one in six respondents said “12,000 or higher.” Strange.
    I normally would expect polls like this to be overly optimistic. Maybe I’m reading too much into this, or perhaps the public is much more pessimistic that I realized.

    The professionals were even gloomier. Here were the predictions of 76 market pros. The Dow is currently higher than all but three of their forecasts.
    Ticker Sense points out that the latest Barron’s roundup of market pros sees the Dow headed to 13,220. That’s only 6% from where we are now.

  • The 2007 Buy List
    , December 15th, 2006 at 10:46 am

    Here’s the Buy List for 2007:
    AFLAC (AFL)
    Amphenol (APH)
    Bed Bath & Beyond (BBBY)
    Biomet (BMET)
    Donaldson (DCI)
    Danaher (DHR)
    FactSet Research Systems (FDS)
    Fair Isaac (FIC)
    Fiserv (FISV)
    Graco (GGG)
    Harley-Davidson (HOG)
    Jos. A Bank Clothiers (JOSB)
    Medtronic (MDT)
    Nicholas Financial (NICK)
    Respironics (RESP)
    SEI Investments (SEIC)
    Sysco (SYY)
    UnitedHealth Group (UNH)
    Varian Medical Systems (VAR)
    WR Berkley (BER)
    I’ll start tracking their performances on January 1. As the rules say, I can’t make any changes for the entire year.
    You might think the list looks very familiar. Well, you’re right. I’ve only made five changes. Some of you might be surprised but such little activity, but it’s actually quite reasonable. This implies a holding period of four years. Investing is one of few areas where doing nothing is often the best thing that needs to be done. And frankly, I like to think of myself as a pioneer in the field of idleness.
    The five stocks I’m removing are:
    Brown & Brown (BRO)
    Dell (DELL)
    Expeditors International (EXPD)
    Home Depot (HD)
    Wachovia (WB)
    The new additions are :
    Amphenol (APH)
    Nicholas Financial (NICK)
    Graco (GGG)
    WR Berkley (BER)
    Jos. A Bank Clothiers (JOSB)
    I’ll discuss these stocks more in the days ahead. I’ll start tracking the new stocks at the start of the year. Just like this year, I’ll consider the stocks to be equally weighted on January 1.

  • CPI Unchanged in November
    , December 15th, 2006 at 9:25 am

    Today’s CPI report shows that consumer prices didn’t change during November. Both the headline and core numbers came in flat. This is good news for Bernanke’s credibility. In July, he testified that core CPI would fall later this year.
    image371.png

  • Safety Insurance Group (SAFT)
    , December 14th, 2006 at 4:20 pm

    I’m not recommending Safety Insurance Group (SAFT), but I wanted to show you another “dull” insurance stock that’s been a huge winner for investors. The company has a market value of $840 million, and it’s only followed by three analysts.
    Not a bad chart:
    SAFT.gif

  • Morning Notes
    , December 14th, 2006 at 10:49 am

    Today is a huge day for the market and our Buy List. The Buy List is now up over 12% for the year. Thirteen of our 20 stocks are up over 1% today. FactSet (FDS) is at a new 52-week high, as is Biomet (BMET). We’re still waiting for any big announcements from Biomet (nothing less than $45!) on the merger front.
    I also want to remind you that tomorrow I’m going to unveil the Buy List for 2007. Can you feel the excitement? Great, me too! We’ll start tracking the new list on January 1.
    Yesterday, Danaher (DHR) said that it expects earnings next year in a range of $3.68 a share to $3.78 a share. That means that it’s going for about 19 times next year’s estimate. The company also narrowed its fourth-quarter range to 92 cents to 94 cents a share, from 89 cents to 94 cents a share. Home Depot (HD) announced that it’s buying China’s The Home Way. This is HD’s first move into China.
    Finally, Mark Gilbert looks at how investment banks advertised themselves.

  • A Three-Way With Playboy Playmates….
    , December 14th, 2006 at 10:08 am

    It looks like it’s a three-way race to win the 2006 Playboy Stock-Picking Contest. With just two weeks left, here are the top three competitors:
    1. Courtney Culkin +36.38%
    2. Amy Sue Cooper +34.80%
    3. Deanna Brooks +34.69%
    I have a feeling this will come down to the wire. Good luck, ladies!

  • A Theory of Investment Banking
    , December 13th, 2006 at 10:31 pm

    Arnold Kling asks, “Why Aren’t There More Investment Bankers?”
    It’s an interesting question. Given the compensation, why doesn’t the demand overwhelm supply. Kling suggests that supply and demand are, indeed, out of balance — the wannabe bankers have too little self-respect.

    I think you have to come up with a story about barriers to entry. One plausible story that occurs to me is that some highly-remunerated aspects of investment banking require experience. For example, if a corporate client is involved in a megabucks merger, the client cannot afford a mistake. So the client would pay a premium to have an experienced M&A (mergers and acquisitions) team.
    The scarce resource in M&A is the experienced investment banker. The barrier to entry is that you cannot get experience without doing big deals, and you cannot do big deals until you get experience.
    What that suggests is that if you are young and greedy, you would pay an investment bank to give you experience. And in fact, young investment bankers do feel exploited–working incredibly long hours, doing tedious stuff, and toadying up to people in a way that no self-respecting intelligent person would otherwise be willing to do. In return for that exploitation, you earn a decent living, but more importantly, you get the experience that gives you a chance to work/luck your way into the ranks of the truly rich.