Archive for July, 2007

• Dow Jones & News Corp. Reach Possible Deal
  Eddy Elfenbein, July 17th, 2007 at 7:36 am

  It could really be happening. The Dow Jones (DJ) board will be meeting tonight to decide on Rupert Murdoch’s $5 billion offer.
  This deal should have happened three months, but it’s been needlessly held up by members of the Bancroft family. Murdoch offered them a 67% premium for a stock that has done nothing for years. No, that wasn’t good enough for them.
  The problem is these super voting shares of stock give unfair say to family members. These shares, which have ten times the voting power of regular shares, are perfectly legal, but I don’t see how much good comes from them.
  Christopher Bancroft is trying to sink the deal by running to every hedge fund manager so he can buy more super-voting shares. Time is running out and I hope the board approves Murdoch’s offer. Ultimately, a company should be run by its shareholders.

• KKR Cancels Loan Deal for Maxeda
  Eddy Elfenbein, July 16th, 2007 at 10:49 am

  Here’s a small story that could be the start of a much larger story (cue scary music).
  Kohlberg Kravis Roberts just canceled plans to sell $1.4 billion in loans for Maxeda, a Dutch department store. The reason is that investors are turning away from risky debt. This could snowball as risk-averse investors gradually turn away marginal borrowers. People who were burned on subprime don’t want it to happen again.
  Bloomberg reports:

  The deal is the third to be postponed or restructured by KKR in as many weeks as losses from the U.S. subprime mortgage rout make investors wary of financing leveraged buyouts. New York-based KKR is trying to raise 9 billion pounds ($18 billion) this week to finance its takeover of Nottingham, England-based drugstore chain Alliance Boots Plc.
  KKR abandoned the debt sale for Amsterdam-based Maxeda after failing to entice investors by reducing prices for the debt and introducing covenants to restrict future borrowing. Citigroup Inc. and ABN Amro Holding NV have guaranteed to provide the financing.
  “Due to current volatility of the credit markets, Citigroup and ABN Amro have decided to postpone syndication to a later stage when they expect markets to have stabilized,” Maxeda spokesman Arnold Drijver said today. The company’s financing “is in place,” he said.

  I wish them well. The sad part is that they’re being punished for the lousy decisions of others.

• Waitress Wins CNBC Stock-Picking Contest
  Eddy Elfenbein, July 16th, 2007 at 7:08 am

  Congratulations to Mary Sue Williams of St. Clairsville, OH.
  The waitress and former welder (no really) won CNBC’s Million Dollar Portfolio Contest. Williams said she’s never watched the network or bought a stock in her life. Somehow, she overcame this to win the contest (that’s sarcasm).
  By the way, several contestants were disqualified for cheating. I’m guessing they have bought stocks and watch CNBC all the time.

• Robert M. Solow on Joseph Schumpeter
  Eddy Elfenbein, July 14th, 2007 at 11:51 pm

  From the New Republic:

  In my view — and that of most contemporary economists, I believe — Schumpeter’s most original and most lastingly significant book was Theory of Economic Development, which appeared in 1911 (and was translated into English in 1934). It was at the University of Czernowitz, not far from the beginning of his career as an economist, that he worked out his conception of the entrepreneur, the maker of “new combinations,” as the driving force and characteristic figure of the fits-and-starts evolution of the capitalist economy. He was explicit that, while technological innovation was in the long run the most important function of the entrepreneur, organizational innovation in governance, finance, and management was comparable in significance.

• The Stock Market Moves Closer to Fairly Valued
  Eddy Elfenbein, July 13th, 2007 at 6:19 am

  According to the “Fed Model,” the stock market is still undervalued but a lot less than it was a few weeks ago.
  Thanks to yesterday’s big market move and the recent uptick in long-term rates, the stock market is currently 12.5% undervalued according to the Fed Model compared with over 30% just four months ago.
  There are many variations on the Fed Model. For our purposes, I use the trailing twelve months of smoothed operating earnings and the 10-year Treasury bond. The current yield on the T-bond is 5.116% so the inverse works out to a P/E ratio of 19.55, and the market’s P/E ratio is 17.09.
  Here’s a look at the S&P 500 and the Fed Model.
  
  The market has been undervalued for five straight years.
  Preemptive Strike on Critics: No, I’m not saying this is the perfect measure of the market. It’s simply one measure (a good one) and should always be seen in context of other measures of valuation.
  Obviously, it can also be saying that the bond market is overpriced. Also, “overpriced” doesn’t have a big impact on what the market actually does. In fact, only when the market is 41% or more overpriced does history suggest that it’s worth selling.

• Rahodeb Greatest Hits
  Eddy Elfenbein, July 12th, 2007 at 8:36 pm

  Earlier, it was reported that Whole Foods CEO John Mackey was posting under the name “rahodeb” on Yahoo Finance message boards.
  If you think I have so little to do but find his most obnoxious posts…you know me too well.
  Pull up a chair and an organic kumquat, here we go:
  #1:

  Thanks for your pity. I don’t need it though. If I told you how many shares in Whole Foods I actually own you wouldn’t believe me.

  #2:

  I like Mackey’s haircut. I think he looks cute! If his hair bothers you now you should have seen what it looked like 10 years ago! The guy was/is clearly into alternative lifestyles and is one of Paul Ray’s Cultural Creatives I outlined in my 2 posts to Hedge.

  You must not patronize any of WFMI’s stores. Tatoos, piercings, unusual dress, and interesting haircuts are everywhere in the stores. In comparison, Mackey looks like a model for Brooks Brothers!

  #3:

  Oh yes, “the John Mackey identity theory”. I’ve heard it a few times before on this Board. Believe it if you wish since it enhances the value of what I write.

  #4:

  Surgeon Genrl,

  I’ve stated my identity on this board before, but no one apparently believed me. I am George W. Bush and a long-time customer of Whole Foods Market. I own quite a bit of stock in the company and have owned it since the IPO back in 1992. HOG152 is my father, George H.W. Bush.

  Ideas are ideas, facts are facts, and arguments are arguments. They all stand (or fall) on their own regardless of their source. At the end of the day it doesn’t matter what my non-screen identity really is or what yours is or who anyone else’s is on this board. dcc7 has claimed that my true identity is John Mackey. You can believe that one or not. Doesn’t matter to me. If I really am Mackey then I’m the ultimate insider at Whole Foods and you would be well served to pay attention to what I have to say on this board. If you don’t believe I’m Mackey (admittedly the idea seems pretty far fetched) then you should still pay attention to what I have to say on this board if my ideas and arguments make sense. If they don’t make sense or you disagree with me–well that’s what bulletin boards like this are all about.

  #5:

  Hey, we aren’t a first name basis!

  I’m
  glad you’ve got a category for me! Gosh, so I’m a New
  Ager! I wondered what I was. Now that you’ve got a
  category for me I guess my ideas and arguments don’t need
  to really be taken seriously. FYI–I don’t think of
  myself as a “New Ager”. Where I live I will keep
  private. While I’m not a “Mackey groupie”, I do
  admire
  what the man has accomplished–building a $1.6 billion
  business from scratch is quite an achievement. What have
  you accomplished in comparison whtmewrry 99? If you
  want to understand WFMI’s past, current, and
  future
  success you will need to understand that there are about
  50 million adults in the United States who share
  very similar lifestyles and values to myself. Paul
  Ray’s research strongly supports this proposition. Who
  is Paul Ray? He has a Ph.D in sociology and
  is
  the executive vice president of American LIVES, a
  research firm in Oakland, CA. His 160 page study on the
  Integral Cultural Survey can be found at the Institute of
  Noetic Sciences–415-331-5650. His summary of this study
  was written in the February 1997 issue of American
  Demographics. Two recent articles by Ray can be found in the
  Natural Business LOHAS Journal–303-442-8983. He has a
  book on his research due to be published sometime
  in
  2000.

• Charge!
  Eddy Elfenbein, July 12th, 2007 at 7:28 pm

  
  I defended the bull market on October 25 when the S&P 500 was at 1382. I did it again on February 22 when the S&P was at 1456.
  Today, the S&P 500 closed at 1547.70.
  Here’s how the entire S&P 500 did today.

• Nice Turnaround
  Eddy Elfenbein, July 12th, 2007 at 2:24 pm

  
  Just 28 hours ago, the S&P 500 looked like it was going to fall below 1,500, and now we’re close to a new all-time high. The previous high was 1539.18 reached on June 4.

• It’s Over: Biomet Shareholders Accept $46 Offer
  Eddy Elfenbein, July 12th, 2007 at 12:50 pm

  They needed 75% and they got 83%.

  Biomet Inc. shareholders accepted a $11.4 billion buyout offer from a private equity consortium attempting to acquire the medical device maker.
  The consortium, LVB Acquisition LLC, announced Thursday that nearly 83 percent of Biomet’s shares were tendered. The company needed at least 75 percent for the deal to go forward. The offer expired midnight Wednesday.
  In June, LVB Acquisition offered $46 a share to buy the Warsaw, Ind.-based company, which closed the day prior at $45.48 per share. Biomet shares traded up 13 cents midday Wednesday to $45.92.
  The private equity group includes Biomet founder and former chief executive Dane A. Miller and affiliates of the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts & Co. and TPG.
  Biomet spokesman Greg Sasso said the deal would close by the end of the calendar year, but he declined to give a more specific time frame.

• John Mackey Channels Patrick Byrne
  Eddy Elfenbein, July 12th, 2007 at 11:14 am

  From DealBook:

  John P. Mackey, the co-founder of Whole Foods Market, has never lacked for personality. As it turns out, that was only the half of it. For seven years, Mr. Mackey had an online alter ego.
  Using the pseudonym Rahodeb — a variation of Deborah, his wife’s name — Mr. Mackey typed out more than 1,100 entries on Yahoo Finance’s bulletin board over a seven-year period, championing his company’s stock and occasionally blasting a rival, Wild Oats Markets, that his company later went on to buy. The story was first disclosed on The Wall Street Journal’s Web site last night.
  Responding to a posting on March 28, 2006, Rahodeb wrote: “OATS has lost their way and no longer has a sense of mission or even a well-thought-out theory of the business. They lack a viable business model that they can replicate. They are floundering around hoping to find a viable strategy that may stop their erosion. Problem is that they lack the time and the capital now.”
  Mr. Mackey apparently did not fool participants on the forum, who occasionally tried to out Rahodeb. In one instance, he responded by saying that he was in fact George W. Bush.
  The attacks were made on Yahoo! financial forums, under the name “Rahodeb,” and included such postings as “Would Whole Foods buy OATS? Almost surely not at current prices…What would they gain? OATS locations are too small.” Rahodeb also said Wild Oats’ management “clearly doesn’t know what it is doing.” The company, he wrote, “has no value and no future.”
  In February, Whole Foods announced it would buy Wild Oats for about $565 million, or $18.50 per share.
  Mr. Mackey declined an interview request from The Wall Street Journal but did post on the company Website saying that the F.T.C. was quoting Rahodeb “to embarrass both me and Whole Foods.” He also said: “I posted on Yahoo! under a pseudonym because I had fun doing it. Many people post on bulletin boards using pseudonyms…I never intended any of those postings to be identified with me.”
  Mr. Mackey’s post continued: “The views articulated by rahodeb sometimes represent what I actually believed and sometimes they didn’t. Sometimes I simply played ‘devil’s advocate’ for the sheer fun of arguing. Anyone who knows me realizes that I frequently do this in person, too.”