Similar to the Big Bank chart we ran on Monday, this graphic shows a series of mergers in the rail shipping industry over the past 50 years has led to the creation of four freight rail giants that now control 90% of all business.
>
Click to enlarge:
Its just a rumor, but WTF: Maybe Bank of America IS following part of our advice, spinning out Merrill Lynch in a sale. I assume this is a quasi-distressed sale, otherwise we’d see an IPO (but for market conditions).
Of course, a full blown pre-packged bankruptcy would be the better route. Remember, the bailouts were not about you or the economy or the financial system — it was all about rescuing big bond holders.
Here’s a reminder of our consistent advice going back to late 2008, most recently published August 28:
Imagine: What if we’d gone Swedish on banks like Citi and BofA — nationalize ’em, clean ’em up, spin them back out to the markets by placing them into a prepackaged reorganization (a polite phrase for bankruptcy). Here’s how that might have played out:
First, the easy stuff: Fire senior management. Not just the chief executive. Nearly the entire top floor at the bank, including the board of directors, is canned. Equity shareholders are wiped out. Whatever is left after all is said and done goes to the bondholders, typically, at 25 to 50 cents on the dollar. (In Sweden, bondholders got 100 cents on the krona, but that currency was significantly devalued. So the bondholders were not made whole; they lost 50 to 75 percent in real value.)
Temporary nationalization is the play: Uncle Sam provides debtor-in-possession financing to keep operating. All of the bad holdings, mortgages, derivatives and other liabilities are pulled out and auctioned off. This includes the bad real estate (REOs), the CDS/CDO book, defaulted mortgage obligations. Remember, there are no such thing as toxic assets, only toxic prices. At some valuation, these are worthwhile investments — just not 100 cents on the dollar. Let healthy buyers pay 15 to 30 cents. And anything that is worthless gets written down to zero.
Recapitalize the parent bank, and spin off each division: IPO Merrill Lynch for $20 billion. Spin out a clean Countrywide for maybe $8 billion. Sell off all the non-depository bank pieces.
What you have left is a well-capitalized bank, owned by taxpayers, with well-capitalized divisions as stand-alone companies. All of the above have transparent balance sheets. Eventually, everything gets IPO’d back to the public markets. Uncle Sam gets repaid, and whatever is left (if anything) goes to the bondholders.
Any buyers for Countrywide . . . ?
~~~
UPDATE: September 8, 201
WSJ reports Mother Merrill Staying Put
• Chinese Companies Embark on Shopping Spree in Euro (WSJ)
Time to put on the lawyer hat again:
As soon as this story broke, the immediate question was “Why would you be actively trading stocks for your own account when you work for Warren Buffett and recommend acquisitions?”
That seems fraught with potential for problems. Does anyone on Berkshire’s legal staff and/or compliance department have an iota of common sense? (Apparently not)
The second piece of silliness from the non-legal analyst community is that Buffett’s lieutenant Sokol was “trapped” by the Berkshire purchase of Lubrizol. That reads more like a defense attorney’s trial balloon than any sort of actual legal analysis.
We will surely learn more details in the future, but the facts we know are as follows:
1. You recommend a company for acquisition (repeatedly) to your employer
2. The company rejects it
3. You make a substantial share purchase for your own account
4. Your company makes the acquisition.
5. You keep your trade profits
That pattern does not suggest black letter insider trading. But it does reveal problematic decision making, and some very poor judgment. Not only is the trading for one’s own account an issue given Sokol’s job, but the fact pattern above, for a public company, is simply foolish.
I am curious: Did some Berkshire lawyer merely opine: “Well, technically, its not really insider trading.”
Consider the legal advice that should have been given. Once your employer agrees purchase a company that you recommended and then purchased, you have issues: Beyond the legal concerns, you have conflict of interest concerns, PR problems. (There is certainly the appearance of impropriety, but that is not a standard I believe Sokol is legally held to).
Better advice: Transfer your purchase to Berkshire on announcement of acquisition. The personal buys should be deemed “on the company’s behalf,” and you agree to transfer the shares to BRK. Perhaps they throw you a nice bonus for your troubles.
It is proactive approach, avoids any conflicts of interest, removes concerns about insider trading. End of problem, end of story.
~~~
One of the consistent things that surprise me in these sensational legal cases is how apparently poor legal advice by high priced legal talent can roil a company, and how following bad advice or ignoring good counsel leads to unpleasant surprises.
The flipside of this are situations that do not show up in public view. There are millions of decisions that don’t blow up in players’ faces, that reflect better advice, judgment, outcomes, etc. We do not hear about these because they do not cause a problem, and there is no media coverage.
Too bad we don’t get to quantify the data on legal advice on major corporate events. It would be nice to be able to see the batting records of major law firms and in house legal departments at the major investment banks . . .
>
CNBC’s John Melloy mentions what may be the best analysis I’ve seen on the “Charlie Sheen effect.”
It comes from Lou Kerner, a keen eyed analyst at Wedbush. (See chart above) Kerner notes that Sheen may be Twitter’s “Lazy Sunday” moment:
Content Creators #Winning
In December, 2005 a Saturday Night Live skit called Lazy Sunday was uploaded to Youtube. One week later, Lazy Sunday surpassed 2 million views and by the time NBC had the video removed, the Lazy Sunday clip had generated 7 million video views. Lazy Sunday launched YouTube into the spotlight and ten months later, Google purchased YouTube for $1.65 Billion.
Twitter had its Lazy Sunday moment on February 28th when Charlie Sheen created his @charliesheen Twitter account. In just over 25 hours, Sheen amassed over 1 million followers, making the @charliesheen account the fastest to ever reach 1 million followers and making Twitter headline news.
I couldn’t begin to pit a dollar value on Twitter using traditional metrics of revenue and profits; but between Egypt and Sheen, their “buzz factor” went up immeasurably. That makes a potential bidder more probable.
~~~
>
The recent a merger chatter between the NYSE and the Deutsche Börse got us wondering: How might life at the NYSE change under their new German management?
10. Effective immediately: No more bell ringing when Chairman David Hasselhoff has a hangover.
9. NYSE changes its tagline to “Das Equities.”
8. Sylvia Wadhwa on the cover of the annual NYSE Calendar
7. All Dark Pools will be delicious Bavarian Chocolate
6. Dick Grasso’s honorary new title: der Führer
5. Merger is the last of Germany’s wartime reparations to the Jews (And they really mean it this time!)
4. The new Art Cashin Biergarten presents ‘Stocktoberfest’!
3. Parisian counter-parties surrender rather than take the other side of trades.
2. Color-coded lederhosen for specialists, runners and floortraders.
1. Once a year, pretend Nasdaq is Poland and invade.
~~~
by Barry Ritholtz and Josh Brown
Any other changes we missed?
It’s day two of the $315 million AOL-Huffington Post deal and the non-news just keeps on coming. On the same day that there was $16 billion in M&A, we’re still talking about a tiny deal for advertising inventory. Tim Armstrong’s deal isn’t really the issue.
The most important takeaway from the deal is the limited valuation. No one, not HuffPo’s venture money or AOL or anyone else in the internet business, sees advertising as a business with growing margins. The valuation on Huffington Post is low because of the insistence on cash and the dark prospects for advertising in a world driven more by Groupon than by simple display ads.
Ok. Fine. Pretty boring business stuff that belongs in a couple of inside stories on the advertising and media industry. Instead we get a fixation on Arianna Huffington and willful mis-reading of her figurehead role at AOL. Take a look at the Washington Post story on the deal:
Always-charming, ever-clever Arianna Huffington became something else in the late hours after the Super Bowl on Sunday: a shrewd and unimaginably successful businesswoman. [...] Rough estimate of Huffington’s personal cut of the deal: $100 million, virtually all of it in cash, according to Wall Street analyst Laura Martin.
Really? Unimaginably successful for making $100 million in a world where a 20-something kid is worth several billion? Journalists have such meager imaginations, I guess. There are a bunch of self-made billionaires who are women who were able to imagine more than that (Oprah, J.K. Rowling, Meg Whitman)–and dozens more women who are not billionaires.
More to the point, that $100 million makes no sense. The cash deal was driven by Softbank. Arianna said on CNBC that she took 25% in stock. She suggested others did too. Even if she took all of the stock, that would max her take at $60 million.
There’s been speculation that with so much money in her pocket, Huffiington would be eager to leave. But that view requires a suspension of any knowledge of Huffington’s career and personality. She’s no editor and certainly not a manager. Her goal in starting the Huffington Post was to build a platform for herself.
That has worked out beautifully. Huffington regularly appears on all the shows and a the big conferences (the formal offer was made at Davos, enough said.) To appease her vanity, Armstrong had to give her the titular role as Editorial Director or the whole company. With her speaking schedule and need to be in on “the conversation,” AOL’s other properties don’t have to worry about Arianna’s meddling.
Viewed from the perspective of Huffington’s own ambitions to be a meaningful public figure, the Huffington Post has succeeded far beyond what anyone (especially Tina Brown) thought Huffington could achieve. Though I’m sure it has fallen short of Arianna’s own imagination. Here’s a woman who saw that the right was over-crowded with leggy firebrands and pulled off a careerist conversion to rebrand herself as a leftist.
As an editor, however, no one can point to the writer she’s discovered and championed. Indeed, there’s no success that comes out of the Huffington Post in pure content terms. Here’s Jack Shafer on Huffington’s relevance as a journalist:
How to account for Huffington’s remarkable success? If you’ve ever edited Huffington’s raw copy (I have) or read a galley of one of her books before the published version comes out (which I’ve also done), you know that she’s not much of a journalist. But instead of impeding her, those limitations actually gave Huffington an advantage over other sites—Slate included—that hewed to old-media standards. Old-media types don’t feel right about rewriting the copy of their competitors and calling it a story. Huffington glories in carving the meat out of a competitor’s story, throwing a search-engine optimized (SEO) headline on it, and posting it. She even claims to believe that she’s doing the originator a favor by sending traffic back to it via a crediting link.
So Huffington’s relevance to journalism is nil. It’s all SEO page views. And there’s a reason that the New York Times, which has fewer uniques than the Huffington Post according to many of the press accounts, is worth a lot more than $315 million even in its hobbled financial state today.
The Huffington Post, Ariana Huffington’s news and political focused website, has been acquired by AOL for $315 million — $300 million cash, the rest in stock.
Huff Po began in 2005 with a $1 million investment; it has since grown into one of the most heavily visited news Web sites in the country. The NYT called the deal “an unlikely pairing of two online media giants.” It is the company’s largest acquisition since the break up of AOL Time Warner in 2009.
In a surprise, Arianna Huffington will take control of all of AOL’s editorial content as president and editor in chief of a newly created Huffington Post Media Group. The Times notes she will have oversight not only of “AOL’s national, local and financial news operations, but also of the company’s other media enterprises like MapQuest and Moviefone.” The deal was signed on Sunday at the Super Bowl in Dallas, where Huffington and AOL CEO Tim Armstrong were watching the game.
AOL owns a series of well-known digital brands, including Mapquest, Politics Daily, the pop-culture news site PopEater, movie-news and ticket reservation service Moviefone, and the tech-news and review sites Engadget and TechCrunch, and local site Patch.com. This is at least the 5th acquisition by AOL since September 2010 (About.me, TechCrunch, 5min Media, Thing Labs).
>
Sources:
Betting on News, AOL Is Buying The Huffington Post
JEREMY W. PETERS and VERNE G. KOPYTOFF
NYT, February 7, 2011
http://www.nytimes.com/2011/02/07/business/media/07aol.html
>
The WSJ is reporting that the SEC is looking at specific Health Care takeovers that seemed to be tipped in advance to several big hedge funds. The chart (above) shows the extent and timing.
There are many legal reasons to have owned these names, but the issue here is whether or not the funds received material non public inside information about the takeovers from their “expert networks.” If that turns out to be the case — and so far, we do not know if it is — it would be problematic.
Are these so called expert networks nothing more than good old fashioned inside M&A information being exchanged for cash? If that was the case, there will likely be jail sentences . . .
>
Source:
Holdings Spiked Near Deal Time
JENNY STRASBURG, MICHAEL ROTHFELD, TOM MCGINTY and SUSAN PULLIAM
WSJ, December 2, 2010
http://online.wsj.com/article/SB10001424052748704377004575651260207181920.html
Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof. —John Kenneth Galbraith
Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by...
read more »
Tweet
Facebook
Reddit
Digg this!
