How to Get $1.2 Billion of Goldman Sachs Shares Without Really Trying (err, Paying)

Posted on April 8, 2013 by db

Warren Buffett’s Berkshire Hathaway and Goldman Sachs revise terms of warrants to provide for cashless exercise.

When everyone thought the financial world was crumbling and threatening to suck Goldman Sachs down along with it, Warren Buffett stepped up to the table and invested $5 billion in a tranche of Goldman’s preferred stock and got warrants to purchase common stock if they paid another $5 billion.

We are a bit late to this party [Ed.:  Not really, see comments to this Forbes article, where we lay down some knowledge and ask about the correction ], but in March, Goldman Sachs and Berkshire Hathaway changed the terms of the warrants allowing for net cashless exercise of the warrants.  In other words, Buffett gets to pay for the shares by having Goldman Sachs withhold other shares that would have been deliverable upon exercise if Buffett would have actually exercised with actual money.  Here is the money quote:

“Payment of the Exercise Price for the Shares thereby purchased will be made by having the Corporation withhold, from the shares of Common Stock that would otherwise be delivered to the Warrantholder upon such exercise, a number of shares of Common Stock equal to the Aggregate Exercise Price divided by the Average Closing Price.”

In English, Goldman Sachs will issue the number of shares based on the amount by which the average closing price (based on the average of the 10 trading days preceding October 1, 2013) exceeds $115/share.

By the Numbers

GS is trading at $142.57 at this writing.  Here is the deal assuming Buffett exercises at the current market price:

Before:

Number of   Shares Underlying Warrants

Exercise   Price Per Share

Goldman   Sachs Gets

Berkshire Hathaway   Gets

43,478,260

$115

$5 billion

 43,478,260 shares of GS   common stock
After:

Number of   Shares Underlying Warrants

Exercise   Price Per Share

Goldman   Sachs Gets

Berkshire Hathaway   Gets

43,478,260

$115

Zip*

 8,407,769 shares of GS   common stock** (current market value of $1.2 billion)

                                               

*Technical term.
**Calculated as 43,478,260-((43,478,260*115)/142.57)

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Can You Hear Me Now?* Paulson Joins Schoenfeld In Opposing MetroPCS/T-Mobile Deal

Posted on March 1, 2013 by db

*Yes, I know that is for Verizon, but neither company has such a snappy catchphrase.

Paulson & Co., of multibillion dollar mortgage short fame, owns about 9.9% of the MetroPCS outstanding stock, making it the largest shareholder. Paulson sent some static over the wires in a letter to the MetroPCS (PCS) board opposing its announced merger with T-Mobile because:

  • the deal structure packs on too much debt, more than double Verizon’s (VZ) debt as a ratio to estimated EBITDA
  • the interest rate on the debt (7%) is too high. Sprint’s (S) 7% 2020 notes only yield 4.2%, which itself is double AT&T’s (T) 2020 notes
  • the equity split with T-Mobile is unfair on the basis of MetroPCS’ contribution to the combined company’s value (42%) versus the MetroPCS shareholders stake in the combined company (26%). In addition, MetroPCS is doing well while T-Mobile is struggling

Paulson said they would support a restructured deal with less debt at a better interest rate.

P. Schoenfeld Asset Management LP, another large MetroPCS shareholder, has also opposed the merger and is soliciting proxies in opposition.

T-Mobile gets you fast songs. That should count for something.

Links:
Paulson & Co. Letter to MetroPCS
P. Schoenfeld Proxy Statement

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Just When You Think New York And The US Have Done All They Can Do To Force Capital to Flee Overseas . . .

Posted on February 28, 2013 by db

EU banker pay caps and “transparency” rules to prove a boon to EU financial market competitors.

The EU has capped banker bonuses and will require a “strict transparency regime.”  This proves that you don’t have you win if the other guy is trying to lose, unless there is a third player, such as Asia.

We can’t wait for the unintended consequences to arise, which they will.  How will the bankers game this system, which they will.

How about this for high comedy:

“As well as a prized bonus  cap, which would go into effect in January 2014, parliament also prevailed  in requiring banks to reveal their taxes and profits on a country-by-country  basis from 2015, as long as the extra transparency is not judged by the European  Commission as an impediment to inward investment.”

Translation:  We’re not going to tell you when we’re bailing ourselves out (*cough*Greece*cough*).

Here is an idiotic quote:

“Philippe Lamberts, the Belgian Green MEP who led calls for the bonus cap, said  the measures “will really bring down pay” in the sector. “Otherwise I can’t  explain the [negative] reaction of the industry,” he said.”

Duh, you think?  Does anyone across the pond understand the problem?  How bout Boris Johnson, mayor of London:

““People will wonder why we stay in the EU if it persists in such transparently  self-defeating policies,” Mr Johnson said in a statement. “Brussels cannot  control the global market for banking talent, Brussels cannot set pay for  bankers around the world.””

There you have it.  Talent will flee.  Those who figure out how to game the system will be the sediment that remains.  A recipe for “sustainability,” a stupid word that we bet was thrown around a lot during those negotiations.

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Corvex Is At It Again, Targeting Another REIT. This Time: CommonWealth REIT, Tag, You’re It

Posted on February 27, 2013 by db

Corvex and Related team up to take on CommonWealth, and it is getting messy.

When we last checked in on Corvex Management (run by a former Icahn protégé), it was busy creating some shareholder value at Corrections Corporation of America and advocating a REIT conversion.

Now, Corvex has teamed up with Related Fund Management, LLC, demanding that CommonWealth REIT (CWH) (i) immediately cease its proposed equity offering and debt repurchase, and (ii) enter into discussions with Corvex and Related regarding maximizing long-term value.

Corvex and Related also noted that they would initially be prepared to acquire all the outstanding shares of CommonWealth at a price of $25.00 per share (then a 58% premium), with the opportunity to increase the offer after completing due diligence.  CWH closed at $22.51 at the time of this writing.

In addition, Corvex and Related filed a complaint against CommonWealth and its Board of Trustees alleging, among other things, breach of fiduciary duties and asking the court to enjoin CommonWealth and its trustees from taking actions to implement the proposed equity offering; rescind the equity offering should it be completed; and enjoin CommonWealth and its trustees from taking further actions in violation of their fiduciary duties.

The spread between the trading price and preliminary offer price shows some pessimism on the part of investors that a deal would take place.  We can’t imagine that the CommonWealth trustees are particularly keen on working with Corvex and Related after the complaint.  However, well-funded and motivated activist shareholders with a track record of getting shareholder value should not be overlooked too quickly.

Hey Leonardo DiCaprio, Tag, you’re it, says the psycho. Or are you the psycho? Spoiler alert?

Links:
Corvex/Related Schedule 13D
Corvex/Related Schedule 13D/A

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Compuware Going Private?

Posted on February 26, 2013 by db

After previously sparring with Elliott Associates over a takeover offer, Compuware decides to take its ball and go home.  And invites Elliott Associates.

The always awesome Elliott Associates previously made a $3.2 billion bid for Compuware Corporation (CPWR).  The market took it seriously since the stock price hovered just below the $11.00/share offer price until late January when the stock price began to exceed the offer price.  At this writing, CPWR closed at $11.73.

Elliott claimed that its offer represented a premium of:

  • 25% over CPWR’s unaffected market value as of the date Elliott filed its Schedule 13D;
  • 21% premium over the 30-day volume-weighted average price (“VWAP”);
  • 24% premium over the 60-day VWAP;
  • 24% premium over the one-year VWAP; and
  • 15% over the then-current market value, which may have been substantially inflated as a result of Elliott’s 13D.

Compuware responded by spitting in the general direction of the offer price and putting forward a turnaround plan involving:

  • a $60 million cost reduction plan;
  • a spin-off of its Covisint subsidiary following an IPO of Covisint; and
  • a $0.50/share annual dividend.

Well, the turnaround plan does not seem to have been the bulwark against aggression that Compuware expected because reports are stating that Compuware has met with private equity firms regarding a deal to go private.  Named suitors include Blackstone, TPG Capital and Golden Gate Capital.

Guess who else may be in the mix.  Go ahead, guess.  Yes, Elliott Associates.

Elliott updated its Schedule 13D to disclose that it had entered into a confidentiality agreement with Compuware for Compuware to provide non-public information in connection with Elliott’s offer to acquire it.  The barbarians have kicked in the gate.  After all, they have their own navy now.

Links:
Elliott December 2012 Schedule 13D/A
Elliott February 2013 Schedule 13D/A
Compuware Press Release

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Linn Energy to Buy Berry Petroleum

Posted on February 22, 2013 by db

In the words of Tupac, the darker the berry, the sweeter the juice. What’s darker than the black gold, the Texas tea?

Linn Energy (LINE) and Berry Petroleum (BRY) have agreed that Linn will pick the Berry, with BRY holders receiving 1.25 shares of LINE for each share of BRY. This will be about a $2.5 billion deal.

More analysis to follow, we just found out.  In the meantime, have some Tupac:

And some Halle Berry:

Links:
Linn Energy Form 8-K

Disclosure: We own shares of LINE.

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Facebook To Make Use Of Its Risk Factor Relating To Cybersecurity Weaknesses

Posted on February 22, 2013 by db

Cross-posted from That’s Not Market and based on a news story from last week:

On Friday afternoon, Facebook announced that hackers had their way with some employee laptops. It said none of its users’ data was compromised, and that the attack occurred after some employees visited a website that infected their machines with malware.

The writer said that “It was not immediately clear why Facebook waited until now to announce the incident.” Why, oh why, would a company wait until Friday afternoon to release negative news? You may also wonder why the government waits until Friday afternoon to release economic news. So people can spend the weekend absorbing the information over the weekend free from the distractions of work, of course.

Facebook described these risks in its latest Form 10-K:

Computer malware, viruses, hacking and phishing attacks, and spamming could harm our business and results of operations.

Computer malware, viruses, and computer hacking and phishing attacks have become more prevalent in our industry, have occurred on our systems in the past, and may occur on our systems in the future. Because of our prominence, we believe that we are a particularly attractive target for such attacks. Though it is difficult to determine what, if any, harm may directly result from any specific interruption or attack, any failure to maintain performance, reliability, security, and availability of our products and technical infrastructure. Any such failure may harm our reputation and our ability to retain existing users and attract new users.

In addition, spammers attempt to use our products to send targeted and untargeted spam messages to users, which may embarrass or annoy users and make Facebook less user-friendly. We cannot be certain that the technologies and employees that we have to attempt to defeat spamming attacks will be able to eliminate all spam messages from being sent on our platform. As a result of spamming activities, our users may use Facebook less or stop using our products altogether.

The SEC has been focusing on disclosure of cybersecurity risks. Here is the release, which is exactly as exciting as it sounds.

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A Close Look At Apple’s Executive Compensation Disclosures . . .

Posted on February 21, 2013 by db

in our PRO Report.

Join Now!

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Starboard Value Nudges Office Depot To Create Some Shareholder Value. In Totally Unrelated News, Office Depot to Merge With OfficeMax.

Posted on February 20, 2013 by db

On September 18, 2012, we reported that Starboard Value was having a shredding party with Office Depot (ODP), announcing it owned over 13% of its shares and telling them how to run their business.  ODP closed at $2.59/share that day.  In that post, we mentioned that the good folks at Starboard would probably push for some sort of transaction by translating their public disclosure:

“Translation:  If ODP doesn’t do what we say and the stock price doesn’t rise, our intentions will be the opposite of what we just said.”  [Ed.: After discussing Starboard's assertion that it has not intentions toward a fundamental change.]

We also embedded the ultra-creepy Extenze commercial with a paper-thin attempt at relevance to the issue at hand.

Fast forward to February 19, 2013, Office Depot enters into a merger agreement with OfficeMax (OMX), and its stock price closes at $5.02/share.  Office Depot filed its Form 10-K today with the following as its only nod to the signficant development:

“On February 19, 2013, the Company entered into a definitive merger agreement (the “Agreement”) with OfficeMax Incorporated (“OfficeMax”), pursuant to which the Company and OfficeMax would combine in an all-stock merger transaction. At the effective time of the merger, the Company would issue 2.69 new shares of common stock for each outstanding share of OfficeMax common stock. In addition, at the effective time of the merger, the Company’s board of directors will be reconstituted to include an equal number of directors designated by the Company and OfficeMax. The parties’ obligations to complete the merger are subject to several conditions, including, among others, approval by the shareholders of each of the two companies, the receipt of certain regulatory approvals and other customary closing conditions.”

Well done, Starboard.

We should see the Form 8-K describing the terms of the merger in more detail within the next couple of days.

Links:
Office Depot Form 10-K

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Point to Einhorn, Greenlight In First Volley Of Apple Litigation Over Shareholder Meeting

Posted on February 20, 2013 by db

As we previously reported, David Einhorn and Greenlight Capital are unhappy with how Apple bundled some shareholder proposals for its upcoming annual meeting.  Specifically, it would remove some discretion from Apple’s directors before implementing Einhorn’s preferred method of returning cash to shareholders.  [Ed.:  Get it?  Read the original if you want to understand the lame pun.]

According to DealB%k, a federal court has said that it believes Einhorn may be right on the issue of whether the presentation of shareholder proposals in Apple’s proxy statement violated federal securities laws.  This is not a ruling on the merits, yet.  It appears to have been a hearing for an injunction on the annual meeting.  A ruling is expected soon.

Posted in Activist Investor, Apple, David Einhorn, Hedge Funds, Lawsuit, Shareholder Meeting, Shareholder Rights | Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , | Leave a comment