Archive for September, 2006

• The Butler and Insider Trading
  Eddy Elfenbein, September 27th, 2006 at 9:13 am

  The New York Times reports on an insider trading case. It turns out, the butler did it.

  On Aug. 11 and Aug. 12, 2004, Mr. Sillerman’s Manhattan office faxed documents on the buyout to the poolside office of his home in Southampton, including a draft press release and, later, a written consent form. “As the house manager,” the complaint says, Mr. Lefford “managed the day-to-day affairs” of the house and performed other services “traditionally done by a butler.” As such, he handled confidential business documents for Mr. Sillerman.
  On Aug. 12 at 10:20 a.m., Mr. Lefford faxed over the signature page of the consent agreement to Mr. Sillerman’s Manhattan office. Twelve minutes later, according to the complaint, Mr. Lefford bought 5,000 shares of Sports Entertainment stock, which traded on the over-the-counter bulletin board, through a brokerage firm account he held with his wife. He paid 12 cents a share.
  When the three-way deal was announced on Dec. 16, 2004, Sports Entertainment’s stock price rose to $6.41 a share. Mr. Lefford sold his holdings a few days later at prices ranging from $9.25 to $10.50 a share.

• Cause & Effect
  Eddy Elfenbein, September 26th, 2006 at 10:24 pm

  
  Modesty naturally prevents me from claiming sole credit for TER*. Other factors may deserve some attention.
  ——————————
  * The Elfenbein Rally

• The Ultimate in Stock-Picking Technology
  Eddy Elfenbein, September 26th, 2006 at 1:51 pm

  Ticker Sense informs us that Birinyi Associates has unveiled the latest in stock-picking technology:
  
  It goes for $89.95 (or two for $150). Don’t delay. My in-depth technical analysis indicates this price could be the beginning of long up-trend.

• 67-Month High
  Eddy Elfenbein, September 26th, 2006 at 11:44 am

  The S&P 500 just broke 1,330 for the first time since February 2001. Interestingly, the Wilshire 5000 just broke 13,300. The two index values are almost perfectly aligned at 10-to-1. By market value, the S&P 500 makes up about 73% of the Wilshire 5000.
  Here’s a graph of the Wilshire to S&P ratio since 2001:
  
  You can see how the small-cap rally has altered the ratio.

• Danaher in Preliminary Talks with Vision Systems
  Eddy Elfenbein, September 26th, 2006 at 10:46 am

  Danaher (DHR) has confirmed that it’s in preliminary talks with Vision Systems of Australia.
  Austalia’s The Age has more on the bidding:

  The battle for control of Vision Systems is expected to intensify after the entry of a third bidder willing to offer about $2.50 a share for the medical instruments company.
  The new bidder is expected to be Danaher Corporation of the US state of Washington (No, mate. Danaher is based in Washington, DC). Danahar makes a variety of instruments, tools and dental diagnostic equipment. Danaher could table a bid “within a matter of days”, according to The Wall Street Journal.
  An offer of $2.50 would give Vision a value of about $530 million and eclipse earlier indicated offers from Ventana Medical Systems and Cytyc Corporation.
  Investors yesterday pushed Vision’s shares up 3¢ to $2.54.
  Vision directors last night said they had not endorsed any offer from Cytyc and therefore the Ventana merger proposal was still live. They warned shareholders not to accept the Cytyc on-market offer.

• Viet Dinh on Patricia Dunn
  Eddy Elfenbein, September 26th, 2006 at 10:29 am

  If you have a chance, I recommend you read Viet Dinh’s article in the WSJ today on Patricia Dunn (it’s a paid link). Here’s a small bit:

  So the whole thing boils down to Mr. Keyworth deciding to speak favorably to a reporter without asking for permission. The answer to this question of authority is not self-evident as a legal matter. The chairman of the board is first among equals — entrusted with the responsibility to set agendas, conduct meetings and interact with management. But each board member individually owes a legal duty to act in the best interests of the corporation, a personal duty that cannot and should not be delegated or transferred to anyone else.
  It is true that unauthorized disclosures of board information would violate a mutual commitment of confidentiality that H-P directors made to prevent such disclosures following the ouster of Carly Fiorina as chairman and CEO. This is a serious matter, but one that could and should be handled, as Mr. Perkins suggested to Ms. Dunn early on, by a direct personal conversation with the directors. It is therefore understandable for Mr. Keyworth to reportedly exclaim, when confronted with the CNET investigation results, “I would have told you all about this. Why didn’t you just ask?”

• Walgreen: Still Too Expensive
  Eddy Elfenbein, September 25th, 2006 at 3:28 pm

  Shares of Walgreen (WAG) are getting nailed today as the company reported earnings of 41 cents a share, which was in line with Wall Street’s estimate. But judging from today’s price action, I think it’s safe to say that someone out there was expecting a little more. Even though the stock is down on in line earnings, I’m still taking a pass on Walgreen.
  With the latest earnings, Walgreen’s price/earnings ratio falls to about 26. CVS (CVS), on the other hand, is trading at 19 times earnings. No matter how you slice it, I just don’t see how Walgreen can justify a 36% valuation premium, (not that I like CVS either).
  Both companies face a new challenge–Wal-Mart (WMT). The Beast from Arkansas announced that it will now start selling generic drugs. Wal-Mart is legendary for beating the competition in any new market it enters. Actually, “beating” is a rather kind word. Wal-Mart thoroughly annihilates the competition. Then dances on their grave.
  The company is starting small and only focusing on the Tampa Bay market. But if it goes well, Wal-Mart could expand the program. This is a very profitable sector; Walgreen’s stock is up around 600-fold in the last 32 years. Also, in addition to Wal-Mart, competitors like Target (TGT) could jump in. This won’t have much of a short-term impact on either CVS or Walgreen, but it’s another risk factor weighing on both stocks.

• Goldman and Morgan Are the Winners in Amaranth’s Fall
  Eddy Elfenbein, September 25th, 2006 at 11:20 am

  Well…they lost the least.

  Securities firms are poised to earn about $8 billion on prime brokerage to the $1.2 trillion of mostly unregistered pools of capital that let managers participate substantially in the gain or loss of the money invested. Goldman and Morgan Stanley will collect the most fees, as well as market insights, for providing services to hedge funds, according to Celent LLC, the Boston-based firm founded in 1999 to provide research and consulting advice to financial-services companies.
  “It looks like there has been no fallout for the prime brokers,” said Michael Holland, who manages $4 billion at New York-based Holland & Co. Amaranth “makes those businesses look much more attractive rather than less attractive.”
  That wasn’t so apparent eight years ago, when Long-Term Capital Management LP collapsed on inauspicious trades after banks allowed the hedge fund to leverage its $2.3 billion of capital into a portfolio of about $125 billion of securities. The New York Federal Reserve organized a $4 billion bailout and regulators urged Wall Street to limit lending and monitor the risks that its clients are taking.

• The Invaluable Consultant
  Eddy Elfenbein, September 24th, 2006 at 4:38 pm

  
  toothpastefordinner.com

• Blodget on Amaranth
  Eddy Elfenbein, September 24th, 2006 at 2:34 pm

  In Slate, Henry Blodget looks at the Amaranth blow-up:

  The only plausible conclusions that can be drawn from the crackups of Amaranth, et al, are that 1) they didn’t know the risks they were taking, or 2) they knew and didn’t care.

  He thinks more are on the way, and I agree.