ValuePlays

Much has been said about what might be the next move for Archer Daniel’s Midland’s (ADM) US operations. We got a very interesting answer Friday.

There has been speculation that ADM maybe after another ethanol producer like Verasun (VSE) or Aventine (AVR) or even a jump to the west coast and a partnership with Bill Gates and Pacific Ethanol (PEIX). On Friday ADM may have given us a glimsp at their direction. Rather than adding more production (ADM already produces more than twice it’s closest competitor), ADM entered into an agreement to acquire the Fasco Mills Company in Illinois.

Fasco Mills is a family-owned grain and feed company operating one of the largest networks of grain elevators and rail shipping terminals in Illinois. Their thirteen grain elevators will dramatically increase ADM’s footprint tributary to the prime farm production areas of northern Illinois. The grain from these elevators will flow into ADM’s domestic and global processing and marketing network.

Matthew Jansen, president of ADM’s Grain Group, said “these elevators allow ADM to offer increased marketing alternatives to farmers in northern Illinois while securing the commodity flow for ADM’s biofuel, food and feed needs.”

Richard Zimmerman, chairman of Fasco Mills, said “our management team at Fasco has built significant value into these operations, and we feel that ADM’s diverse resources will further enhance their value to the farmer.” The parties expect the transaction to close on September 1, 2007.

To be honest I am a bit miffed at myself for not looking in this area sooner. Rather than go after another producer, what is ADM doing? Securing the corn! The recent high prices must have convinced ADM that the single most important move for them now is expansion to cheaper production areas abroad and securing feedstock at home. ADM is moving into Brazil very soon and this move, to be honest is brilliant. With the other, less diversified producers struggling now to cope with temporary high corn and low ethanol prices, only ADM is in a position to do deals like this.

What they have effectively done is secure lower cost inputs for their ethanol than their rivals and other grain products from the upper Midwest. This move basically corners the region for ADM. This is like Exxon (XOM) making a huge oil find in the US.

ADM is moving to control it’s corn cost for decades to come and at the same time, act a a toll bridge for the corn coming out of that area to other companies.

Nice. In the end what will be the most important, producing the most ethanol or controlling the corn that makes it? If you control the corn, you dictate ethanol profits, at least for the other companies. It at least guarantees you significantly remain the low cost producer of the stuff.

Here are this weeks dividend increases

Noble Corp (NE) = 100%

Republic Services (RSG) = 59%

Greenhill & Co. (GHL) = 52%

National Instruments (NATI) = 42%

Gannett & Co. (GCI) = 29%

Bank Of America (BAC) = 14%

Time Warner (TWX) = 13%

Reynolds American (RAI) = 13%

Anheuser – Busch (BUD) = 12%

Wells Fargo (WFC) = 10%

Again as Peter Lynch famously said “the are many reasons insiders sell shares but only one reason they buy, they feel the price is going up”.

Company and amount of insider purchases:

Jeffries Group (JEF) = $9,821,000
Gatehouse Media (GHS) = $6,605,000
Thornburg Mortgage (TMA) = $5,997,000
Allied Nevada Gold (ANV) = $5,614,000
Western Alliance Bancorporation (WAL) = $3,433,000

Here are todays cellar dwellers. Homebuilders actually escaped the list today

WMG Warner Music Group Corp
WCC Wesco Intl Inc
SIX Six Flags Inc
SHRP Sharper Image Corporation
RNWK RealNetworks Inc
ODP Office Depot, Inc
OB Onebeacon Insurance
LNY Landry’s Seafood Rest
FORR Forrester Research, Inc
FBN Furniture Brands

After watch shares in fellow PE guys that went public plummet, KKR has wisely pulled plans to list it’s shares. Both Blackstone (BX) and Fortress (FIG) are now trading almost 30% below their IPO prices. Why?

Democrats. Democrats are looking to take power in 2008 and are already sharpening their tax pencils with cigarettes, your dividends, your capital gains, oil companies and now private equity in the cross-hairs. Currently PE can classify earnings in a way that provides them with a 15% tax rate. Democrats want to change the rule and make it 35%. Why would anyone want to buy shares in a company whose tax liability may jump 125% in a year?

They wouldn’t, and aren’t.

Let’s just ignore that GAP (GPS) said when the board committee first launched its search it said that it intended to find an apparel merchant with “deep” experience in retail and merchandising.

GAPS new CEO comes from Canada, where much of his two decades of business experience is in grocery stores and book retailing. Glenn Murphy, 45 was unanimously chosen after a “rigorous process,” according to Gap’s recent statement. Murphy’s last job was a six-year stint as chairman and chief executive of Shoppers Drug Mart, Canada’s largest drugstore chain were he credited with leading the company through an unprecedented period of growth and shareholder returns. Before that, he spent time selling groceries and books. When he joined Shoppers Drug Mart, it was a mature retailer that was generating lots of cash from 800 stores. When he left, there were more than 1,000 stores and sales and productivity were dramatically improved as they turned in 22 straight quarters of increasing revenues and per-share profits. So, we know the guy can get results. But, can a grocery store guy sell clothes?

In a word, yes.

The problem with GAP as I have claimed several times before is not it’s merchandise but it’s operations. Too many stores with the same merchandise competing against each other (GAP and Old Navy) for dollars and not enough investment in the brand that has the most value and growth in it, Bannana Republic.

GAP does not need someone who can come up with the latest style to lead them what they need is someone who can allocate capital smartly to get the most out of what GAP already has. In my first GAP post in March I detailed how minor changes could produce good return for shareholders almost immediately. I also like that he is going to pony up $2.5 million of his own cash to buy shares this week.

Murphy has a track record of succeeding in this area. “Murphy implemented several innovative changes including altering interior layouts, converting the in-store cosmetics area to a destination, and elevating product mix to include luxury labels,” Citigroup (C) said on Murphy’s performance at his previous role in upgrading the retailer to a “buy”

What to do? Based on his past record a gambler should buy shares. Those will a little less risk tolerance may want to wait and here what he has to say on the subject..

All in all, I think this will end up being a good move for GAP.

I do not pretend to nor do I want to know how people come up with this stuff but it is interesting reading for you chart folks out there

Here it is

Here is a really interesting post on Sherwin Williams (SHW) and the power of a business’s attitude. I think not enough thought is given to the culture managers create and how the business either benefits or suffers due to that culture and the manager own attitude. It is a great read because it is transferable to any business and really does make you think about the subject.

Another nice job by Jane Genova (it that becoming redundant?)…

Please read it here

Same drill, homebuilders, financials and mortgage companies get whacked. Even though it is not on the list, assume yours may be near it.

WWE World Wrestling Entmt Inc
WMG Warner Music Group Corp
WLK Westlake Chem Corp
WFMI Whole Foods Market Inc
UTSI Utstarcom Inc
USG USG Corporation
SPF Standard Pacific Corp
SPC Spectrum Brands Inc
PNY Piedmont Natural Gas
PNRA Panera Bread Co
PEET Peets Coffee & Tea Inc
PAG Penske Automotive Grp Inc
ODP Office Depot, Inc
MYL Mylan Laboratories Inc
MOT Motorola, Inc
LZB La-Z-Boy Incorporated
KKD Krispy Kreme Doughnut
JNY Jones Apparel Group, Inc
HSY Hershey Foods Corporation
DTG Dollar Thrifty Automotive
C Citigroup, Inc
BX Blackstone Group L P
BSX Boston Scientific Cor
BSR Bear Stearns Cos Inc

Here is a great post that talks about WalMart’s (WMT) clothing issues. You can read it here