Rove, EBAY, Borders, Never Oversleep Again
– Love him or hate him, the guy knows what he is talking about..
– A good case for shares in EBAY.
– I got a great answer to my questions about Borders. This is a very good write-up.
– This is the greatest idea idea I have ever seen to cure the chronic oversleeper in your life..
Barnes and Noble (BKS) release holiday results today and based on what they reports, Bill Ackman must be getting nervous about his 10% stake in Borders (BGP)
Based on holiday sales results and January sales trends to date, Barnes and Nobel is reducing its earnings per share guidance to $1.57 to $1.76 and $1.81 to $1.99 for the fourth quarter and full year, respectively. Previous EPS guidance was $1.67 to $1.86 and $1.91 to $2.09, for the fourth quarter and the full-year, respectively. Although the company is reducing guidance based on fourth quarter performance and current trends, full-year guidance remains higher than the guidance provided at the beginning of the fiscal year due to the favorable results achieved during the first three quarters.
The thought process out there was that with all the lead paint recalls, the book sellers would have had a great holiday season as parents sought alternatives to the poison toys out there. It would seem that this did not come to fruition.
If the larger and better run operation is reducing guidance, one would be surprised in the “second fiddle” operator did not follow suit.
All this just begs questions from me. I have been trying in vain to figure what Ackman sees in Borders to begin with. That being said, in the last 5 days he has taken out “total return swaps” in Borders over 2 million shares. What does he know?
Much has been said about Ackman being a “slick salesman” and that may be true. It is also true that he a a very good investor and no dummy. There has to be an upside I just cannot see.
Anyone?
Disclosure: None
Ackman is no dummy I will admit but can anyone tell me what he sees in Borders (BGP)?
In an SEC filing late Tuesday Ackman’s Pershing Square followed last week’s total return swap transaction in Borders shares with another.
The Details:
. Pershing Square International, Ltd. (“PSIL”), entered into a cash-settled total return swap with a broker-dealer counterparty for a commission equal to $0.03 per notional share subject to such swap. The swap was entered into on January 8, 2008 and expires on August 5, 2009. Under the terms of the swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $9.7239 for each of the 1,770,100 notional BGP common shares subject to the swap (the “Swap Reference Shares”), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $9.7239 for each of the Swap Reference Shares, plus any dividends paid during the life of the swap.
I just don’t get it. Ideas anyone?
Disclosure: None
Almost 800 names hit the screener today. Here is a portion.
WSM Williams-Sonoma Inc 23.27
WFC Wells Fargo & Company 27.22
WEN Wendy’s International … 23.35
WB Wachovia Corp 35.51
WAG Walgreen Co. 34.24
TM Toyota Motor Corp 104.07
TGT Target Corp 47.70
SWK The Stanley Works 44.70
SWHC Smith & Wesson Hldg Corp 4.98
SHW The Sherwin-Williams … 54.53
SBUX Starbucks Corp 18.15
RUTH Ruths Chris Steak Hse Inc 8.13
RUBO Rubio’s Restaurants, Inc. 7.53
RT Ruby Tuesday, Inc. (G … 8.57
RSH Radioshack Corp 14.98
MBI MBIA Inc 17.75
JCP Penney (J.C.) Company … 37.16
JBX Jack In The Box Inc 23.18
JBLU Jetblue Awys Corp 5.17
HOG Harley-Davidson, Inc 42.64
HD Home Depot, Inc 24.77
DPZ Domino’s Pizza, Inc. 11.76
DOW The Dow Chemical Company 37.47
C Citigroup, Inc 28.13
BZH Beazer Homes USA, Inc 6.06
BJ BJ’s Wholesale Club, Inc. 27.43
BIG Big Lots Inc 13.78
BHE Benchmark Electrs Inc 15.68
BGP Borders Group, Inc 9.26
ANN Ann Taylor Stores Cor … 22.96
AN AutoNation Inc 13.81
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Pershing’s Bill Ackman entered into “total return swap” agreements 12/31 and 1/2 representing 429,000 shares in Borders Group (BGP)
Swap Details:
The reporting person, for the account of Pershing Square International, Ltd. (“PSIL”), entered into two separate cash-settled total return swaps with a broker-dealer counterparty for a commission equal to $0.02 per notional share subject to such swaps.
1.The first swap (the “First Swap”) was entered into on December 31, 2007 and expires on February 4, 2009. Under the terms of the First Swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $10.7415 for each of the 312,500 notional BGP common shares subject to the swap (the “First Swap Reference Shares”), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $10.7415 for each of the First Swap Reference Shares, plus any dividends paid during the life of the swap.
2. The second swap (the “Second Swap”), also for the account of PSIL, was entered into on January 2, 2008 and expires on February 4, 2009. Under the terms of the Second Swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $10.5534 for each of the 116,800 notional BGP common shares subject to the swap (the “Second Swap Reference Shares,” together with the First Swap Reference Shares, the “Reference Shares”), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $10.5534 for each of the Second Swap Reference Shares, plus any dividends paid during the life of the swap. In the case of both the First Swap and Second Swap, all balances will be cash settled and there will be no transfer to or from PSIL of voting or dispositive power over the Reference Shares.
This is a fascinating trade for Ackman. Readers may remember Sears Holdings (SHLD) Eddie Lampert in 2006 and early 2007 having similar transactions in an undisclosed security.
Disclosure: No position
Donate to the ValuePlays Project for KIVA
I am trying to understand what Bill Ackman sees in Borders (BGP)
According to a filing with the SEC, Bill Ackman’s Pershing Square Capital Management disclosed an increased 17.1% stake in bookseller Borders Group, up from 12%. Last week management said Q4 earnings, excluding restructuring charges, will exceed last year’s earnings from continuing operations of around $1.48 per share. Now that improvement is only about $1 million dollars, it is not like they knocked it out of the park here. They attributed the difference to both the fear of lead in toys and a strong best-seller lineup.
I noted this “no toy” trend last week in a “Black Friday” post that I observed very few toys being taken to the register at several locations.
Now, in an Oct. 9 SEC filing, Ackman’s Pershing Square said it did not believe its
“activities would effect a change of control” at the book seller. Simply put, Ackman is playing this as a ValuePlay story, not as an activist investor pushing for change at the top.
What to see in Borders? Shares trade at 1/2 their 52 week high and sit at $12 a each and CEO George Jones has ponied up $1.2 million for 100,000 shares in the past two months. After that? I just cannot find much. They sold off their UK operations, big box discounters like Wal-Mart (WMT) and Target (TGT) are crushing margins and online retailers like Amazon (AMZN) and Ebay (EBAY) are taking traffic the thought of a meaningful online business away from them. The only reason I can find to buy shares is in the hope they merge with Barnes and Nobel (BKS) who is actually making money. But, why would BKS want it? Borders does have almost no debt and about $1.10 a share in cash. Taking it over would not hinder the balance sheet at Barnes and Nobel.
It would enable them to sell off duplicate locations and effectively eliminate foot traffic competition. The FTC might have something to say about it but they so far have been unable to stop anyone who wants to merge so it is doubtful they would be able to actually do anything even if they did object.
Now, there must be something else there or Ackman knows something we don’t. The merger of the two have been rumored for about a year now and with both CEO’s buying shares in the company, that assures it is far off. The SEC would be all over both companies were a merger announced anytime soon after insiders were seen buying large amounts of shares on the open market.
Borders is a non-factor in the online game so that cannot be it. FY 2008 ending in Jan. will mark the second consecutive year the retailer has lost money and FY 2009 does not look all that much brighter. Sales for the past three years have been essentially stagnant. Personally, I love to read but book are the last thing I want to go to the store for. My first stop is online and borders.com does not even come to mind. This simply means that the economics of the company do not have a huge impetus to change anytime soon.
The environment they operate in is getting tougher, not easier and that does not bode well for a “turnaround” story. More digging is in order to find out what Ackman is thinking.
So, the initial early reports from Friday morning (pre 7am). Observations taken from locations in 4 separate towns in Massachusetts. Please leave your observations in the comments section.
Mobs:
Wal-Mart (WMT): Parking lot filled past capacity well before the 5am opening. Wal-Mart.com also makes them a bug winner today. I was able to pick up some things at the sale prices before I left the house this morning at 4:30am and saved a trip there to shop, enabling me to go to other stores. I used the “site-to -store” program and received free shipping.
Best Buy (BBY): Very impressive. Had its lot and the lot of the strip mall next to it filled and a huge line out front before 5 am opening
Moderate:
Target (TGT): A 6 am opening may have hurt as folks may have went to Best Buy or Wal-Mart for items prior to or instead of going to Target. Still had an impressive wait but an earlier opening probably would have brought in more shoppers. Left sales in the parking lot.
Sears (SHLD): Better that both JC Penny and Macy’s but behind Best Buy, Target and Wal-Mart. The good news for Sears? The Craftsmen tool and home appliance departments were filled to capacity and then some meaning they were selling high margin items. Sales staff said traffic was, and I quote, “wicked better than last year” (that is good). A 5am opening here helped.
Losers:
JC Penny (JCP) and Macy’s (M): In the same mall as Sears but their parking lots (the three store are spaced one in the middle and the other two are on either end) left much to be desired. Macy’s lot would have allowed a shopper to virtually park in front of the doors and JC’s was not much better. Not good.
Linens and Things:
Probably would have done better if they opened much later, at least they would have saved some money on labor and electricity. Since I could not see anyone shopping
Borders (BDG) / Barnes and Nobel (BKS): Most of these locations now have coffee shops in them both I passed were closed early. How well could they have done selling coffee to those waiting in line at the other locations? Think they could have lured some in? It was very cold in the Northeast this morning. File this under “opportunity lost”
Mattel (MAT): People were not buying toys probably due to the lead paint issues. Learning and video games were flying off the shelves (good for Leapfrog (LF)).
Other winners:
Microsoft (MSFT): The “Zune” was sold out at most locations and those that still had it where getting top dollar for it (and it was still selling).
50/50 Results:
Apple (APPL): 8GB iPods were sitting on the shelves but the 4GB were all gone at most locations (nanos). iTouch sales were, again I quote, “not as good as the Zune”. It should be noted though that these observation are NOT at Apple stores but other retailers so one cannot commit either way. Mac’s were selling “very well”.
Anytime the largest shareholder of a company goes on a buying spree like Barnes and Noble’s (BKS) Leonard Riggio did recently, I have to look closer.
Riggio, who bought 100,000 shares both in August and September, bought an additional $11.3 (approximately 420,000 shares) million dollars worth in October. This bring his total stake in the company to 24%. Much like Sear Holding’s (SHLD) Eddie Lampert’s buying spree this summer, when people intimately involved in the company cannot seem to buy enough shares, you have to be interested.
If you recall Barnes and Noble in August predicted a more optimistic outlook than was previously thought and about this time Riggio began his buying spree. On has to infer from this that the future for BKS may be even rosier that predicted in August. For those hoping for a Barnes and Noble and Borders (BGP) merger, this news ought to put a damper on those expectations. Were a merger or other collaboration to be announced anytime in the near future, Riggio’s purchases was be reduced to simple insider trading ahead of the announcement. That does not mean it will not happen, just that it will not happen anytime soon.
I am going to look closer here over the weekend and get back next week….. I am very intrigued though..
It seems every biofuel producer is near a 52 week low EXCEPT ADM..
VSE Verasun Energy Corp 10.75
USBE US Bioenergy Corp 8.25
WOS Wolseley Plc 16.38
WNS Wns Holdings Ltd 16.56
WERN Werner Enterprises Inc 17.12
TMS Thomson 14.62
THRX Theravance Inc 24.90
SPLS Staples Inc 21.39
SPF Standard Pacific Corp 6.02
RHI Robert Half Internati … 29.60
RECN Resources Connection Inc 22.36
RCRC Rc2 Corp 27.01
RAIL Freightcar Amer Inc 38.93
PTRY Pantry Inc 28.58
PEIX Pacific Ethanol Inc 8.54
MSSR Mccormick & Schmicks … 19.69
MRLN Marlin Business Svcs Corp 14.63
MNI McClatchy Newspapers, Inc 19.71
MGPI Mgp Ingredients Inc 11.55
GPRE Green Plains Renewabl … 10.84
BIOF Biofuel Energy Corp 5.50
CC Circuit City Stores, … 7.92
CAO Csk Auto Corp 10.53
CALC California Coastal Cm … 12.40
AVR Aventine Renewable Energy 10.36
BGP Borders Group, Inc 12.27
WOS Wolseley Plc 16.43
WERN Werner Enterprises Inc 17.30
USBE US Bioenergy Corp 9.01
SEH Spartech Corporation 16.54
RYL The Ryland Group, Inc 22.64
PLCE Childrens Pl Retail S … 24.79
PIR Pier 1 Imports, Inc 5.41
PEIX Pacific Ethanol Inc 9.25
MTH Meritage Homes Corp 15.45
MNI McClatchy Newspapers, Inc 20.30
ISCA International Speedwa … 46.12
CC Circuit City Stores, … 8.11
BGP Borders Group, Inc 13.50
HHS Harte-Hanks Communica … 21.11
HAR Harman International … 79.85
GPRE Green Plains Renewabl … 13.02
Here are today’s 52 weeks lows. If you own a regional bank, homebuilder or mortgage company, even though they are not here, assume they also hit a new low. I am sick of putting them here everyday.
USG Corporation
TZOO Travelzoo Inc
TRB Tribune Company
TRMP Trump Entertainment
TBL The Timberland Company
SMRT Stein Mart Inc
PSA Public Storage, Inc
NFLX Netflix, Inc
MSO Martha Stewart Living
LZB La-Z-Boy Incorporated
JRC Journal Register Co
JNY Jones Apparel Group
GCI Gannett Co.
FIG Fortress Investment
FBN Furniture Brands
CFC Countrywide Financial
CC Circuit City Stores
BGP Borders Group, Inc
Borders Group (BGP) was downgraded to Sell from Neutral at Goldman Sachs. The firm believes a merger with Barnes & Noble (BKS) is less likely following the FTC’s decision to oppose the Whole Foods Market (WFMI) and Wild Oats Markets (OATS) deal. This kind of like comparing apples to, well, books.
In 2006, Amazon (AMZN) sold over $7 billion worth of books worldwide and a combined Borders / Barnes & Noble would sell about $8.5 billion. What is being overlooked here is the # of duplicate stores that would need to be closed, affecting total sales. This is not a 1+1=2 equation. This is more of a 1+1=1.5 equation.
What would be improved from the merger would be profitability, rather that size. Borders is currently going downhill fast and has not had a profitable quarter in over a year now. Cash flow, negative in 2004 and 2005 was positive in 2006 only because of $317 million in borrowing. Borders need to merge to survive, not create a powerhouse. With national bookstore sales declining and less than 10% of it’s books sold online (Borders jointly owns it’s site with Amazon), a Barnes & Noble-Borders combination is not going to challenge Amazon anytime soon, it just assures they survive.
In 2006 Borders lost $73 million (and looks to lose more in 2007) and Barnes & Noble had a $150 million profit. Those are not exactly monopoly fear inducing numbers when you compare it to the $460 to $590 million in profits Amazon projects. Of course not all of that is book, 70% of Amazon’s revenue is from books. Even a conservative estimate places it’s profit from books at over twice that of Barnes & Noble. Monopoly considerations are almost always due to consumer pricing concerns, Amazon dictates pricing to both Borders and Barnes and Noble, a combination of the two will alleviate cost pressures and enable the combined entity to better compete with Amazon on price and customers will benefit, thus the FTC would approve the merger with certain considerations. Heck, if they just wait long enough, Borders will probably go under and Barnes & Noble can just pick it up on the cheap.
Would there be divestitures? Sure. Would the combination be more profitable? That would be the point of doing it, right?
Would I be an investor in either now? Hell no. But not buying shares based on FTC concerns is misplaced.
