http://www.ft.com/cms/s/0/540d41c2-009f-11e0-aa29-00144feab49a.html#axzz17PIFVPam
In yesterday's FT there was an article by JC Junker and G Tremonti outlining a proposal for the EDA (to be created European Debt Agency) to issue "E-bonds" up to 40% of eurozone GDP.
They also suggest that there be a switch option for holders of eurozone member sovereign debt.
"
The conversion rate would be at par but the switch would be made through a discount option, where the discount is likely to be higher the more a bond is undergoing market stress. Knowing in advance the evolution of such spreads, member states would have a strong incentive to reduce their deficits. E-bonds would halt the disruption of sovereign bond markets and stop negative spillovers across national markets.
"
For some reason they believe that Eurozone countries would treat the EDA in a superior way to the private market creditor, even though the EDA wouldn't have the bark of refusing to buy more debt, or politically the teeth of being a local voter when it came to a default.
"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design" Hayek, could not seem more appropriate.
The "cure" to reckless sovereign borrowing, buyers ignoring risks and moral hazard is obviously to create another EU body, with a more complex system, with even less market discipline?
Tuesday, 7 December 2010
Tuesday, 30 November 2010
"Seagate Technology Terminates Private Equity Discussions And Announces Share Repurchase Authorization"
http://www.seagate.com/ww/v/index.jsp?locale=en-US&name=private-equity-termination-repurchase-seagate-pr&vgnextoid=6692a92cf699c210VgnVCM1000001a48090aRCRD
Interesting the company instantly announced a share buyback, however the Raven is skeptical as to much many share will actually get bought back and when given that they intend to do it out of future cashflow. $2bn would be ~154mm shares, approx a third of the company!
Leverage?
Just for giggles where would that take the leverage of the firm? The Raven thinks its quite possible for their margins to fall to 15% then using 4yr average revenue and SGA, we're talking EBITDA of $1.3bn. Current assets cover long term debt and current liabilities currently, so leverage would be 1.5x still investment grade. but 10% margin and its 2.7 and we're getting to the covenant zone. Its not clear that its a lock either, there are strategic hurdles and a cash rich competitor, maybe levering up isn't the smartest trade.
So what are historical returns for announced huge buybacks?
Ok there aren't many companies that announce they're going to buy back a third of the company. Interpolating the stats isn't too easy, as two factors tend to drive returns, size of announcement and completion rates, which in this case are contradictory, top decile announcement size and probably lower quartile completion rate. Looks like about a 3% pop on the announcement, and another 5% over the year.
How much fat was on this puppy?
Punters are going to compare it to where WDC has traded, however its very clear that WDC priced in its own possible LBO on the back of the STX news, because taking a historical ratio of where they traded would indicate that STX was already at fair value to WDC before last nights announcement. Perhaps the trade on th open for the Raven will be to cover his very small STX short and sell some WDC, we shall as always check the price action at the time.
Interesting the company instantly announced a share buyback, however the Raven is skeptical as to much many share will actually get bought back and when given that they intend to do it out of future cashflow. $2bn would be ~154mm shares, approx a third of the company!
Leverage?
Just for giggles where would that take the leverage of the firm? The Raven thinks its quite possible for their margins to fall to 15% then using 4yr average revenue and SGA, we're talking EBITDA of $1.3bn. Current assets cover long term debt and current liabilities currently, so leverage would be 1.5x still investment grade. but 10% margin and its 2.7 and we're getting to the covenant zone. Its not clear that its a lock either, there are strategic hurdles and a cash rich competitor, maybe levering up isn't the smartest trade.
So what are historical returns for announced huge buybacks?
Ok there aren't many companies that announce they're going to buy back a third of the company. Interpolating the stats isn't too easy, as two factors tend to drive returns, size of announcement and completion rates, which in this case are contradictory, top decile announcement size and probably lower quartile completion rate. Looks like about a 3% pop on the announcement, and another 5% over the year.
How much fat was on this puppy?
Punters are going to compare it to where WDC has traded, however its very clear that WDC priced in its own possible LBO on the back of the STX news, because taking a historical ratio of where they traded would indicate that STX was already at fair value to WDC before last nights announcement. Perhaps the trade on th open for the Raven will be to cover his very small STX short and sell some WDC, we shall as always check the price action at the time.
Thursday, 21 October 2010
$STX call
Company said they couldn't give future guidance or comment on PE approach given legality, which made for a short (if late and bland) call.
Interestingly they didn't participate in the "13th week", which $WDC had said was at twice the average rate of the prceding 12weeks. They think that the 13th week was busier because of pulled forward demand because of China's golden week, and quarter end dates.
$0.31 EPS and missed revenue.
49.2mm units (backs out ASP of $55) they said approx 8% q/q price decline. gross margin of 20.4%
'competitors more tenacious than years past'
long discussion on SSD's and hybrids in relation to notebooks, netbooks and MacBook Air.
general thoughts;
STX had popped up on the Raven's LBO candidates screen just based on historical numbers, however he'd excluded it because of the margin pressure and "third competitor" issue. To him it doesn't make sense for a PE firm to take such a big punt on storage when there are so many issues which management of the firm really don't have so much control over. Its also not apparent that higher financial leverage is either appropriate or adds value to equity holders. As the stories appeared in the WSJ its not to be written off lightly, there's a pretty good chance that a bid does materialize, and the rumoured price range is anything from $15 to $25. Anything above the 52w should be heavily mentally discounted.
FT article on Hitatchi Global Storage
Hitatchi is looking to sell its storage business, interestinly its lower margins and agressive attempts to take market share aren't helping the supply-demand imbalance. Strategically wouldn't it make more sense to buy the lowest margin competitor, accept market share and work on the cost base? the $1bn price tag for ~ $2.5bn of sales would value $STX and $WDC at $4.32bn and $3.84bn, or $9.15 and $16.76+$8.7=$25.5
Interestingly they didn't participate in the "13th week", which $WDC had said was at twice the average rate of the prceding 12weeks. They think that the 13th week was busier because of pulled forward demand because of China's golden week, and quarter end dates.
$0.31 EPS and missed revenue.
49.2mm units (backs out ASP of $55) they said approx 8% q/q price decline. gross margin of 20.4%
'competitors more tenacious than years past'
long discussion on SSD's and hybrids in relation to notebooks, netbooks and MacBook Air.
general thoughts;
STX had popped up on the Raven's LBO candidates screen just based on historical numbers, however he'd excluded it because of the margin pressure and "third competitor" issue. To him it doesn't make sense for a PE firm to take such a big punt on storage when there are so many issues which management of the firm really don't have so much control over. Its also not apparent that higher financial leverage is either appropriate or adds value to equity holders. As the stories appeared in the WSJ its not to be written off lightly, there's a pretty good chance that a bid does materialize, and the rumoured price range is anything from $15 to $25. Anything above the 52w should be heavily mentally discounted.
FT article on Hitatchi Global Storage
Hitatchi is looking to sell its storage business, interestinly its lower margins and agressive attempts to take market share aren't helping the supply-demand imbalance. Strategically wouldn't it make more sense to buy the lowest margin competitor, accept market share and work on the cost base? the $1bn price tag for ~ $2.5bn of sales would value $STX and $WDC at $4.32bn and $3.84bn, or $9.15 and $16.76+$8.7=$25.5
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