I was sprawled out relaxing and reached for Friday's Wall Street Journal. On page C3 was an article on Blackstone Group's soon spewing of Orbitz back into the public markets after less than a year.
It hopes to "raize" up to $750 million, and I suppose they will spin out the remaining portions of Travelport, the parent company, in due time and at maximum reward. After all, they have $4.3 billion to recoup, which means they probably have more like $6 billion they would like to recoup.
But reading on, we find that Orbitz has a "history of operating losses and said it would continue to incur significant sales and marketing expenses."
So here we have Blackstone offloading a company they took over, after a brief period, and without furthering the company's prospects at all. On top of that, according to the Journal, Orbitz will not receive any of the proceeds once tossed back into the public world.
Seeing a problem here? Cause I really see a problem here. And in the same paper we read of the $17.6 billion buyout of Freescale Semiconductor holdings, and how the private equity firms who now control it (including Blackstone) must figure out a way to balance debt payments they loaded on the company with the company's actual business prospects and cash flow.
In reporting the news, it is not necessarily the Wall Street Journal's task to comment on the rightness of any of this. Though we imagine someone should have eyebrows appropriately raised to high heaven.
Sunday, June 3, 2007
Shaking Wendy's
Let's chat about the Wall Street Journal for a moment. Monday's paper (4/30)--under the guise of financial insight--takes a look at Wendy's International, and how activist investors are once again trying to massage the stock upwards. This process is all sinister touch rather than loving care.
The problem with many of these activists, and hedge fund/private equity activists in particular, is that they are not always concerned about the long term viability of the business, but rather, a short term burst in the stock, or a method by which they can take control of the company, manipulate the balance sheet a bit and cash out, leaving the average bloke with not much more than what he had, perhaps a bit more efficient, with the efficiences going to pay off greater debt.
And it pains me to see Wendy's being mishandled in such a manner. Fundamentally it has a good product, and one I have been consuming for years. Never have spicy chicken sandwiches deserved such a precarious future.
The article mentions an investor who in 2005 built up a large enough position to push the company to sell off it's Canadian donut unit. That individual, founder of Pershing Square Capital, walked away with a 70% increase in the stock's price.
And yet here we are again, with people agitating for Wendy's to do something. Too often doing something financial (or something that causes immediate financial readjustments) is valued above doing something that actually creates long term benefit.
This time it's suggested that maybe Nelson Peltz, owner of Triarc, owner of Arby's, might have his hands around Wendy's, feigning a loving embrace.
One might think the Journal, or the commentary they allow in their paper, would be more suspect, or circumspect, about whether selling Wendy's to Arby's is actually good for Wendy's, or whether the immediate run up right now due to buyout speculation might ultimately mean ten years of failure or mediocre returns once sold.
The fact that the stock rose some 70% (according to the article) from April 2005 to late 2006 in the first activist moment, and is now still assumed to be ailing, with the original activist long gone, is rather telling. Nobody seems willing to let management focus on actually running the business.
Granted, management can do both, working on the actual product while seeking efficiences in its structure that reward shareholders. One certainly imagines that they can bite burger and sip shake in the same breath.
The bigger issue here is the reporting, the analysis. The idea of a sale to Triarc would surely--as it has been doing--loft the share price. But a sale to Triarc does not necessarily solve any problems in the fundamental business. Indeed if we are to recommend Triarc, the burger universe would have to have begun in September 2006 so as to remain oblivious to Triarc's mediorce performance in the preceding years.
Triarc can certainly bid for Wendy's and raise the share price, making nice returns for stockholders, but will the company's actual business be any better? Perhaps we should find Bill Ackman at Pershing. Maybe he has some answers, but I doubt it.
Our stock market is peaking, and it might be nice to have a monumental correction, if only to put the breaks on those who like to take companies into their own hands and for their own dark pleasure.
The problem with many of these activists, and hedge fund/private equity activists in particular, is that they are not always concerned about the long term viability of the business, but rather, a short term burst in the stock, or a method by which they can take control of the company, manipulate the balance sheet a bit and cash out, leaving the average bloke with not much more than what he had, perhaps a bit more efficient, with the efficiences going to pay off greater debt.
And it pains me to see Wendy's being mishandled in such a manner. Fundamentally it has a good product, and one I have been consuming for years. Never have spicy chicken sandwiches deserved such a precarious future.
The article mentions an investor who in 2005 built up a large enough position to push the company to sell off it's Canadian donut unit. That individual, founder of Pershing Square Capital, walked away with a 70% increase in the stock's price.
And yet here we are again, with people agitating for Wendy's to do something. Too often doing something financial (or something that causes immediate financial readjustments) is valued above doing something that actually creates long term benefit.
This time it's suggested that maybe Nelson Peltz, owner of Triarc, owner of Arby's, might have his hands around Wendy's, feigning a loving embrace.
One might think the Journal, or the commentary they allow in their paper, would be more suspect, or circumspect, about whether selling Wendy's to Arby's is actually good for Wendy's, or whether the immediate run up right now due to buyout speculation might ultimately mean ten years of failure or mediocre returns once sold.
The fact that the stock rose some 70% (according to the article) from April 2005 to late 2006 in the first activist moment, and is now still assumed to be ailing, with the original activist long gone, is rather telling. Nobody seems willing to let management focus on actually running the business.
Granted, management can do both, working on the actual product while seeking efficiences in its structure that reward shareholders. One certainly imagines that they can bite burger and sip shake in the same breath.
The bigger issue here is the reporting, the analysis. The idea of a sale to Triarc would surely--as it has been doing--loft the share price. But a sale to Triarc does not necessarily solve any problems in the fundamental business. Indeed if we are to recommend Triarc, the burger universe would have to have begun in September 2006 so as to remain oblivious to Triarc's mediorce performance in the preceding years.
Triarc can certainly bid for Wendy's and raise the share price, making nice returns for stockholders, but will the company's actual business be any better? Perhaps we should find Bill Ackman at Pershing. Maybe he has some answers, but I doubt it.
Our stock market is peaking, and it might be nice to have a monumental correction, if only to put the breaks on those who like to take companies into their own hands and for their own dark pleasure.
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