Archive for March, 2006

The American Dream

Me: “In my dream, I was on Survivor.”

My GF: “In my dream, I killed 6 people and your firm covered it up.”


A Letter to Our Shareholders: On Being Taken Over

Recently, Carl Icon, a noted corporate raider and greenmailer and Chairman of Liquid Icon Capital, LLC (“LIC”), announced his acquisition of a significant block of Long or Short Capital, LLC stock along with his intention to compel changes in management here at Long or Short.

Because we are happy in our cushy offices and enjoy our substantially over-inflated salaries and bonus plans ripe with inexorable options in a fictious stock, we have responded immediately to the threat to luxury with a multi-point takeover defense plan ready for instant implementation. This plan includes the following takeover defense measures:

  1. An aggressive “soft landing” for each member of the Long or Short team involving modest* severance packages in the event of any change of control in Long or Short. (Golden Parachute Defense).
  2. We have arranged with our present bank to increase our interest rate for the outstanding amount of debt we hold by 54% in the event of a change of control. We will, of course, split the interest with the bank, since it was our idea. (Bankmail Defense).
  3. The right of current Long or Short shareholders to buy current Long or Short stock at a deep (95%) discount if any takeover bid is mounted. (Flip-in Defense).
  4. A concentrated program of hysterical crying, drinking and sedative use during this highly stressful period. (Keith Richards Defense). We are also considering holding our breath until either we pass out or Mr. Icon goes away (Blue in the Face Defense).
  5. A one month** vacation in an undisclosed tropical location without extradition treaties with the United States for all the executives at Long or Short. (Skip Bail Defense).

We are highly confident that our superior management skills and expert spending ability will permit us to prevail over this vicious interloper whose only interest, and a shallow one at that, is superior returns for the paid-in shareholders of Long or Short.

Sincerely,

The Long or Short Management Team

Here we are in our corporate windbreakers

Back Row, Left to Right: Julia Mezzanine Tranche, Johnny Debacle, Mr. Juggles, Justice Steven Breyer
Front Row, Left to Right: Kaiser Edamame, Dr. Deep Gupta, Justice William Hubbs Rehnquist, Female to be Named Later, Justice Anthony M. Kennedy

Pirates on the Catwalk

It was only a few weeks ago, that we outlined that providers of pirate patches and clothing would benefit from the rising piratery tide. Now witness piratery on the catwalk:

Ever since pirates first sailed under the skull and crossbones, it has been associated with death. Now, this morbid symbol flies again in the upcoming fashion season…Should we be spending our hard-earned golden doubloons on the next must-have fashion items, or are there more important things in life?

Recommendation: We maintain that you should continue to spend your hard-earned golden doubloons on Tier 1 and Tier 2 piratery suppliers; their backlogs continue to grow granting significant revenue visibility and some of the cost pressures are abating. Also the changes in the weather patterns due to global warming play right into the piratery cross-sights as more of the Earth goes underwater, the tropical zones expand and hurricanes & natural disasters present chaos opportunities for pirateers..


Tales from My Internecine Struggle with the IT Department

I begin my descent to the 23rd floor. As I exit the elevator bay at my destination level, a colony of cubicles are laid out in front of me, perfectly aligned as if created by African honey bees. I scan the area and alight East, turning around a corner.

The monstrous IT guy remains motionless just ten feet away. Emotions give way to cognitive thought and I train my glare on him. Almost on cue, he begins his approach.

With blinding acceleration, he lurches onto me with a powerful “thud crackle”. He slams into my chest. The impact is incredibly powerful, knocking the wind out of me. His huge arms envelope my complete upper body and I can feel my non-iron shirt move as his beak grinds against it. The crackle and scratching of thousands of chitenous ring teeth against my suit is unmistakable. He withdraws back to 2 meter range and his huge bespectacled eyes begin to survey me for damage or weakness.

IT Guys Sleep Upright in Meticulously Crafted Vertical Beds

Behind him I can see dozens of man-sized IT fiends waiting to come at me but they don’t. Is it because he is so much larger? Is he the alpha dominant? He certainly has my full attention.

It is then that I notice his condition. His massive body is a map of pain and experiences. Scars cover his right side and most of his left arm is missing, possibly from being jigged by a rabid Hewlett-Packard or a lucky bite by a female he mated with. Due to his body marks, I call him ‘Scar’.


Carl Icon is Blogging?

Long or Short Capital is dedicated to bringing you all the most recent developments in the buyout world? Accordingly, it would be remiss of us to fail to note the arrival of Carl Icon on the blogging scene via his new entity Liquid Icon Capital.

Hey, Carl — holla!


The Purchasing Powerless

A macro trend that has concerned us greatly is the ability of the “family of four” unit to afford the modern American life. In previous generations, the FoF could afford any leisure they saw fit from sporting events to theaters to mega yachting; they could use the remainder of their moneys to run family farms which were crucial to soaking taxpayers for billlions in subsidies and ensuring that sugar was replaced with corn syrup in soft drinks.

Now the FoF unit is being priced out of the market, especially with respect to leisure. Consider that to attend a single baseball game at Fenway Park in premium seating would cost a FoF over $300; a sky box would be even less affordable. A trip to the movies would run an FoF almost $50, factoring an egregious amount of popcorn and a cadre of large ice pirates (note that the lack of the ability for any FoF to afford this leaves the $113mm domestic box office results of the Pacifier entirely unexplainable). Dinner at Nobu would cost a FoF nearly $300 assuming mom and dad wanted to tie one on. 1lb of commercial grade cocaine would cost $2,000 and a 140ft tri-deck mega yacht would run up a $28mm bill, completely out of reach for many FoF’s.

As you can see, just to attend a Red Sox game, go to the movies, eat dinner at Nobu, consume 1 lb of cocaine and buy a custom made Mega-Yacht would cost the avg FoF an astounding $28,002,650 per day. What kind of world are modern American children being ushered into, when obscene luxury is no longer a positive right?

Here is a list of affordable leisure activies for a FoF in the US:

  • Real life “Frogger”
  • Drinking lead juice
  • Being used in pharmaceutical experiments
  • Killing homeless people

Recommendation: Enjoy your excessive wealth and ignore the wahwah’s of the underclasses.


Quotes Entirely Relevant to Investing

An Ode to Powerpoint:

While you were making your [Power­Point] slides, we would be killing you.
-Russian officer commenting to a US offier on who would have won if we had ever actually fought WWIII in Western Europe.

Past Quotes Entirely Relevant to Investing


Short: Mark Davison

Continuing investigation by Long or Short Capital into the widening “Star Trek Imposter” scandal has revealed that Pitt-Fox, Kelton’s Head of Corporate Finance Mr. Mark Davison has also been embroiled in the controversy.

Prosecutors allege that Mr. Davison has been supplementing his income (and failing to report it) via similar Star Trek convention gambits as recently uncovered by Long and Short with respect to Enron bad-guy/Star Trek android David Delainey.

It appears Mr. Davison has been posing as Robert Picardo, Star Trek Voyager’s “Holo Doctor.” As a more secondary character, it appears Mr. Davison’s fraudulently obtained fees were substantially less than those commanded by Mr. Delainey.

m3.jpg
A double life?

Recommendation: Short Mark Davison. Double Underweight Star Trek conferences. (Consider the “Double Star Trek Bear” fund). Accumulate the Wookie (again).


Ask Julia About Your Length

Julia Mezzanine Tranche is an analyst at Long and Short, the author of Going Private, as well as a member of the Non-Certified Advice Columnists of America, the International Society of Bad Advice Columnists and Chairwoman of the Prestigious European Association for Paperclip Entrepeneurs and Analysts (PEAPEA).

Note: some letters may be “enhanced” for self-glorification.

Dear Julia:

Recently, Long or Short Capital’s Johnny Debacle wrote an [interesting and dynamic piece on Phantom Bonds totally characteristic of the brilliant analysis that typifies Long or Short Capital]. He indicates:

If you have a 20 year plus horizon, then you probably want an allocation that is heavily weighted towards equity, say 90-100%. But you could supplement a 100% equity allocation with an incremental 20-30% of phantom bonds, without disrupting your asset allocation.

As I am 102 years old, my own horizon is somewhat shorter. Can you recommend some Phantom Bond allocations that might be better for my needs?

Signed,
I’m Dreadfully Hearing Impaired in Tiny Ithica, Texas.

Dear IDHITIT:

You are right to notice that Mr. Debacle’s allocation recommendations are not for you. Since you are likely to kick the bucket any day now I have two alternative recommendations for you:

  • Put 100% of your portfolio in Phantom Bonds. It’s true that the commissions will be expensive but your tax burden will be very small (as all the returns on Phantom Bonds are also Phantom Returns) and your estate may well have NOL carry forwards.
  • Put 100% of your portfolio in Google. Admittedly, this lacks diversity but your time horizon is so short that you are CERTAIN to clean up on this trade before we run out of greater fools. Prescott R. Moncrief III over at Goldman is a good sell-side guy to know, I suggest giving him a call.

Dear Julia:

I am an Associate in a large bulge bracket banking firm the logo of which I’m sure you would recognize. I don’t want to name it but it rhymes with “Virgin Snacks.”

Two of the Vice Presidents there ask me out constantly, make lude gestures and spank my bottom when I pass by their desks. One of them asked me to do something called “bobbing the pole under my desk while I’m on a conference call with Spitzer.” I’m not sure what that means exactly (Does it involve wine spritzers? Because, I prefer Smirnoff Ice.) but it sounds like a violation of firm policy. I am at a loss as to how to handle the situation.

Both of them are extremely well regarded in the firm and they bring huge segments of business into their department. They are also both extremely well socially connected in Manhattan. Their offices are a literal revolving door of meetings for a Who’s Who in Finance and Business roster during the afternoon.

I’m sure you can understand my distress at their simultaneous overtures. Obviously, how I deal with the matter could have deleterious effects on my career. Can you help me decide how to handle the situation? I don’t know which one to sleep with first.

Desperately,
Bulgebracket & Tax Girl

Dear B&T Girl

Finance, like life is dependent upon the effective allocation of resources. You need to prioritize and allocate accordingly. I recommend picking the one who lives in the American Gardens Building.

Have issues for Julia? Email your special situations, turnaround questions, advice on unwiding complex positions, insider tips or merger complications to: Dear Julia Drop Box

Full Disclosure: Julia is Short Ann Landers and Long Ann Sather, which may bias her advice.
*Highly attractive portrait above may actually be of (and by) Noli Novak.

JD’s Lending No-No’s #2 and #3

Read JD’s Lending No-No’s #1a and #1b. The focus today is on what can be gleaned from a lender presentation.

Lending No-No #2a: Don’t loan to companies who will need to control costs, if they have no connection to actual real world cost controlling.

Examples:

  • I was recently in an Italian city for a meeting. The company I was there to see indicated that the best way from the Aeroporto to the meeting was by taxi, so I trusted them and took a taxi. It was €80. I later found out that there was a €5 shuttle express that would have taken me with half a km of the meeting and would have taken about 10 minutes more. These are the people charged with cutting costs in a large industrial company that operates in a cyclical sector that saw several competitors file for bankruptcy only a few years ago.

  • A steering committee is generally a group of lenders from within the overall lender group picked to direct the bankruptcy process. Senior management will meet with the committee and usually a couple of third party financial consultants. A US based manufacturing company that filed for Chapter 11 several years ago held their steering committee meetings in a rented room within the most expensive law firm real estate in the world. The food was luxuriously catered, while the excessively compensated senior management laid out their plan to cut costs by cracking the union, shuttering plants and laying off thousands of workers. I think we consumed the equivalent of 3-4 salaried employees during that meeting alone (and they were delicious)!
  • Lending No-No #2b: Never loan to an industrial or manufacturing company, if the tchotchke they give you at a meeting immediately breaks in your hand.

    Examples:

    At the meeting up above, I picked up the complimentary pen included with the presentation. I tried to click it on which resulted in my catapulting the clicky part into the Brooks Brother suit in front of me. It didn’t even last a single usage. If a company can’t even make a workable clicky pen, who says they can produce products out of chemically enhanced ceramic polymers?

    Lending No-No #3: Don’t invest any confidence in management’s projections. Management’s projections are very useful….for me to poop on.

    Examples:

    Every company has the same guidance: 8.9% CAGR revenue growth for 5 years, steadily improving margins and working capital which is so smooth, you might actually try and eat it thinking that it was Accrued Liabilities flavored gelato. They are all bunk. About the only use a lender should have for projections is as a gauge of management’s hubris.

    How Not to Name Your Company

    In my unending search to uncover undervalued and badly named stocks I came across: “CAPEX SA” (CAPX.BA). CAPEX is an Argentinian electric utility serving the completely deserted but somehow still under-penetrated Patagonia region of South Ameria. We are initiating coverage of CAPEX with a SELL rating. CAPEX has a strong track record of raising and spending capital but that seems to be where the story ends.

    A classic CAPEX investment:

    capex facility

    CAPEX’s power plant in NeuquĂ©n Argentina; shown here along with the 10 people who actually live in NeuquĂ©n Argentina

    If investors insist on putting money to work in the “companies named after financial statement line-items” universe, we recommend Revenue AG (which has a compelling top-line growth story) as well as Synergies Inc (which we view as a likely acquisition target).

    We also reiterate our underweight rating of Diluted, Shares, & Co. which looks expensive as a result of perpetual equity offerings and excessive option issuance.


    Appropriately Named Executives

    I haven’t seen such appropriate names since Michael Stonebreaker played football at Notre Dame.

    Now if Tim Koogle, former CEO of Yahoo, would only work for Google.

    Coming in the future: Inappropriately Named Executives


    Quotes Entirely Relevant to Investing

    A loss never bothers me after I take it. I forget it overnight. But being wrong, not taking the loss, that is what does damage to the pocketbook and the soul.

    -Jesse Livermore

    Past Quotes Entirely Relevant to Investing


    Short Boy-on-Boy

    Long or Short Capital has initiated prophylactic coverage of “Boy-on-Boy” in conjunction with recently picking up “Girl-on-Girl.”

    The Boy-on-Boy space is saturated by multiple market actors and opportunities for price discrimination are muddled by a highly fragmented marketplace. Increasing commoditization in the space limits opportunities for upside absent domination by a stronger alpha player. In addition, low or no barriers to entry mean that the stiff foreign competition (Dutch in particular) has deeply penetrated the nearly frictionless space from the bottom up.

    Though recent interest in the market by regulators and Google (NASDAQ: GOOG -0.94/-0.27%) may restrict supply, unregulated foreign access to loose markets is too potent for significant supply disruptions.

    Strong players, even those with multiple prior acquisitions in their portfolio, will have difficulty forming a cohesive long-term coupling with smaller market players therefore frustrating attempts to bag multiple targets and develop a dominant position behind other players.

    Recommendation: Short Boy-on-Boy.


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