Sunday, November 28, 2004

Mr. Branson gets it!

One day late and my earlier post on promising growth sectors in India would have looked like a rehash of what Richard Branson said today!

Branson (via his Virgin Group) has announced that he is looking to buy a large stake in a private sector Indian domestic airliner and is also planning to expand his group's role in the mobile business.

Bull's eye! This guy's every move is worth watching.

Saturday, November 27, 2004

DeVry adopts poison-pill in response to a takeover offer.

DeVry Inc (DV) announced today that it has adopted a "shareholder rights plan" (a.k.a "poison pill") to thwart a takeover attempt. No additional details were provided.

The for-profit education sector was very hot over a year ago, with business publications and newsletters recommending some entity or the other. But a series of scandals followed by federal investigations left many of them in a battered state. That is when I jumped in.

Apart from DeVry, Corinthian Colleges (COCO), Career Colleges (CECO) and ITT Educational Services (ESI) look cheap, especially given the past range and sizable institutional ownership. I own all the 3, though I closed most of my Career Colleges position after an unexpected 100% gain in a very short period.

It is still very likely that the feds will follow through and force atleast one of these players to come clean, possibly rendering its shares worthless. But the rest should start engaging in M & A action soon and that should benefit the survivors.

Several of the other players in the sector still remain expensive - e.g. Laureate Education (LAUR), Education Management (EDMC), Apollo University (APOL).

I would still rate the entire sector highly speculative given that some of the feds' charges are very serious.

And my take on poison pill measures ? They are just excuses by management to continue with their utter disregard for shareholders. Don't be fooled by the alternate phrase used by company management for poison pill - shareholder rights plan!

One sweet sequel deserves another!

New reports indicate that Carl Icahn has over the last few months bought a small stake in Hollywood Video (HLYW) and may make an offer to beat the 3 current offers. The more the merrier I think!

Friday, November 26, 2004

Learning from Jim Rogers

I just finished reading Jim Rogers' Adventure Capitalist. Had earlier read his Investment Biker. Both are wonderful reads. They are about the author's road trips around the world - on a car and bike, respectively - looking for investing opportunities in less-developed / unknown economies and attempting to understand countries and their people.

Jim Rogers ran the successful Quantum Fund. So you will be learning from a master as you read these 2 books.

For more about his road-trips, you can visit his homepage.

There are some gaps in certain stories though. It is impossible to judge an entire country, especially when it is large and diverse, from a trip through some part of the country. I found Jim Rogers' views on India completely unbalanced, influenced only by his path through some of India's less desirable locations.

Missing are, views on South India (where there are states with quality of life index approaching that of European nations), Western India (prosperous and entrepreneurial), 2 or 3 small North Indian states (that are almost free of poverty) and North-East India (prosperous inspite of a dozen different insurgencies).

I am sure the trip similarly doesn't do justice to China and Russia.

Prospects for India

Another one of my occasional post not directly related to takeovers.

I am just back from a 10-day visit to India and all I can say is that it is nowhere near China in terms of progress. If you are betting big time on the country, I would recommend that you don't.

Even in Bangalore, the government is almost non-existent and the infighting among the parties that make up the government is embarrassing. The IT boom in India has nothing to do with government support - the boom has come despite the govt!
I even heard very unintelligent comments from politicians against foreign direct investment in the country.

In the past the reforms in India were forced by economic shocks, external and internal. The country needs another shock to move from its current state. And I think that will come in the form of IT companies' exodus from India to destinations like China, Vietnam, Philippines where the the states are more responsive to infrastracture demands. The infrastructure in India is pathetic and while some smart people do recognize the need for rapid progress on that front, nothing really is happening on the ground. The least the govt can do is to open up the sector to full private sector participation. That is unlikely to happen, the public reason being "security considerations". The real truth is that a lot of politicians/contractors in India have turned themselves into multi-millionaires in the last 50 years by gobbling up funds meant for infrastructure projects and they are not willing to give that up so easily.

Certain sectors in India will continue to see rapid growth driven by rising income levels. But these will be sectors where the government has taken a backseat and allowed true competition. Examples :

  • Mobile services : the mobile network in the country is now incredible. In a small town like mine, there were 4 private players competing aggressively. It has come to such a stage that people have stopped applying for landlines, since it is still dominated by brain-dead govt bureaucracy. This revolution is for real. Phones with cameras and custom ringtones are everywhere. The penetration is impressive.
  • Cars / 2-wheelers : Every major car manufacturer has underestimated Indians' disposable income. I guess it has something to do with the average international tv coverage on India usually showing just handicapped beggars.
  • Private sector airline players : Last time I had 4 choices to fly to my small hometown. This time the choice was 3, with some of the earlier players winding up and some new players emerging. Here again, the competition is impressive. The service was great, compared to the national airliner, which is losing customers at a rapid pace. The private airline I was flying even allowed 4 different ways of e-checkin using a cell-phone!

The interesting thing to note about the foreign players is the relative absence of US and European players, while Korean/Japanese and even Chinese companies are expanding rapidly. By the time the Americans and Europeans wake up it will be too late!

The American absence is not surprising given the general ignorance / disinterest of other cultures/countries here. Here is a sampling of questions that I get asked everytime I announce that I am going to India :

  • Do they have cars/tv in India ?
  • Can you fly all the way to your hometown ? Really ? (The truth is that, thanks to the British, my hometown's aiport is probably older than San Jose's!)
  • Are there beggars/snakes/elephants in India ? Well the National Geographic channel should help you there! Believe it or not there are lots of places in India where you can easily spend a day without seeing a beggar/(an) elephant/snake.
  • Are there cell-phones / internet / PCs in India ? No, but the stone-tablets are equally state-of-the-art!

The above queries were from "educated" tech workers - I dread to imagine the questions from an average guy from Nebraska!

At all my stops, I saw Korean businessmen! Samsung/LG/Hyundai ads now blanket even the smallest towns. There is something to learn from the Koreans!

If you are looking for rapid overall growth over the next 20 years, you should invest in China (after the present breakneck pace takes a breather). You can still play the above sectors I mentioned, in India. Some are represented by ADRs in NYSE/Nasdaq, and for others you have to invest directly or go through an international fund.

Saturday, November 20, 2004

Icahn wants all of Mylan ...

Mylan (MYL) today got an offer of $20/share for all its shares from Carl Icahn. I hope it doesn't go through - Mylan is worth much more after the recent generics M & A activity. The market doesn't seem to believe that this is a worthwhile offer either - Mylan is trading at only $19/share!

Meanwhile, 3 other generics look very attractive now -

  • Ivax (IVX) : a takeover target - cheap after the recent warning.
  • Andrx (ADRX) : another target - somewhat cheap.
  • Teva (TEVA) : one of the biggies. Not a target, but a value play.

You heard it here first!

On Wednesday, in the blog entry on Marketwatch, I had listed The and IVillage as targets. Just 2 days later (today!), both saw minor surges due to takeover speculation originating from a different (magazine ?) source. Always happy to be early rather than late.

After today's surge, The is expensive, given that, compared to Marketwatch, it has almost nothing to offer in terms of readership numbers. I will need to see a substantial discount (35% or so) from today's closing to start buying.

IVillage stays a buy even today. If a few weeks pass without the takeover materializing, the pullback should provide an even better entry point.

Hollywood - the sequel

What else do you expect after a raised bid ? Another one ? HollyWood Video (HLYW) got another offer today, from Movie Gallery (MOVI). The exact offer details have not been made public, but the shares are now trading around $12.5/share. While decently valued at this price, I expect a real 3-horse race to start now. This is one Hollywood ending I am really eager to see!

Thursday, November 18, 2004

A flash in the pan or the big bang ?

The Kmart / Sears merger came as a shock to me. Then again, it was not a real shock if you follow ESL! Pieces have already started appearing heralding this mega-merger as kickstarting a long M & A binge. I do not particularly care when that binge starts as long as it is within the next 2-3 years.

I will be a bit uncomfortable if we don't see a merger-mania (80's style!) by then. Companies now have the largest absolute cash hoard in history. Taxes are low. Growth opportunities for many companies are non-existent. A ripe setting for takeovers!

If this merger ends up being a false-start, it is ok. The longer the drought, the heavier the downpour that will mark its end! So prepare for the 100-year flood following the 5-year drought.

Monday, November 15, 2004

Marketwatch sold.

Marketwatch (MKTW) just announced that it has been acquired by Down Jones for around $18/share. This is a much higher price than I ever expected a buyer to pay for Marketwatch. I came very close to adding a few myself in mid-August, when Marketwatch was trading around $9/share. I expected it to become cheaper still. But I was wrong.

Going forward, I think we will see the last remaining pure-information sites getting picked up. Among the candidates - IVillage (IVIL), CNET (CNET) and The (TSCM). I own a few of IVillage and it is still a buy. I am watching CNET and The and will buy at 10-15% discount from current prices.

With The, there is a real possibility that the suitors who failed to buy Marketwatch will eye it next.

Friday, November 12, 2004

Hollywood drama!

After not budging for a while, Hollywood Video (HLYW) got a takeover offer from BlockBuster, of $11.50/share, higher than the buyout price that management offered earlier. Today the shares are trading at around $11.70 indicating that a rival/sweeter offer is expected from management.

This is great news, as the original lack of interest in this company really disappointed me. I for one was surprised that there weren't more bids sooner.

In general, management buyouts with no outside competing bids end up being bad for the average investor, especially if management already owns a majority stake and thus can ignore ordinary investors. The premium is usually low, and the when the company comes back to the public markets years later management would have made some neat change. Ofcourse, all this is legal but a few of these buyouts end up in court, where it still remains hard to prove that the management undervalued the company.

Tuesday, November 09, 2004

Mergers that reward ...

A number of studies have shown that mergers don't really reward existing investors in the buyers. Investors in the target companies usually end up richer, especially if the takeover transaction involves a substantial cash portion.

But a piece in WSJ today shows that last year was different! The mergers have been very successful for investors in the buying companies too. This is attributed to the careful due diligence by the buyers and less-than-spectacular premiums paid. If true, this marks one extreme in the M&A cycle and we should see an increase in the pace of takeovers.

Given the expected political stability, the only things that may make buyers think twice are the rising interest rate regime that makes borrowing expensive and possible fall in consumer confidence if real-estate takes a hit.

Friday, November 05, 2004

Red herring ? You bet!

Was thumbing through a few old issues ( from late 2000, early 2001 ) of Red Herring, Wired etc recently as part of cleaning up my room. What a strange feeling reading about valuations and views on valuations.

This reading of crazed behavior during boomtimes is a good habit to help one from getting too confident about stock-picking skills. Confidence and over-confidence work against you.

From a 2001 issue I read something along these lines - EMC is today at $62/share, down from $270/share. At these prices it is a great bargain. etc etc.

A couple of years later, EMC was trading at $8/share and I can hardly remember any piece touting EMC as a bargain! I started buying around $10 and will keep adding (till it reaches $18/share, based on current conditions).

Thursday, November 04, 2004

DoubleClick on sale!

DoubleClick (DCLK) announced that it is looking to either spinoff certain units or selling outright. I have always seen DoubleClick as a buyout bait and considered it undervalued. I have already mentioned it a couple of times on my blog.

I started buying DCLK at around $11/share and increased the volume as it dropped to 7 and then to 5! I just hope that I will atleast breakeven in the event of a takeover. I definitely think that DoubleClick's value is much higher than the current price.

On a related note, I read a piece about the bubble of 99/00 not yet being over and how there will be another bout of failures. While I cannot challenge that, I think a few of the dot-com survivors will get acquired in the meantime.

As an example, Viacom announced that it may buy the rest of Marketwatch (MKTW) that it doesn't yet own. Others that are candidates include, Homestore (HOMS), E-Loan (EELN), (DSCM), The (TSCM), (FLWS) and CNET. Note that most of these are highly speculative and you should be ready to lose everything if you invest in these.

I own a few of E-loan and and will continue to add slowly. When these dot-com survivors have brick-and-mortar parents holding a sizable chunk, the parent is most likely to pay a small premium to own the rest of the company. Ofcourse, not a great ending if you had bought in the high-hundreds during the boom times! Thanks to my then financial state, I never bought these at nose-bleed prices - lucky indeed.