Friday, November 17, 2006

Hit #131 (Clear Channel)

Clear Channel (CCU), the largest U.S operator of radio stations, is being bought by a group of private equity players, in one of the largest going-private transactions. The cash offer, of $18.7 billion, translates into $37.6/share, a premium of 32.3% over my average cost of $28.43/share.

I had bought CCU shares mostly as a value/turnaround bet, along with a number of traditional media companies. Univision was another big recent buyout in this space. The remaining targets are much smaller, and may not command the same kind of premium.

Tribune (TRB) is also expected to get an offer soon going by recent reports.

Reports of death of traditional media have been vastly exaggerated. Someone like New York Times (NYT) should be able to get a loyal audience to pay for its original content online. While it may take some time, I expect a lot of the leaders to ultimately make the transition and survive, and who knows, even thrive!

Previous hit - Reader's Digest (#130)

Hit #130 (Reader's Digest)

Reader's Digest (RDA) is being bought by Ripplewood Holdings for $1.6 billion in a cash-deal. The offer, of $17/share, represents a gain of 28.2% over my average cost per share of $13.26.

I own only a small number of shares bought a couple of years ago. Given the absence of any positive news from the company or moves by the management, I hesitated to add to my position.

Growing up I had access to Reader's Digest's English editions from a number of countries - I can recall reading editions from US, UK, Canada, Australia, South Africa, New Zealand and India. It was a lot of fun comparing the cultural adjustments made in these editions. My attempts to get some spare cash by sending in entries for the various humor pages never succeeded! While I stand to gain from this takeover, the absolute gain is less than what I would get today if I were to send an entry, that gets accepted, for inclusion in Life in these states!

Another possible candidate, and a more worthy one than Reader's Digest, is Meredith Publications (MDP). The stock looks expensive right now, but at a much lower price, I will be looking to open a position.

Previous hit - RailAmerica (#129)

Thursday, November 16, 2006

Hit #129 (RailAmerica)

Regional rail operator RailAmerica (RRA) announced that it is being bought, by private equity group Fortress Investment Group, for around $1.1 billion in a cash deal. The offer, of $16.35, represents a gain of 47.8% over my average cost per share of $11.06.

I have been holding RailAmerica shares for a long time now, adding to my position multiple times during that period, and had mentioned it in an earlier post.

I am also watching two other small rail operators, though I have not yet made a move on either one. Providence and Worcester (PWX), which I referred to in the same earlier post that talked about RailAmerica, looks attractive due to insider activity or rather the lack of any activity (read selling). I would like a better price, but I may decide to buy some soon.

Kansas City Southern (KSU), the other relatively small public rail operator, will be a target for the handful of large railways. With operations around the Gulf of Mexico, and in Mexico itself, it is strategically well positioned. In addition, a short but extremely significant railroad parallel to the Panama Canal, called, what else, Panama Canal Railway Company, is also owned by KSU. It is still to be seen what impact, if any, the recently approved widening of Panama Canal will have on this route, but it should atleast remain an attractive tourist route for a long time to come. I would like to buy the stock at a much lower price, but will I get a chance ?

I hate to admit it, but I am still delighted to see those long trains crisscross California/Arizona open spaces! And they continue to yield investment ideas all the time. Among others, my investments in Pacer (PACR) and J.B Hunt (JBHT), both major players in intermodal transport/logistics, have been very profitable so far.

RailAmerica itself will have a special place in my investment world, because it was among the initial purchases of unknown, atleast to the general public, stocks that I made. I was met with some surprising looks, at times meant to indicate the lack of coolness, each time I mentioned such investments. It took a while, but I decided that the best way to make the most gains was to invest in such unloved, and hence deeply undervalued companies. I never looked back after RailAmerica!

Previous hit - Essex (#128)

Hit #128 (Essex)

Defense technology/services provider Essex (KEYW) is being acquired by Northrop Grumman for around $580 million in a cash deal. The offer, of $24/share, makes for a gain of 36.44% over my average cost per share of $17.59, paid just a few weeks earlier.

In earlier posts, here and here, I had mentioned other defense targets like Mantech (MANT). I own Mantech shares, and have also recently bought into Allied Defense (ADG), Dynamics Research (DRCO) and Argon ST (STST). The latter three still look attractive.

One player mentioned in those posts, Cogent (COGT), has taken a severe beating and looks extremely undervalued, especially considering its leadership position and its takeover potential.

SI International (SINT) is also likely to be bought out, though I am still waiting for a better entry point.

An attractive buy and hold investment in this sector would be SAIC (SAI), which went public recently. Long term investors in this model company will be rewarded handsomely.

Previous hit - Bema Gold (#127)

Tuesday, November 07, 2006

That was a takeover Monday!

Financial Times has called today as takeover Monday. That should move the M&A boom into the next phase, where ordinary folks, so enthralled by real-estate so far, start buying on every rumor.

From this point onwards it will get much harder to find real bargains, as the prospects of a takeover will start to form, at times an artificial and elevated, floor for a number of stocks.

It has been more than 3 years since I started buying every cheap potential target around. The hits have been coming, at an increasing pace lately, and they should accelerate even further.

Here are a few more of today's headlines:

Hit #127 (Bema Gold)

Bema Gold (BGO) is being bought by Kinross (KGC) for $5.85/share in a stock deal. I intend to hold onto my Kinross shares as I expect it to be acquired eventually. I may even add to my new Kinross position later.

The offer represents a premium of 174% over my average cost of $2.13/share.

I had made a few investments in the gold/silver/copper/platinum sector, most of them well over 2 years ago. I had mentioned Bema in an earlier post (Hit #73) when Placer Dome was bought out.

I have also recently opened a position in Golden Star Resources (GSS), which still looks attractively priced. The company will become a target in the not too distant future, but remains more of a speculative bet.

I am holding onto my Couer D Alene (CDE) shares. In addition, I have made small investments recently in Stillwater (SWC), North American Palladium (PAL) and Northern Orion Resources (NTO), the last two definitely falling into the speculative category. A recent blog entry at 10Q Detective convinced me that NTO was worth owning, as long as one was aware of the risky nature of the bet.

Previous hit - Swift (#126)

Monday, November 06, 2006

Hit #126 (Swift)

Swift Transportation (SWFT), the trucking company, got a cash buyout offer worth $2.2 billion from its former CEO, Jerry Moyes. The offer, of $29/share, represents a gain of 68% over my average cost of $17.29/share.

Investors seem to be expecting a higher bid, as the stock is trading closer to $30!

Jerry Moyes was also behind the offer for another trucking company Central Freight Lines, which featured as Hit #78.

I had mentioned trucking as a very attractively valued sector earlier. At this point, most trucking companies are fairly valued or overvalued, and I would recommend caution while opening new positions.

While smaller truckers have become expensive, some of the larger ones have become cheaper in recent weeks. Yellow Roadways (YRCW), Forward Air (FWRD), J.B Hunt (JBHT) and Old Dominion Freight Lines (ODFL), all are worth nibbling at. I had mentioned a few of them on a post covering an earlier Arizona trip.

There is still a lot of consolidation to be had in this sector. Quality Distribution (QLTY) and Sirva (SIR) are speculative bets for the brave, while Marten (MRTN) and Frozen Food Express (FFEX) are specialty truckers that are a good fit for the regular truckers.

Also, like with UPS earlier, traditional delivery services providers will be looking to get into express and less-than-truckload sectors.

Previous hit - Per-Se (#125)

Hit #125 (Per-Se)

Per-Se Technologies (PSTI), the health-care services provider, is being bought by McKesson for $1.1 billion in cash. The offer, of $28/share, is a premium of 134% over my average cost of $11.98/share.

I have not included in the above calculations a small number of Per-Se shares that I got in exchange for my NDC Health shares in an earlier buyout (Hit #60). I had clearly stated that I expect Per-Se to be acquired as well.

Others like Eclipsys, Cerner and Corvel remain targets, but I wouldn't touch any of them at their current prices. I did buy a few Corvel shares not too long ago, and the shares have more than tripled in a dizzying ride up.

I own Eclipsys shares, and will be holding them till the eventual buyout. As I noted in that earlier post on NDC, I expect Oracle and IBM to make serious entries into this sector. Oracle infact had Cerner on its shopping list, as revealed during the PeopleSoft court proceedings.

Previous hit - Kos Pharma (#124)

Hit #124 (Kos)

Kos Pharmaceuticals (KOSP) is being bought by Abbott Labs for over $3.7 billion in cash. The offer, of $78/share is a premium of 88% over my average cost of $41.47/share.

I had mentioned Kos as a target in an earlier post on possible targets for Japanese buyers. At that point, I had also written that Kos was expensive (then trading at around $70), and that I would wait for a better price. Kos shares became available at a bargain this May and June, when I started to buy.

I did not expect such a huge premium, not that I am complaining. Abbott as a buyer is also a surprise, but the market seems to like the deal, as indicated by the lack of negative reaction, despite the high price being paid.

Talking about biotechs and pharmas that become cheap, here is one to take a look at, following today's slump - Adolor (ADLR). I own shares, bought at around the current price a while ago, and have been riding a crazy wave since then. The stock, after more than tripling at one point, is back to where it started. At today's price I would be a buyer, though only in small quantities. Today's FDA scare reminds me of similar, but much serious earlier episodes involving other companies. Adolor is likely a target for its larger partner as well.

Another bet, though very speculative at this point, would be Replidyne (RDYN). I have just opened a small position in Replidyne, and will be following it closely.

Previous hit - Stellent (#123)

Sunday, November 05, 2006

Sierra Health in the bargain bin

A while ago I had written that Aetna was in the bargain bin, after announcing some disappointing results. I did buy in at that point, and am enjoying the rapid gains since then.

A similar thing had happened earlier with Molina (MOH), and I am still holding onto my shares bought cheaply then.

This time around another sector player is in the bargain bin - Sierra Health Services (SIE). I have mentioned Sierra as a takeover target earlier in this post on the Pacificare acquisition.

At around $32/share today, Sierra is trading at substantial discount to a takeout price, which I expect to be in the $44-50 range. The most likely buyer - Aetna.

Hit #123 (Stellent)

Stellent (STEL) is being acquired by Oracle for $440 million in an all-cash deal. The offer price, of $13.5/share represents a gain of 84% over my average cost of $7.34/share.

I had mentioned Stellent as a ripe target in an earlier post, though I suspected BEA to be the buyer. In fact, given the existing partnership between BEA and Stellent, Oracle buying Stellent reflects badly on BEA's ability to do strategic deals.

Who else is left in the content management sector ? FileNet got acquired earlier by IBM, giving me another hit (#111). Mobius (MOBI) and Interwoven (IWOV) are the remaining digestible targets. OpenText will also be a target down the road, but for now the company is occupied trying to digest Hummingbird.

Somewhat indirectly related, I expect Oracle or IBM to also go after Informatica (INFA), with the possibility of a sizeable premium.

Previous hit - Clark (#122)

Thursday, November 02, 2006

Hit #122 (Clark)

Compensation and employee benefits consulting company Clark (CLK) is being acquired by Aegon, the Dutch insurer for $293 million in cash. The offer translates to $16.55/share, a premium of 13.7% over my average cost per share of $14.55.

Another sector company to keep an eye on is Heidrick & Struggles (HSII). I do not own any shares, but will be watching to buy on deep pullbacks.

Previous hit - Mid-State Bank (#121)

Hit #121 (Mid-State Bancshares)

Central California bank holding company, Mid-State Bancshares (MDST), most operating in and around Santa Barbara, is being acquired by Dutch agri-banking giant Rabobank for $871 million in cash. The deal values Mid-State shares at $37/share, around 39.8% over my average cost per share of $26.47.

Just like this other hit, Central Coast Bancorp, I discovered Mid-State during a road-trip. The similarity doesn't end there - Central Coast Bancorp was also acquired by Rabobank and handed me a large gain. After watching and waiting for more than a year to get a decent price, I had bought a few shares of Mid-State just a couple of months ago, intending to accumulate further.

In the meantime a few more banks have become attractive recently. One that I have opened a position in is Heritage Oaks Bancorp (HEOP), a smaller bank that operates in the same locations as Mid-State. Heritage also happens to be another pure on-the-road discovery. While Heritage operates in an area that is definitely in a real-estate bubble, the stock has pulled back enough to make it a takeover target, possibly for Rabobank again. I intend to watch and possibly add more soon.

Another LA area bank I had mentioned earlier, Vineyard National Bancorp (VNBC), is now looking very attractive. I intend to buy some shares at the current price.

A Bay Area bank, Greater Bay Bancorp, is also worth buying now. I own a few shares, and will be adding at this price. I had mentioned Greater Bay in this post, with another post dedicated to it, when the company announced that it is looking for a buyer.

Another Bay Area bank, UnionBanCal Corp(UB), has recently become cheap enough to buy in small quantities. Like Greater Bay, this is an attractive target for larger banks. I had mentioned it as being a target, though not cheap enough, in this post.

I am also looking at Bridge Bank (BBNK), a relatively new (since 2000) bank, operating most in Silicon Valley. A takeover is likely not on the cards in the near future, but it should be a good long-term buy and hold investment.

Previous hit - Connetics (#120)