The urge to merge

A note on the slower blog updates

2008-05-12T01:27:00.000-07:00

I am sure most of you have noticed a slowdown in the posting frequency on this blog. I don't have the normal excuse - too much work. Rather it is the opposite - I am having too much fun.

With the intent to travel for a year or two, I set out in late October 2007. For the last few months I have been traveling in India and Sri Lanka.

This week I head out to S.E Asia, and will be there for a few months. I intend to cover Bali, a bit of Malaysia, Vietnam, a lot of Thailand and will also likely venture into Cambodia, Laos and Timor. If I am still left with any energy, I head to Hong Kong and Singapore. And finally, if I am still alive (mentally) by then, I hope to get to China & Macau.

I do intend to keep blogging, but only major takeovers will feature here. I am making notes on all the smaller takeovers, and I may do a longer post covering them later.

Meanwhile, if you are headed to the same part of the world I am going to, let me know. We can meet, and the beer is on me!

Hit #189 (Safeco)

2008-05-10T23:34:00.000-07:00

Insurer Safeco (SAF) is being acquired by Liberty Mutual for around $6 billion in an all cash deal. The $68.25/share offer represents a gain of 84.3% over my cost of $37.04.

I first came across Safeco via my auto-insurance agent, and ended up as a customer for a while. It looked like a safe investment for the really long term, and hence I had bought into it in a small way.

Another investment, that in 21st Century, also happened in a similar way. I was a very happy auto-insurance client for a few years, and the insider buying had made me buy the stock in decent numbers. 21st Century was bought by AIG recently (see Hit #166) helping me recover some part of my premium payments over the last few years.

The insurance sector still looks very attractive, with large insider buying showing up recently. AIG itself, having been hammered lately by the fallout of credit crisis, is a good long-term investment for buy-and-holders. Other insurers like Progressive (PGR), Meadowbrook (MIG), Amerisafe (AMSF), Zenith (ZNT), AmComp (AMCP), Allstate (ALL), Seabright (SEAB), Arthur J. Gallagher (AJG) etc are also good, though more speculative, buys. More consolidation is set to follow in this sector.

Previous hit - Audible (#188)

Hit #188 (Audible)

2008-04-10T23:05:00.000-07:00

Late in January, Amazon agreed to buy Audible (ADBL) for $300 million. The cash offer, of $11.5/share, makes for a gain of 9.6% over my average cost of $10.49.

The offer price is low given Audible's leadership position, and its loyal customers (I know a few of them). Why didn't they fight for a better offer ?

I had invested part of the proceeds from Engelhard's sale (see post) into Audible. In the same post I had mentioned Apple or Yahoo as likely buyers. Amazon came as a surprise.

Another post I did earlier, on investing prospects related to increased bandwidth demand, also mentioned Audible as a candidate.

Previous hit - Millenium (#187)

Hit #187 (Millenium Pharma)

2008-04-10T10:14:00.000-07:00

Japan's Takeda is buying Millenium Pharmaceuticals (MLNM) for $8.8 billion in a cash deal. The $25/share offer makes for a gain of 43.8% over my average cost of $17.38.

Takeda had indicated earlier (see post) that it was looking to buy. Also, when Pharmion was acquired (see Hit #183), I had mentioned Millenium though I saw it more as a buyer than a target then.

While on this sector, I would recommend Amgen (AMGN) as a long-term value buy. The stock bumped higher today following the Millenium news, but still remains attractive to buy-and-holders. OSI Pharma (OSIP) and Biogen (BIIB) are also worth watching.

Previous hit - ASV (#186)

Hit #186 (ASV)

2008-02-17T22:14:00.000-08:00

Construction vehicle maker A.S.V (ASVI) is being acquired by Terex in a $488 million cash transaction. The $18/share offer translates into a gain of 28.9% over my average cost of $13.96.

I had mentioned ASV in an earlier post pointing out that it made the most promising bet in the sector.

Construction activity, residential as well as commercial, has slowed down dramatically. This has caused severe pullbacks in most stocks related to the sector. For long-term investors this has created good entry points. I would recommend buying and holding Terex (TEX), CNH Global (CNH), Caterpillar (CAT) and Kubota (KUB).

Previous hit - CheckFree (#185)

Hit #185 (CheckFree)

2008-01-13T23:13:00.000-08:00

Online payment services provider CheckFree (CKFR) was acquired by FiServ (FISV) for $4.4 billion in cash. The $48/share offer translates to a gain of 42.4% over my average cost of $33.7.

I had mentioned CheckFree as a target when it bought Corillian (Hit #144) earlier. In the same post I had mentioned S1 (SONE) as a potential target. While it still remains a target and fairly priced, recent heavy selling by insiders does not invoke confidence.

For long-term buy and holders FiServ would be a good buy, though I would recommend waiting for a better entry point.

Previous hit - Printronix (#184)

Hit #184 (Printronix)

2008-01-13T22:54:00.000-08:00

Enterprise printing solutions company, Printronix (PTNX), was acquired by Vector Capital for $108 million. The cash offer of $16/share is a tiny premium of 6% over my average cost of $15.81. Without the dividends along the way, the absolute gain would have been closer to zero.

Beaten down Presstek (PRST) would be another bet in this year, though a risky one with the ongoing SEC inquiry. Xerox (XRX) and Lexmark (LXK) are good turnaround stories, with the former being very attractive now.

Outsourced printing solutions provider VistaPrint (VPRT) is a growth/momentum play. Like Kinko's earlier, it would be acquired by a larger office solutions company.

Veering further away, into 3D printers, both Stratasys (SSYS) and 3D Systems (TDSC) are avenues to bet on a new and growing market. The former has seen some strong insider buying lately.

Previous hit - Pharmion (#183)

ING makes a good move

2007-11-24T00:10:00.000-08:00

My favorite broker, Sharebuilder, is being acquired by ING. Sharebuilder wasn't public, and its growth over the last few years has mostly gone unnoticed.

With its features directed at long-term investors, Sharebuilder is the perfect vehicle for betting on growth or takeover targets. I had mentioned it in a couple of very early posts, one on investing discipline and the other on the eternal question of beating the market. I have influenced at least a dozen people to sign up with Sharebuilder. Despite its steady growth one concern that occasionally surfaced was a lack of a prominent financial house backing it. That is now solved. Who better than ING to ensure Sharebuilder remains committed to small investors. ING showed the way with its high-interest accounts even as other banks were fleecing customers. Hopefully, ING would be able to bring investing costs at Sharebuilder further down.

There are still ways in which Sharebuilder can improve in terms of its offerings. For example, there is no way right now to request automatic dividend reinvestment for particular stocks instead of for the whole account (Schwab allows it). In addition, there is no graphical display of performance of a portfolio against some index (FolioFN has such a feature). But more importantly, none of the brokerages seem to get gain & loss calculations or tax optimization right, even when some of these are handled via an external service. I would rather have somebody like Cake Financial handle it for all brokerages. Hopefully, they can handle such simple and regular events like splits, spinoffs, renaming and dividend/capital distribution right!

Hit #183 (Pharmion)

2007-11-21T01:16:00.000-08:00

Pharmion (PHRM), a pharmaceutical company with focus on cancer, is being acquired by its larger partner Celgene (CELG) for $2.9 billion. The part cash / part stock offer comes to $72/share, a gain of 299% over my average cost of $18.06 when I bought shares a bit more than a year ago.

I intend to hold onto the Celgene shares that I get in this deal. Celgene has the potential to grow substantially, and the presence of recent insider buying is encouraging. Despite its size Celgene could itself be a target down the road.

I had bought Pharmion shares in my self-managed IRA portfolio. Some of you have asked me for a larger list of what I hold in that account. I will publish the list of major holdings in that portfolio soon.

For those interested in trivia - among Pharmion's important products is Thalidomide, sold under Thalomid. Yes, it is the same Thalidomide, which happens to be effective in some cancers. The rationale behind the name Thalomid can be read in one of the books I had mentioned in an earlier post - Inside the FDA.

Another player to watch is Millenium (MLNM). Though more likely to be a buyer at this moment, it could also turn into prey. I would like to see more insider buying or a much better valuation before adding to my existing small position.

Previous hit - Business Objects (#182)

It is time to buy

2007-11-19T18:36:00.000-08:00

Back in February I had written that it was time to panic! Ten months later it feels like the whole nation has heeded that call. Even permanent optimists like BusinessWeek, Economist and Money magazines have turned into bearers of gloom and doom this week.

For contrarians, this is the time to start buying. As with buying anything where the value is set by others, one should be prepared to buy at better prices, but many sectors, from financials to retail have bargains now for long-term investors. Stocks of companies like Citigroup, Moody's, Starbucks, Lowe's, Zions Bancorp are trading as if we are headed for a depression. While it is possible that we are about to see 1929 all over again, odds are that we are seeing a market overreaction at the extremes. The chances of a depression are real, and definitely a bit higher than what one would have guessed a couple of years ago, but the worst we will see is a prolonged (2-3 years), hard recession. For long-term value investors that should just be noise.

One sector where there is still too much optimism is tech. So, I would wait before buying big, though many like Symantec and SAP do appear attractive.

There probably are bargains even among home builders and lenders, but I find it hard to separate the good from the bad.

One thing is certain - buying a house now is recommended only for those who like to play Russian roulette! It was bad at the peak, and it is no better now.

Another area where pessimism may have reached a turning point is the outlook for the U.S Dollar. Will it start moving up soon ?

Hit #182 (Business Objects)

2007-11-01T11:40:00.000-07:00

The long rumored takeover of Business Objects (BOBJ) finally materialized a few weeks ago. The buyer, SAP, is paying around $6.8 billion in cash. The offer, of around $59.25/share, makes for a 170% gain over my average cost of $21.94. The eventual dollar amount paid may vary slightly based on the euro/dollar exchange rate - the offer is set at 42 euros. I had first bought some shares in 2004, and bought a few more again last year when the stock cratered following dismal earnings.

I had mentioned Business Objects in a few prior posts, most notably when Hyperion (Hit #150) was acquired by Oracle and even earlier while listing potential targets for Oracle.

In spite of my guessing SAP as a buyer in that post on Hyperion, this still comes as somewhat of a surprise. SAP is having trouble dealing with an aggressive Oracle, and this costly acquisition with its attendant integration risks will not help. For very long-term buy-and-holders SAP now represents an opportunity assuming this buyout will turn out to be a positive move a few years from now. A more sensible buy for SAP would have been BEA (BEAS) since its own attempt (NetWeaver) to get into application servers has failed.

With this buyout, the only major pure business intelligence software provider left single is Cognos (COGN). IBM is the most likely buyer. Cognos may still get a premium, but I like my stocks really cheap and hence won't be buying now.

A smaller reporting software/service company that will also be a target is Actuate (ACTU). The stock has more than tripled since my buy, but I will be holding onto the shares forever.

A startup to watch in this sector is Tableau Software. A public offering may be in its near future. As a user I was impressed by their charting/visualization features as well as ease of use (drag and drop). The company will be a great target for a larger player.

Proceeding to application and retail software, Oracle's offer, and its timing in particular, was surprising. It is a shame that BEA even bothered to respond (with a higher demand, but still), when in fact it could set its house in order and command a much higher price a few years down the road. Folks at BEA seem to have given up!

Among retail/supply-chain software vendors, Manhattan Associates (MANH) looks very attractive at is current price, with insider buying to support it further. The company will be taken out, hopefully at a much higher price. Retalix (RTLX) and newly public DemandTec (DMAN) are also worth watching, and buying in small numbers.

Previous hit - Navteq (#181)

Hit #181 (Navteq)

2007-10-11T11:45:00.000-07:00

Digital map provider Navteq (NVT) is being acquired by Nokia for $8.1 billion. The cash offer, of $78/share, represents a gain of 195.2% over my average cost of $26.42/share. Having been a Navteq customer since early 2000, I had added it to my watchlist when it was spun off from Philips. Though I missed buying early, bad news made the stock available at a significant discount once again in mid-2006.

Nokia has overpaid looking at the short term, but if integrated well this would look like a cheap buy in retrospect. Nokia may also have been forced to pay a higher price due to possible bids by others. Google might well have been interested given that Navteq provides data for its maps. Microsoft seems to be missing the boat again. Some of Microsoft's map presentation/usability features are actually better than Google's, but unfortunately not enough (yet) to veer users away from Google.

This acquisition comes just days after another digital map data provider, Tele Atlas, got an offer from TomTom. That deal itself could be in trouble with rumors of bids from other buyers who now face competition due to Nokia's deal.

The biggest potential loser is Garmin (GRMN). Garmin's standalone GPS devices now face competition from Nokia's phones, like the N95. Navteq provided data for Garmin, and while Nokia is unlikely to restrict Navteq's service clients, Garmin will be looking to do its own deal. Outbidding TomTom for Tele Atlas is one scenario.

For long-term investors Nokia is still a great bet. Think of where Apple was around 2001-2002. That is where Nokia is today. The potential for all connectivity/location applications to move into cell-phones is still not being appreciated. Even Apple seems to have missed the most important part of the puzzle from its iPhone - a GPS receiver (see my earlier post). Whereas Nokia's N95 with built-in GPS receiver, mobile broadband, and a high quality camera, increasingly looks like the dream phone. Nokia is unlikely to make any large acquisitions soon, but I do think that RealNetworks (RNWK) would be a great buy towards puting all the required pieces together. Nokia did make a smaller move in that direction earlier when it acquired Loudeye.

Nokia has also been selling standalone Bluetooth-enabled GPS receivers, like the LD-3W. When combined with a net-connected device (laptop, cellphone), this makes standalone GPS devices like the ones from Garmin obsolete.

While the digital map archives from Navteq provides Nokia with a jumpstart, community efforts like Wikimapia and Google Earth will be the way people annotate maps, and then download to their navigation devices in the future. There may still be some room for the likes of Cobra Electronics (COBR) that have additional useful data like the location of all traffic lights and cameras in the U.S.

For those interested in the brains behind it all, look no further than SiRF (SIRF). Its GPS chipsets power most of the receivers out there including Nokia's and Garmin's. I have been holding SiRF for a long time now, and added more recently on weakness. It is still worth buying as we have not yet seen anything when it comes to GPS enabled devices. We will soon see most cameras come with GPS receivers so that coordinates get added to EXIF data - Ricoh has one such camera on the market (also powered by SiRF). That would make geotagging on Flickr a real breeze!

There have been a few other acquisitions in the GPS area recently. Lowrance Electronics (used to trade under LEIX on Nasdaq) was acquired by Norway's Simrad Yachting, a leader in marine electronics. Novatel (NGPS), maker of high-end GPS chipsets/antennas (mostly for the aviation market) was bought out Sweden's Hexagon. Hexagon had earlier acquired Leica Geosystems after a bidding battle against Danaher (DHR).

One area of location services that hasn't received much attention yet is tracking (i.e GPS transmitters), whether of vehicles or other devices. Companies like LoJack (LOJN) and Ituran (ITRN) provide vehicle tracking services, though still mostly used for commercial fleets. The cost of using these for personal vehicles, even taking into consideration the discounts provided by vehicle insurers, is still too high. But at some point, just like with GPS receivers, the price will drop enough to make it a mass market service. LoJack has expanded into providing laptop tracking, and newer entrants like SlimTrak even allow tracking your checked-in luggage - now that is something worth paying for, though there are cheaper, non-GPS, non-universal solutions like Global Bag Tag! Niche mobile phone services like Wherifone allow one to keep tabs on people who need attention.

Others to keep an eye on include Trimble (TRMB) (see Hit #136 (@Road)) and Pitney Bowes (PBI), whose location intelligence service (see Hit #155 (MapInfo)) is still a small part of the overall business. Higher end satellite-based service providers like KVH Industries (KVHI)) and GlobalStar (GSAT) could become attractive partners for willing buyers. See earlier post for more picks related to increasing bandwidth demand/availability.

Returning to Nokia and the dream phone, we may be looking at some very interesting features to debut soon on cellphones. There is inkless printing from Zink (do watch the demo on the site - they have working devices already) and there is personal miniature projectors, from Microvision (MVIS). The projectors have a direct application to in-vehicle navigation as well. See the demos at Microvision. I would recommend Microvision as a speculative growth play. Along with the virtual keyboard, personal wearable displays (the one from iCuiti isn't yet impressive, but we will get there!) can take the pain out of using cellphones as full-fledged computers. Built-in fingerprint authentication devices (most newer laptop models allow you to have one) will solve some of the privacy issues. Authentec (AUTH), which went public recently, seems to be the dominant provider of these fingerprint readers.

With all this on your cellphone, you may start to worry about the charge running out in minutes. Well, even that is solved with this Solio device! If only those solar cells could be built onto the back of the phone!

One thing still missing is a universal satellite radio receiver that can switch from XML to Sirius to Worldspace (WRSP) (in Asia). Fix that, and we will be one step closer to full/true mobility.

Previous hit - United Rentals (#180)

Long overdue reading update - Part 1

2007-09-03T18:20:00.000-07:00

It has been a while since my last reading update. There is a lot to write about. The backlog is long enough to provide material for 3 or more posts. The others will follow soon.

Here is the first part of the list

Traders, Guns and Money by Satyajit Das : A very readable book, with interesting details on trades gone bad. Some of the derivatives blowups explained here require an understanding of more than addition and subtraction, but if you cannot take the effort to read and understand this book, I would argue that you shouldn't be investing in anything. The recent series of hedge fund mishaps just induces a sense of deja vu. The next edition of this book will hopefully see the numerous typos fixed!
Tales from nowhere by Various authors : A collection of mostly short travel stories with interesting twists in the journeys. Good companion books would be The Lonely Planet Guide to the Middle of Nowhere and Badlands: A Tourist on the Axis of Evil. I haven't read these two but a few minutes of browsing indicated that they are worthy reads.
Marriage, a History: From Obediency to Intimacy, or How Love Conquered Marriage by Stephanie Coontz - This book is filled with interesting facts about marriage as the idea progressed through the ages. But it is a hard read given the odd organization of material and too many subjective comments by the author. While the book is supposed to be a history of marriage around the world, it deals mostly with the Western hemisphere. Even with these drawbacks, there is a lot to learn here - from the evolution of the definition of incest (you will be surprised!) to the customs of the Na people in China, apparently the only society without any concept of marriage or like institution.
Global soul : Jet Lag, Shopping Malls and the Search For Home by Pico Iyer: Not one of Iyer's best. Filled with long words, and even longer sentences, at times enough to give the reader a bad headache. If you have read The Lady and The Monk or some other earlier work of Iyer, you will be disappointed. That said, the stories here do give some interesting glimpses of lives of immigrants, refugees and expats.
Deep Ancestry: Inside the Genographic Project by Spencer Wells - A chronicling of the effort to map mankind's migration and population of the world. Neatly organized, and the website offers even more interesting tools. The project is ongoing, and hence at some places, non-genetic clues (linguistic etc) have been used to extrapolate. There may still be a bit of old-school "we came first" showing through in such extrapolations. But hopefully they will go away with the eventual finer mapping. If the theories here are correct, there are some startling facts to reconsider about race, purity etc that still holds, unfortunately, way too much significance in this world. Looks like deep down we are all mutts, given the right timescale!
Empires of the word: A Language History of the World by Nicholas Ostler - a stunningly beautiful work. While it goes into linguistic details, the average person can easily understand, or skip such portions, without losing much of the theme. Having used the contents of this book to quiz a few people, I must say that reading this will lead to some much required enlightenment!

Previous reading update.

Stop the bailout!

2007-09-02T23:44:00.000-07:00

Bush picked a Friday before a long weekend to make the first announcement of what is really a bailout. Though this is thankfully too little, too late, it should still be opposed by all decent people. Please vote against the bailout here.

It is estimated that somewhere around 2 million houses will go into foreclosure over the next year or two. Unfortunate as that may be, and harsh as it may sound, those homes deserve to go into foreclosure. They should never have been built or bought in the first place.

Why didn't anybody complain when home prices were going up 20% a year ? Why didn't anybody cry for fed intervention to prevent those gains ? That would have been the right thing to do. People who bought houses they could not afford, did it due to a combination of stupidity, willful ignorance and greed. They played the lottery, and now that they missed the right numbers, they want help ? Oh please! Let them start over again.

Among public figures asking for a bailout - Angelo Mozilo (CEO of Countrywide Financial), Alan Mullaly (CEO of Ford), Bill Gross (PIMCO chief), Jim Cramer etc. I have a few choice words for them - Shut the $%^# up!

Mozilo should have ensured that loans made by Countrywide were more appropriate (see latest NY Times piece). Mozilo could also have showed some confidence in his company by not selling such a big portion of his shares (see insider selling details at Yahoo Finance). Shouldn't Ford CEO be taking less pay (the savings can be used for helping some of the homeowners!), and talking about building cars that people would like to buy ? Is PIMCO chief really asking for a indirect bailout for his underperforming funds, as some have speculated ?

After the tech bust, countless servers and routers were being sold at firesale prices. The same is bound to happen this time, with boats, Hummers and Escalades. Fewer arrogant Hummer/Escalade drivers on the road is good!

The appeals for interest rate cuts are absurd. At 5.25% we are still at unusually low levels. If anything, we should at least get back to a more reasonable level, say 7.5%, before thinking about lowering rates. Asking for rate cuts now is a sure sign of withdrawal symptoms from people used to free money. Taking the rate to 7.5% right now would be crazy, but there is no reason to cut them either.

Then there are observers talking about a severe recession in the absence of a bailout. So what ?. What is wrong with a recession ? It is part of the normal boom bust cycle. And it is about time for a deep recession - just let it happen. It will fix a few of the excesses, though in reality we need a depression to completely get rid of the hangover from the binge.

Personally I am surprised at the number of people who even after living through (and fooled by) one bubble (tech), were fooled by another so soon after the first one. Incredible! I have been predicting a 65% drop to anybody willing to listen, and the responses were very interesting. Hah - they don't make any more land!, do they ?! Evolution doesn't seem to have helped us much in dealing with bubbles!

Popular magazines served no purpose during the boom, and are not doing much now either, still reporting median price increases and fooling so many in the process. They are still doing more harm than good by insisting that we are close to the bottom and in the worst case there will be a 10% fall and a recovery within a year. What a shame! A full recovery from such a large boom will not start without a 65% fall (inflation-adjusted) from the top. Such a fall and recovery will take 12-15 years. A few folks, like Shiller, have finally started talking about 40-50% fall in prices, but they are being ridiculed by ignorant and downright stupid reporters.

Amidst all the rubbish, I found just one piece in the mainstream magazines worth reading - see Dude, where is my bailout ?.

As for those who ask what to do with their stocks, I can point to another interesting commentary, by Ben Stein.

I have kept comments on real-estate to a minimum on this blog, with past entries made when I felt that real-estate had peaked and when I thought it was time to panic. There will not be another housing related post anytime soon barring a major event.

For your daily dose of housing/real-estate bubble related updates, I recommend these blogs:

Untethered & mobile - Part 1

2007-09-01T17:35:00.000-07:00

I have promised a few of you that I will be blogging soon on investments arising out of my own extensive research into cutting the cord. Where available, I will disclose any positions in companies mentioned.

First, here is the view from where I am blogging (while connected of course)

I am on a ledge where the only visible living creatures are a few turkey vultures and gulls. The nearest road is a mile away. The views, breeze and sounds are incredible, and I can't think of a better place to be blogging from. Here is another view, one from the bottom of my shoes.

The connection I have is also fast enough to play a few Youtube streams concurrently (listening to, but not watching, this - more about this in a later post). There aren't any wi-fi providers around here for sure.

All this made possible thanks to cellular broadband, courtesy Cingular and Sierra Wireless (SWIR). The latter happens to be my single largest holding right now. It wasn't this large a part of my portfolio when I bought earlier, but the stock has more than doubled since my purchase.

I believe that we are still in a very early phase of rapid growth in wireless broadband and its applications. I say very early because even after being available for more than a year now, there is not much love for 3G in silicon valley.

The 3G alphabet soup gets more confusing every day, but there is at least some hope that one or more of these will be available in multiple continents, with widespread deployments within a year or two. Sierra Wireless makes the connection devices, like these Aircards.

Speeds, especially with the new HSUPA protocol, are reaching ever higher levels. So much so that speed isn't really a concern anymore.

Availability/strength of service is still a problem. Widespread rollout, by Cingular and Verizon in the U.S, should address that soon.

Sierra Wireless does have competitors, chief being Novatel Wireless (NVTL). While Sierra seems to have an upper hand so far, it is impossible to say who will be the eventual winner. Competition from lower-cost Chinese/Taiwanese players is a concern, but as long as there is constant new activity requiring new products or constant upgrades, Sierra and Novatel shouldn't have any problems on that front.

End-user products are the most visible, but the embedded product market may be much larger. Also enterprise products are beginning to be rolled out.

Both Sierra and Novatel are likely being looked at as targets by existing network connectivity device providers. I do hope that they don't sellout now, given the growth potential ahead. Traditional cellphone manufacturers are also getting into this market building the ability to use the cellphone as a 3G modem without the need for an additional card.

Competition to existing protocols comes in the form of WiMax, with Sprint (S) and Clearwire (CLWR) in a race to provide service in major markets. WiMax, along with 3G, is also making it possible for countries without legacy wired infrastructure to leapfrog into the broadband era (see earlier post). Clearwire, founded by McCaw, is a WiMax pure play and a very tempting target for all sorts of companies, from Sprint to Comcast and Google!

Hit #180 (United Rentals)

2007-08-19T14:36:00.000-07:00

United Rentals (URI) is being taken out by private equity group Cerberus in a $6.6 billion deal. The cash offer, of $34.5/share, represents a gain of 133.9% over my average cost per share of $14.75.

Given the rapid deceleration in construction spending, both residential, and (soon) commercial, it seems that Cerberus could not have picked a worse time. The offer represented a tiny premium to its previous day's close, and that may be a consolation.

The only other smaller, independent construction equipment rental company seems to be H&E Equipment Services (HEES), which went public earlier last year. Shares look attractively priced, but I will be waiting for more sure signals from the construction industry before buying.

One name that you will see often on URI leased vehicles is JLG, a prominent manufacturer of various lift vehicles. JLG was acquired earlier this year by Oshkosh Truck (OSK) - see my post on a construction peak sign. The latter remains a good long-term bet on a worldwide construction/mining/resource boom.

The resource boom has led to sharp appreciation in stocks of other heavy construction and earth-moving vehicle manufacturers. For believers in a new era in resources, these are still a good bet, though I would rather wait for a global slowdown and the resulting pullback to add in volume. But a prolonged slowdown and an equipment glut may threaten some of them. Here is a list of potential buys in the sector:

Joy Global (JOYG): Prefer waiting for a better entry point.
Bucyrus International (BUCY): Insider activity indicates that a small position can be opened right away, adding more as opportunities arise.
Terex (TEX): Same comment as for Bucyrus. Also has a much higher chance of surviving a severe/prolonged downturn.
Agco (AG): Agco manufactures as well as distributes mostly agricultural equipment. This has been a good turnaround story so far, and makes for a perfect target for a larger strategic buyer.
CNH Global (CNH): A sound long-term bet. Also a possible buyer of Agco.
Deere (DE): I prefer waiting for a better price.
Caterpillar (CAT): See comment on Deere.
ASV Inc. (ASVI):The most promising bet in the sector. Insider activity is bullish. ASV is a sitting duck for an acquirer.
Kubota (KUB): I do not know enough about this Japanese manufacturer to make any recommendation.

Ingersoll-Rand (IR) just got out of this sector altogether by selling its Bobcat division to Doosan Infracore of Korea. Only time will tell if they got out at the top!

Looking much farther into the future, companies making underwater navigation equipment may have a new market to tap - ocean-bed mining. Players include Teledyne (TDY) (via its Benthos acquisition a while ago), Oceaneering International (OII) and Acergy (ACGY).

Extending coverage a bit more, Force Protection (FRPT), a maker of heavy-duty impact-resistant military vehicles should be acquired in the near future. The stock has had a spectacular run over the last few months, but could still get a substantial premium in the event of a takeover.

Previous hit - Neoware (#179)

Hit #179 (Neoware)

2007-08-19T14:07:00.000-07:00

On the same day that HP bought Opsware (see Hit #177), it also announced a deal to buy Neoware (NWRE). The cash offer, of $16.25/share, makes for a 36.8% gain over my average cost of $11.88.

I had mentioned Neoware in an earlier post (Hit #44) when Tarantella was acquired by Sun. Neoware has been one of my largest holdings, driven mainly by its takeover potential as well as its cash hoard. Given that Neoware had around $6/share in cash, the offer undervalues the company and its potential. Like with other such deals where investors got the short end of the stick, insiders must have gotten away with much more for agreeing to such a low price.

It is surprising that there haven't been other bidders. IBM, Sun, but especially Citrix, should be making an attempt to go after Neoware.

As noted in the post on Tarantella, Citrix itself remains a target - for IBM, Computer Associates or Symantec. But given its latest acquisition, of XenSource, it is unlikely to sell itself soon. Citrix now represents an alternative play on the growing virtualization trend. The leader in that sector, VMWare (VMW), just got spun off from EMC in a blockbuster IPO. Having been a huge fan of virtualization/VMWare for a while, I see tremendous long-term potential here. Citrix could deliver some magic if it were to successfully integrate its existing solutions with XenSource.

As for my proceeds from Neoware, I reinvested all of it into GateHouse Media (GHS), and promptly lost almost 15% - ouch! It wasn't meant to be a short-term investment, and hence will remain in my portfolio for a long time. As long as the dividend yield stays at or around 10%, I wouldn't have much to complain. GateHouse Media's large holder, Fortress Investment Group (FIG), is also a good value buy right now, given the depressed level of this stock following the turmoil in the credit markets, and the resulting increased potential for trouble in private equity land. Recent negative news related to Fortress' involvement in lending to Katrina victims hasn't helped either. But Fortress remains a saner alternative to the other public private equity group, Blackstone (BX).

Previous hit - Playtex (#178)

Hit #178 (Playtex)

2007-08-05T16:25:00.000-07:00

Playtex (PYX) is being bought by Energizer for $1.2 billion in a cash deal. The $18.3/share offer makes for a 77.8% profit over my average cost of $10.29.

I had mentioned Playtex as a buyout candidate when J. Jill was rumored to be a target. The only thing surprising was that Playtex, mostly known for tampons, is being bought by a company that is primarily known for batteries. While I like the premium I am getting here, this combine doesn't seem to be a natural fit at all!

There was atleast one public indicator that a takeover was coming when the CFO canceled an appearance at a conference, supposedly due to a scheduling conflict. As detailed in the WSJ report, quite a few traders may have walked away with big profits. This indicator isn't anywhere near being as interesting as the MBNA/copter crash incident.

Warner Chilcott (WCRX), which makes women's healthcare/dermatology products, could be another target, for the likes of Johnson & Johnson. The stock, in spite of the debt, looks relatively cheap.

Like with Cytyc mentioned earlier, Playtex falls into a category that is uncomfortable for many investors to talk about, let alone invest in. And for that very reason, I have fun bringing it up every time somebody touts Google or Apple. The reaction varies from person to person, but it is always memorable!

Spectrum Brands (SPC), a company similar in profile to Energizer, but in very bad shape right now, is a good speculative bet for the brave!

Previous hit - Opsware (#177)

Hit #177 (Opsware)

2007-08-05T15:59:00.000-07:00

Opsware (OPSW) is being taken out - finally! HP is putting down $1.6 billion in a cash deal, valuing shares at $14.25 a piece. That offer makes for a 141.5% gain over my average cost of $5.9.

I have repeatedly mentioned Opsware as a target in the past, including in a post titled What should HP do ?. There I said - HP should buy one or all of these players - Veritas (VRTS), Opsware (OPSW), Altiris (ATRS)! More than 2 and a half years later, HP decided to act!

While the offer is fair, I am stunned by the lack of competing bids. Companies from EMC (see EMC trips) to Symantec and BMC to Macrovision (see A tech heavyweight in the making) should be going after Opsware!

Read more about the deal directly from Marc Andreessen - HP buys my company ....

With this deal, there aren't any more targets left in this sector. Companies like BMC and Macrovision can themselves be targets, but for shareholders they are better off as standalone companies given the growth potential in the sector.

Previous hit - DJO (#176)

Hit #176 (DJO)

2007-08-01T08:17:00.000-07:00

DJO (DJO), formerly called dj Orthopedics, is being acquired by Blackstone Group for $1.6 billion in cash. The offer, of $50.25/share makes for a gain of 190% over my average cost of $17.31.

This comes just weeks after Blackstone, with others, bought another related public company, Biomet (BMET). Among the remaining, Smith & Nephew (SNN) looks like the next likely target in the sector.

For those looking at speculative smaller players, Alphatec (ATEC), Hanger Orthopedic (HGR) and Langer (GAIT) provide growth opportunities, with Hanger looking like a sound bet for the long term.

Previous hit - Rural Cellular (#175)

Hit #175 (Rural Cellular)

2007-07-30T23:26:00.001-07:00

Rural Cellular (RCCC) is being acquired by Verizon in a cash deal. The $45/share offer represents a gain of 733% over my average cost of $5.4 (bought a bit more than 2 years ago).

I have mentioned Rural Cellular a couple of times in the past, first when the then SBC bought BellSouth, and later when the original AT&T got acquired by SBC (the new AT&T).

The other targets mentioned in those posts have all been acquired in the recent past. Dobson Communications was bought by the new AT&T, and Alltel by private equity.

Centennial Communications (CYCL) remains a target, though not sufficiently attractive to be a buy right now. Citizens Communications (CZN) is another rural operators that, with a current yield of 7% and trading near its 52-week low, looks like a bargain.

Windstream (WIN), which recently bought CT Communications (CTCI), is itself a very compelling buy now for long-term holders. I expect Windstream to get taken out eventually. In the meantime the 6.5% yield, and hoped-for appreciation, will do a good job of contributing to juicy returns.

Warwick Valley Telephone (WWVY) and North Pittsburgh Systems (NPSI) are also speculative bets, though not stocks I am comfortable buying at present. A buyer for these may come from others listed in this post!

Still keeping the focus on rural service providers, cable/broadband providers like Mediacom Communications (MCCC) and Knology (KNOL) will be natural targets now. I have owned Mediacom shares for a while now, though nothing much has really happened to the shares since I bought them. I will be holding till the buyout.

Time Warner Telecom (TWTC) and recently spun off Time Warner Cable (TWC) are also worth watching, with the latter still making for a good buy.

Previous hit - Greater Bay Bancorp (#174)

Hit #174 (Greater Bay Bancorp)

2007-07-22T14:12:00.001-07:00

One of Bay Area's last independent regional banks, Greater Bay Bancorp (GBBK), is being bought by Wells Fargo for $1.5 billion in a cash & stock transaction. The offer, amounting to around $28.5/share, translates into a gain of 15.24% over my average cost of $24.73.

I have mentioned Greater Bay in the past, when the company put itself up for sale and in another post on bank mergers.

With this, the remaining two Bay Area banks, Bridge Bank (BBNK) and Silicon Valley Bank (SIVB), should naturally become targets. I do not own either of them, and would be looking for a good entry point. Another bank with a large Bay Area operation, First Republic Bank (FRC), is being acquired by Merrill Lynch in a transaction that involved a large premium.

Identifying smaller banks that are takeover targets is more fun than one imagines. See earlier posts on going after a particular buyer (Who is next for Rabobank) and profiting from road-trips (Feeling Arizona and Revisiting Arizona).

The latest subprime related scare has created a few buying opportunities in high quality and well-managed banks. I have been buying or watching a number of them. An incomplete watchlist is here:

PrivateBancorp (PVTB)
Bryn Mawr Trust (BMTC)
Trustmark (TRMK)
Renesant (RNST)
UnionBanCal (UB)
Umpqua Holdings (UMPQ)
People's United Financial (PBCT)
Virginia Commerce Bancorp (VCBI)
Severn Bancorp (SVBI)
Farmer's Capital Bank (FFKT)
New York Community Bancorp (NYB)
Capital Bancorp (CBC)
KeyCorp (KEY)
National City (NCC)
Heritage Oaks Bancorp (HEOP)
Capital City Bank (CCBG)
Vineyard National Bancorp (VNBC)
PFF Bancorp (PFB)
Huntington Bancshares (HBAN)
Popular Inc. (BPOP)
Old National Bancorp (ONB)
Bank of Florida (BOFL)
Pacific Valley Bank(PVBK)
Hampton Roads Bankshares (HMPR)
Texas Capital Bancshares (TCBI)
Colonial Bancgroup (CNB)
Lakeland Bancorp (LBAI)
LNB Bancorp (LNBB)
Bank of Granite (GRAN)
German American Bancorp (GABC)

Previous hit - Bisys (#173)

Hit #173 (Bisys)

2007-07-22T11:36:00.000-07:00

Bisys Group (BSG) is being acquired by Citigroup for around $1.5 billion in cash. A special dividend of 15 cents/share was also announced subject to completion. The total offer price is a discount of 12.8% to my average cost of $13.75.

The offer is unusually low, even for a company like Bisys that may have more regulatory troubles ahead. Bisys has already agreed to a $66.5 million settlement with shareholders over allegations of misleading financial statements. There has also been a $25 million fine by the SEC over improper accounting and reporting. Having been a customer of Bisys myself, I have nothing positive to say about the experience. Given all this, it is surprising that no executive has landed behind bars.

The second largest shareholder in the company, Okumus Capital, is opposing the deal saying it signficantly undervalues the company - I couldn't agree more. It would be interesting to find out what kind of sweet package to Bisys executives got them to agree to a deal that is clearly not in the interests of the shareholders.

I had mentioned Bisys in a couple of posts a long time ago - once when Intercept (Hit #22) was bought out, and later when NYSE and Archipelago merged.

A related player I would highly recommend at this point is Broadridge Financial (BR). Barring a Bisys-like sellout, this should be bought for a considerable premium down the road. I mentioned Broadridge earlier when Ceridian (Hit #169) was acquired.

Previous hit - Cytyc (#172)

Hit #172 (Cytyc)

2007-07-20T21:15:00.000-07:00

Hologic (HOLX) is buying Cytyc (CYTC) in a deal that is set to create a powerhouse in women's health. The part cash / part stock offer, of $6.2 billion translates to $46.46/share, representing a gain of 189.4% over my average cost of $16.02.

This sector has seen incredible activity over the last year. In spite of the activity, and in spite of Even Ensler, there is a stubborn unwillingness to talk about things like endometriosis, menorrhagia or cervical cancer. For most men, and an overwhelming number of investors are, these topics are downright scary!

Here is a glimpse of the recent activity in this sector. Cytyc had bought Adeza not too long ago, paying a sizeable premium (I had missed Adeza by just a few days!). The furious bidding battle over Biosite ended just recently - Beckman Coulter and Inverness Medical were fighting with ever higher offers. Qiagen bought Digene just weeks ago. Going a bit further into imaging/diagnosis, MDZ bought Molecular Devices a few months ago. Ventana Medical just got a hosite bid from Roche. And now Hologic is itself rumored to be a prey after its stock fell following the offer for Cytyc.

The pace is set to continue. There are still a large number of takeover candidates out there, including recently public companies. To understand the trends and leading edge research in this sector is critical for long-term investors. I would recommend reading books like End of Medicine, Inside the FDA and Survival of the Sickest. They give a great summary and they are well-written too.

I expect to see a huge shakeout in this sector, and the broader diagnosis/automation/equipment/reagents sector. Companies like Invitrogen (IVGN), Cepheid (CPHD), Beckman Coulter (BEC), Quest Diagnostics (DGX), Inverness Medical (IMA), Bio-Reference Laboratories (BRLI), Dade Behring (DADE), Sigma Aldrich (SIAL), Qiagen (QGEN), Invacare (IVC), Varian Medical Systems (VAR), Becton Dickinson (BDX), MDS Inc. (MDZ) are worth following to buy on serious dips. I have recently opened positions in Invitrogen and MDS.

An attractive buy at this point would be Genomic Health (GHDX) which develops genomic tests to determine the odds of cancer recurrence and the nature of response to chemotherapy. Genomic's test for breast cancer is now formally approved by various health insurance providers. The company went public about a year ago, and hasn't been noticed much. I have been buying shares regularly, and will continue to buy.

Quidel (QDEL) and Iris (IRIS) are also recommended buys given their growth potential, and eventual buyout likelihood.

Meridian Bioscience (VIVO) looks like another target, and has been on my watchlist for a while. Branching further into imaging and related areas, companies like Vital Images (VTAL), Digirad (DRAD), Microvision (MVIS), Volcano (VOLC), American Medical Systems (AMMD), Urologix (ULGX) are worth watching, though except for Vital Images and American Medical, I would consider them to be speculative.

Previous hit - Oakley (#171)

Hit #171 (Oakley)

2007-07-07T11:48:00.000-07:00

Oakley (OO), the purveyor of stylish glasses (with MP3 players now), is being bought by Luxottica (LUX), the Italian house that owns, among other brands, Ray-Ban. The cash offer of $2.1 billion, translates to a price of $29.3/share which is a 86.27% gain over my average cost of $15.73/share.

I have owned Oakley for a while now, with the first buy at around $13.5 following an earnings miss a few years ago.

I don't own any Oakley products (I am still waiting for the glasses to carry satellite radio receivers!), but my few visits to the stores (see Yelp review) have been very informative. The glasses with mp3 player look and sound great. Wonder what is next! Oakley has been able to maintain an image as being different from the rest of the crowd, by promotion via lifestyle mags, by using cult icons and by never discounting merchandise.

Going into other similar plays, True Religion (TRLG), Deckers Outdoors (DECK) and Tiffany (TIF) are great targets. All of these are expensive currently, with Tiffany being the only one still worth buying. I would like to see a deeper pullback and/or large insider buys to get into True Religion and Deckers. Unlike fine jewelry from Tiffany, there is also the question of being able to continue commanding premium prices for jeans and Ugg boots. Just as with any fad, they may fade away in a flash.

Retailers like Sharper Image (SHRP) and Restoration Hardware (RSTO) also fall into a niche/premium category. Both are turnaround candidates, though they both seem sick as ever.

Sharper Image especially seems to be in a mess of its own making. The stores are small and packed like a garage. The staff seem to be completely uninterested in responding to questions, and this is from personal experience at more than a handful of locations. What Sharper Image needs is larger stores, with elegant and organized displays, and staff who know about the stuff on sale, and are geniunely intereted in giving demos. If they don't realize that, somebody else will, and make a bid for them, though at this point such a bid will not be very rewarding to investors and will not reflect the long-term value in the company.

Restoration Hardware fares better when it comes to both displaying their wares and having friendly, with room for improvement, staff. But somehow they don't seem to be able to do much to get out from the slump. The housing slowdown will not help them either.

One particular product company that should follow the Oakley model of having its own stores is iRobot (IRBT). Selling through other channels just doesn't do justice to their growing range of products, especially since buying them needs convincing casual customers, and that needs friendly/enthusiastic/knowledgeable people. Did I mention that Sharper Image doesn't fit the bill ?

I would recommend all the three, Sharper Image (SHRP), Restoration Hardware (RSTO) and iRobot (IRBT), especially iRobot, to patient investors.

Previous hit - 1-800 Contacts (#170)

Baby you can drive my iCar ...

2007-07-04T15:21:00.000-07:00

It looks like I am the only one to not say anything about the new iPhone. Feeling a bit lonely, I decided to take a shot at what is next for i.

We have seen an iCeo, but not an iPresident yet. Anything would be better than the current lame-duck one.

iRobot is already taken. So that can't be it.

How about iCar ? At this point, anything less than that would be a disappointment and cannot be a true follow-on act to the iPhone.

What would the iCar have ? Unlike the iPhone, I hope a GPS. Unlike the iPod, I hope it is available in more colors, right away. A makeover for the VW Bug or the Mini would fit the bill. Then again, Silicon Valley's very own Tesla may be the best candidate to collaborate with Apple on it.

As for the iPhone, I was shocked to see that a GPS was not included, and that was enough to make to stay away. Having the ability to use only the slow EDGE network is another disappointment. As some have started guessing, the next version will likely fix both. But then, it would be almost time, and waiting for the iCar may be more worthwhile.

Hit #170 (1-800 Contacts)

2007-07-04T12:53:00.002-07:00

Contact lens seller, 1-800 Contacts (CTAC) is being acquired by Fenway Partners for $380 million. The $24.25/share cash offer represents a gain of 23.98% over my average cost of $19.55.

I am happy to see this taken out, even at this not-so-juicy premium. Having my eye fixed via Lasik recently, I just do not see contact lenses surviving much longer, unless of course some previously unknown side-effects of Lasik surface.

Among Lasik providers, LCA Vision (LCAV) has performed very well. The stock is somewhat expensive, though for long-term holders that should not matter much. TLC Vision (TLCV) is more speculative at this point, and the insider selling doesn't make things better.

Advanced Medical Optics (EYE), which recently acquired laser correction equipment maker Intralase (Hit $138), is a compelling buy now. The stock is depressed after a recent recall of a lens care product. A potential bid, which now seems unlikely, on Bausch & Lomb (BOL) from Advanced Medical, also may have scared away investors. I have opened a position recently, and would continue to buy around its current price.

An extremely speculative play, but with lots of supporting insider action, on eye-care solutions, including post-Lasik care, is Insite Vision (ISV). I have owned shares for a long time now, and have added more recently.

Previous hit - Ceridian(#169)

Hit #169 (Ceridian)

2007-07-04T12:53:00.001-07:00

Ceridian (CEN) got a $5.3 billion cash offer from Fidelity National Financial and Thomas H. Lee Partners. The deal may yet be in trouble due to strong opposition from a large holder, Pershing Square Capital, who contends, rightly, that the offer is too low.

The $36/share offer translates to a gain of 102% over my average cost of $17.79.

Like a number of other investments, my first encounter with Ceridian (as my employer's payroll processor) was what piqued my interest. Along the same lines, I have invested in, and would still be a buyer of, Administaff (ASF), which would make for a very nice target for someone like Paychex or Fidelity.

A few others in this sector are also worth looking at. Paychex (PAYX) at its current price provides an attractive entry point for long term buy-and-holders. H & R Block (HRB), which has tried to offer payroll processing but with limited success so far, is also a good investment, both as a takeover target and as a turnaround candidate after its recent exit from subprime lending. H & R Block will be a perfect buyer for Administaff as a pathway into payroll processing.

Automatic Data Processing (ADP), the largest player in the sector, recently spun off Broadrange Financial (BR). The latter is likely to be taken out down the road, and makes for a good buy today.

Previous hit - Acxiom(#168)

Hit #168 (Acxiom)

2007-05-21T22:57:00.000-07:00

Acxiom (ACXM), which has had buyout offers before, finally seems to have received a bid that is likely to go through. A $2.25 billion cash offer from ValueAct Capital and Silver Lake Partners is the latest one. Business Week has a story on how this is turning into a battle between hedge funds, with another large holder Millbrook Capital Management thinking, rightly in my opinion, that this offer grossly undervalues the future potential.

The current offer of $27.1/share makes for a gain of 14.98% over my average cost of $23.57, but the final price may be somewhere close to $35 before this battle is over.

I had mentioned Acxiom repeatedly in the past - in a note on defense/security targets and again in a post on Engineered Support Systems' takeover by Boeing.

A player in a related sector, Choicepoint (CPS), could also become a target down the road. The stock isn't cheap today, and a pullback is needed before I can consider opening a position.

Previous hit - ecollege (#167)

Hit #167 (eCollege)

2007-05-21T22:39:00.000-07:00

Online education enabler, eCollege (ECLG), is being bought by Pearson for around $530 million in cash. The $22.45/share offer makes for a gain of 13.1% over my cost/share of $19.85.

I have been waiting for this for a while now, though a higher price would have been more welcome! Given rival Blackboard's relative success, eCollege had to settle for less.

Few others in this or related education/skills monitoring sector look attractive. These include Plato Learning (TUTR), Renaissance Learning (RLRN), SkillSoft (SKIL) and Princeton Review (REVU). Among these Plato has been on my watchlist for a while, though I have not bought any shares yet.

Previous hit - 21st Century (#166)

Hit #166 (21st Century)

2007-05-20T12:48:00.000-07:00

21st Century (TW) finally got a higher offer from AIG as expected. I had posted on this deal earlier. The new cash offer, of $22/share, represents a gain of 48% over my cost/share of $14.86.

21st Century is among those few stocks that I bought after an all-round great experience as a customer. The insider buying and the dividend played a part as well. 3 years running as a customer, and still not much to complain! A good portion of the the gain came from (reinvested) dividends.

Others like Arthur J. Gallagher (AJG) and to a lesser extent, Progressive Corp. (PGR), look attractive for long-term holders. AJG sports an attractive dividend of 4.3%.

Previous hit - Sallie Mae (#165)

Hit #165 (Sallie Mae)

2007-05-20T12:28:00.000-07:00

Sallie Mae (SLM) is being bought by a consortium that includes Bank of America, J.P. Morgan Chase and J.C. Flowers, for $25 billion in cash. The offer, of $60/share, makes for a profit of 58.9% over my average cost of $37.75. The deal may yet be in trouble, as noted here, but in the worst case the offer price will be reduced, and the sale itself is not likely to fall through.

The student loan sector is under a cloud with investigations into various practices. That still did not prevent a spike in competitor Student Loan Corp. (STU) 's shares. STU may receive a bid of its own, but the stock looks expensive now.

Another lender that has its share of troubles is First Marblehead (FMD). A bit risky than the rest, given that this is not seen as a takeover target, this could well be a better long-term bet than STU. I have added FMD to my watchlist, and will be waiting patiently for the right moment to open a position.

Previous hit - First Data (#164)

Hit #164 (First Data)

2007-05-20T11:58:00.000-07:00

First Data Corp. (FDC) is being acquired by KKR in one of the largest cash buyouts ever, for $29 billion. The offer, of $34/share represents a gain of 112.5% over my average cost of $16/share, adjusting for the recent spinoff of Western Union. In a post almost 2 years ago when Intercept (Hit #22) was acquired, I had noted that First Data was undervalued, though I suggested that it was too big to be a takeover target!

The offer frankly seems a bit on the low side. FDC, like Sungard Data (Hit #36) earlier, makes for a good private equity flip candidate.

Another player in this sector, Alliance Data (ADS) got a bid earlier this week from Blackstone. At this point, the remaining players, Fiserv (FISV), Total System Services (TSS), EFunds (EFD), are all trading at expensive valuations. EFunds had recently announced that it is exploring a sale of the company.

Electronic Clearing House (ECHO), could be a good bet, though a speculative one. The earlier offer from Intuit fell through, and the stock has since pulled back substantially.

I have owned a few Fiserv shares for sometime, and bought into ECHO recently.

Western Union (WU), despite being dumped by Buffett recently, is a good long-term bet, as international transfers spike. Someone like Citibank or HSBC may end up buying them eventually, if only for the huge user-base. If you would rather not bet on one horse in a sector, I would recommend buying both Western Union and Moneygram (MGI) shares for the long haul. In an earlier post on the urge to diverge, I had written more on investing in spinoffs.

Previous hit - MedImmune (#163)

Hit #163 (MedImmune)

2007-04-22T23:39:00.000-07:00

MedImmune (MEDI) is being bought by AstraZeneca for $15.6 billion in cash. The offer, of $58/share, represents a gain of 136% over my average cost of $24.61.

AstraZeneca is grossly overpaying in this deal. On the bright side, at some point in the not-so-distant future, AstraZeneca will severely disappoint investors due to costs and failure to realize gains - that will be a good time to buy AstraZeneca shares. The stock has an attractive yield already, but it will be even more juicy on a substantial pullback. I will be sure to post when that happens.

MedImmune has been a target of activists, most notably Icahn. This will be a payday to remember for him!

Not too long ago, AstraZeneca also overpaid in a deal for Cambridge Antibody (Hit #96). The deal flow in this sector is not going to subside anytime soon.

Previous hit - OMI (#162)

More diversions

2007-04-22T20:08:00.000-07:00

Another weekend post that is meant to reflect on things other than the mundane.

A reading update is long overdue on this blog, and I am still planning on a dedicated post on recent reads soon. For now, a couple of books will get a mention in this post.

Watching clouds: when was the last time you looked up to see clouds and marvel at the vareity of forms, or tried to estimate their height or guess the wind direction from them ? Don't recall ? Then it is time to peek at the skies the next time you are going nowhere in commuting traffic. The Cloudspotter's Guide by Gavin Pretor-Pinney can be your handbook. Check out the related website - The Cloud Appreciation Society. You can see my own attempts to capture clouds here - I still have a lot to learn!

More blog bling: I have been slowly adding a few more widgets to my blog page. These mostly link to my other interests and activities recorded elsewhere. There is the Kiva link on the right tracking micro-loans to enterpreneurs in the developing world, and there is the link to my picture portfolio at flickr. I have just added a Yelp link to reviews, of eating places and more. I am considering a few more similar additions. Since I am still experimenting with these, any feedback is more than welcome.

Bird-watching: Watching our avian friends has been something of a hobby for a long time, but until now I did not take it seriously enough to try and identify the species. You can see some of my bird pictures here. The patience needed to take bird shots, especially close-ups, is astounding. Having a high-zoom camera is a plus, but that is not enough. Learning to tip-toe, to move your camera in slow-motion and the ability to hold your breath and not blink, are all things you learn on your way to good bird shots. This was the toughest one so far, but I hope to get even better at it over time. I just started reading To See Every Bird on Earth: A Father, a Son and a Lifetime Obsession - the story of one of the greatest bird-spotters of all time. It is a stunning story. I will be glad if I get to see, in the wild, a tenth of the number of species, over my lifetime.

Here are a few more interesting links.
The City Birder: blog on bird-watching in Bronx/NYC.
SF birds: a list, linked to details, of birds seen in and around San Francisco.
Birds on stamps: a site dedicated to listing every stamp with a bird on it!

Electric Carnatic: I should warn you that like with any class of music, taste for Carnatic music is more acquired than anything else. Carnatic is the traditional/classical music of South India, with a history of atleast 300 years. Over time, a number of Western instruments, ranging from violin and saxophone to mandolin and the electric guitar have become part of the scene, along with the dozens of traditional instruments like tabla, veena and mridangam. For Carnatic on the electric guitar, there is none yet to match performances from Prasanna. Check out the Sindhu Bhairavi recital on YouTube - the recording is not clean, and there is background noise, but that doesn't do anything to diminish the beautiful sounds! For a clean sample without all that noise, check out Indra's Necklace, on Rhapsody. I hope you enjoy it.

Hit #162 (OMI)

2007-04-20T02:12:00.000-07:00

Tanker operator OMI Corp (OMM) is being acquired by Teekay Shipping and Danish tanker operator TORM, who plan to split up the assets. The $2 billion cash deal turns out to be a $29.25/share offer, translating to a gain of 89.1% over my average cost of $15.47/share.

I had mentioned my position in OMM when CP Ships (Hit #59) was acquired. The other open position mentioned in that post was in Dry Ships (DRYS) whose shares have more than doubled since then.

At this point, it is hard to find a cheap shipping stock. The ones that seem cheap, like Double Hull Tankers (DHT) and Aries Maritime Transport (RAMS) are not quality buys. If I had to buy something in this sector now, I would go after the larger players, even though they are not takeover targets - these are operators like General Maritime (GMR), Frontline (FRO), Overseas Shipholding Group (OSG), Nordic American Tanker (NAT) and Ship Finance (SFL).

Seaspan (SSW), also mentioned in that earlier post, is a quality long-term buy, even after the sharp runup in recent months. Other shippers - Eagle Bulk Shipping (EGLE), Diana Shipping (DSX) and Genco Shipping (GNK) - all listed in the post on Maritrans (Hit #116) takeover are expensive now. Quintana Maritime (QMAR) may be the only one worth opening a position in, but I have some more research to do there.

Previous hit - Cutter & Buck (#161)

Hit #161 (Cutter & Buck)

2007-04-20T01:39:00.000-07:00

Cutter & Buck (CBUK), which sells golf apparel and accessories, is being bought by Sweden's New Wave Group AB for $156 million in a cash deal. The offer, of $14.38/share, makes for a gain of 21.1% over my average cost of $11.87/share.

I had mentioned Cutter & Buck as a target when Russell (Hit #90) was acquired by Berkshire. Another player mentioned in the same post, Ashworth (ASHW), remains a target and still looks attractive.

That same post had also listed then recent IPOs like Volcom (VLCM), Under Armour (UA), Zumiez (ZUMZ) etc as potential long-term buys. While all of them are trading sideways now, I am not still ready to open more than just a token position in them. Quicksilver (ZQK), on the other hand, is starting to look very attractive.

Previous hit - Mobius (#160)

Hit #160 (Mobius)

2007-04-19T23:46:00.000-07:00

As forecast repeatedly in this blog, Mobius Management (MOBI) is finally being acquired. The buyer, Allen Systems Group Inc., is paying $10.05/share in a cash deal valuing the company close to $200 million.

This offer represents a premium of 53.2% over my average cost of $6.56/share.

I had picked Mobius as a target repeatedly in the past - when FileNet (Hit #111) was bought, and later when Stellent (Hit #123) was acquired, and then again, when Docucorp (Hit #135) was taken out.

To go with the regular recommendation, I accumulated Mobius shares over time, making it a larger than usual holding in my portfolio. I will be looking to reinvest the proceeds in a different sector.

Interwoven (IWOV), Vignette (VIGN) and to a lesser extent , OpenText (OTEX), remain targets, but they are all expensive at this point. A smaller, but much more speculative, buy would be OmTool (OMTL).

Previous hit - Tribune (#159)

Hit #159 (Tribune)

2007-04-15T23:32:00.000-07:00

Sam Zell found a good way to invest his proceeds from the sale of Equity Office. He is buying Tribune (TRB), in a $8.2 billion cash deal. The $34/share offer represents a profit of 24.13% over my cost/share of $27.39.

There was a bidding battle behind the scenes, and the other two billionaires who came close to clinching the deal, Ron Burkle and Eli Broad, may still come back with a higher bid. Ron Burkle recently cashed out in another deal - Wild Oats (Hit #147).

Sam Zell seems to have some plans for Tribune, that includes enhancing its online presence. He is right on target there. Newspapers, with their original content, and long-term relationships with advertisers, especially local/small businesses, should have found a way to convert their websites into money-making machines. But they failed, mostly due to lack of effort and allowed Google to get all those dollars.

It is hard to believe it today, but online newspapers can really get more ad-dollars than what they get now. It may take a Sam Zell to show how to do it.

New York Times (NYT), McClatchy (MNI), Dow Jones (DJ), Lee Enterprises (LEE), Gannett (GCI), E W Scripps (SSP), Journal Communications (JRN) are all, at varying levels, still good buys, either as buyout targets or as turnaround candidates. Most have attractive yields, that should compenstate for the potentially long holding period. If I had to pick one, I would go with McClatchy.

This deal marks another milestone in the curent frenzy of media buyouts. Clean Channel got an offer earlier (Hit #131) - that is also when I mentioned Tribune and New York Times.

Previous hit - ServiceMaster (#158)

Hit #158 (ServiceMaster)

2007-04-15T22:25:00.000-07:00

ServiceMaster (SVM) is being bought by private equity group Clayton, Dubilier & Rice for $4.8 billion in a cash deal. The per-share offer of $15.63 makes for a gain of 36.27% over my average cost of $11.47. As with any high dividend yielding stock, a good portion of my gains were the result of (reinvested) dividends.

I had detailed my interest in Servicemaster long time ago in this post on service sector players.

There aren't any other players in this sector worth recommending right now. But Harte Hanks (HHS), the company behind those coupons in your mailbox, promoting offers/discounts from Servicemaster as well as other businesses, will be worth watching. I would like to see a significant pullback in the shares before I consider buying them.

Previous hit - Image Entertainment (#157)

Spring break!

2007-04-09T22:15:00.000-07:00

No real break for me, but I thought I would post something to celebrate the great weather over the last few days, and which is set to continue. This is the best part of California living - the blue expanse, high sprinkled cirrus, flowers in bloom and all those wonderful creatures springing to life! So, don't forget to stop and smell the flowers.

As they say, life is much more than work and money. So before I make my next post on the urge to merge, here are a few amateur shots that I hope you enjoy as much I did taking them. Click on an image to see it in larger resolution - most of these are best viewed in much higher resolutions but I couldn't get the larger size images to fit well into the default blog layout.

Yearning for the big blue

Weekend workers

The Blues Brothers

Yellow fever

Showing some skin!

Small, yet regal

Nowhere but here

Pretty tail

A must see

Poppies!

The other urge to merge

Not for a while

Hit #157 (Image Entertainment)

2007-04-08T13:20:00.000-07:00

Image Entertainment (DISK) is selling itself to BTP Acquisition Inc. for around $130 million. The cash offer amounts to $4.4/share, a tiny gain of 8.1% over my average cost of $4.07.

Image was earlier a target of a hostile bid from Lions Gate Entertainment. While that would have been a good combine, the advance was rebuffed.

Cash for my Image shares purchase came from proceeds from the takeover of E-Loan (Hit #57), making for a minor bump from the original gains. I will be looking at investing cash from this buyout into Lions Gate (LGF) as it still remains a target for major Hollywood studios. I have been looking at Lions Gate for quite a while now, with an earlier mention made in this post.

Previous hit - Sierra Health (#156)

Hit #156 (Sierra Health)

2007-04-08T12:36:00.000-07:00

Sierra Health (SIE) is being bought by UnitedHealth for $2.6 billion in a cash deal. This offer, of $43.5/share, makes for a gain of 31.98% over my average cost of $32.96.

My Sierra Health purchase was completely funded by proceeds from another takeover - that of Encore Medical (Hit #104), and so represents a nice compounding effect. Part of the gains from Encore went into National Medical Health Card Systems(NMHC).

The price being paid is lower than what I expected. There are some attempts by AMA to block the deal, but it is likely to get regulatory approval. I was hoping to see another bidder, say Aetna, pony up more, but the prospects have faded away.

I had made a post on Sierra when it came out with disappointing earnings news. I mentioned Aetna as the prospective buyer, with a price target of $44-50.

Aetna was also subject to a similar pullback, and I had recommended the stock then. Shares have since recovered strongly, and I would avoid buying more at this point.

One other player that I mentioned in the past was Molina Healthcare (MOH). I am still holding onto my shares bought then, enjoying the wild-ride! Molina today doesn't look undervalued anymore, though the company is cash-rich compared to its peers. Molina is still likely to see a 30% premium in a takeover. And, Michelle at footnoted has found an interesting reference to change in control in Molina's latest SEC filing. A buyout must be on the cards.

A few other playes in the sector, like Centene (CNC), Amerigroup (AGP) and National Medical Health Card Systems (NMHC) look attractive - I listed a few of them here. HealthSpring (HS), which went public last year, is not cheap anymore. I would wait before adding to my position there.

Previous hit - MapInfo(#155)

Hit #155 (MapInfo)

2007-04-03T02:36:00.000-07:00

MapInfo (MAPS) is being bought by Pitney Bowes (PBI) for $406 million in cash. The offer of $20.25/share represents a gain of 105% over my average cost of $9.88.

I would have welcomed a stock swap as Pitney Bowes, especially at an effective discount and hence a higher real yield, is a great buy and hold forever stock. For long-term investors Pitney Bowes is still a good buy.

I mentioned MapInfo when @Road (Hit #136) got acquired. One other mapping service provider cited in that post, Navteq (NVT), a Philips spinoff, remains a buy today.

Ituran (ITRN) and LoJack (LOJN) also good as long term growth plays, but be prepared to add at lower prices.

Previous hit - WebEx(#154)

Hit #154 (WebEx)

2007-04-03T02:18:00.000-07:00

WebEx (WEBX) finally got acquired by Cisco for $3.2 billion in a cash deal. The offer of $57/share represents a gain of 164% over my average cost of $21.55.

This was one of my many tech buys in 2002-2003 after the tech bust. This offer from Cisco is frankly much higher than anything I had imagined for WebEx. Cisco is overpaying, but the deal could still be a transforming one for the buyer.

Cisco's own high-end video-conferencing solution released recently was very well received. WebEx will complement it on the lower-end.

Two other companies to watch in this sector are Polycom (PLCM) and Radvision (RVSN). I wouldn't recommend buying either one right now.

Previous hit - Dollar General(#153)

Hit #153 (Dollar General)

2007-03-25T12:30:00.000-07:00

Dollar General (DG) is being taken private by KKR in a mega deal valuing the company at $7 billion. The offer, cash of course, translates to $22/share, a gain of 14.5% over my average cost of $19.21/share.

Dollar stores have been expanding at a steady pace. I mentioned a few of them in this post after an earlier Arizona trip. The other dollar stores listed in that post, Dollar Tree (DLTR), 99 Cents Only (NDN), Family Dollar (FDO) may all end up with other/larger retailers, but for now they all look expensive following the Dollar General deal.

This buyout follows a similar, but much smaller deal for Smart & Final (Hit #145). And there is more to come!

Previous hit - SafeNet(#152)

Hit #152 (SafeNet)

2007-03-08T01:28:00.000-08:00

SafeNet (SFNT) is being acquired by Vector Capital in a $634 million buyout. The cash offer of $28.75 gives me a 37.9% gain over my average cost of $20.85.

I had bought SafeNet after it had pulled back following options related investigations. I had mentioned in this post that it had become attractively valued.

Given the depressed price to start with, the company is going for a bargain. Shareholders deserve better, and the former executives deserve long prison sentences - if only it worked that way!

I would also have expected some strategic buyer to show interest. In my posts (here and here) I had speculated on possible larger corporate buyers. There may yet be a counter-offer. And hopefully this one won't insult shareholders.

Other targets mentioned in my earlier posts, Websense (WBSN), Secure Computing (SCUR), Aladdin (ALDN) and Blue Coat Security (BCSI) have all moved up considerably over the last few months. Aladdin and to a lesser extent, Websense, are still worth buying at current price levels.

But beaten down Symantec may be the best security buy now for long-term investors.

A recent IPO in the security-related sector is Guidance (GUID). Guidance will likely be acquired down the road, but during the current growth phase it could generate tremendous returns to investors before that happens.

Previous hit - Dendrite(#151)

Hit #151 (Dendrite)

2007-03-08T01:27:00.000-08:00

Dendrite (DRTE), a sales/marketing services provider to the pharmaceutical industry, is being acquired by French company Cegedim SA. The $751 million cash offer translates into a per-share price of $16, a discount of 9.8% to my average cost of $16.42.

I was hoping this to be a long-term winner but the stock hasn't budged since I bought it a couple of years ago.

Another company to watch here would be PDI (PDII), which still looks attractively valued.

Previous hit - Hyperion (#150)

Hit #150 (Hyperion)

2007-03-08T01:18:00.000-08:00

Hyperion (HYSL), after years of being rumored to be a target for one buyer or the other, is being bought, by Oracle. The cash offer of $3.3 billion translates into $52/share, a gain of 138.5% over my split-adjusted average cost of $21.8.

I had mentioned Business Objects (BOBJ) as the next top target for Oracle. I was wrong on that count.

This is a good buy for Oracle, and will hurt SAP given the latter's close partnership with Hyperion. SAP itself may go after Business Objects (BOBJ), while IBM probably will like Cognos (COGN).

Oracle's buying spree, noted in some of my posts, is hopefully coming to an end. Oracle needs some time to digest the pieces. The spree has already led to Oracle's shares being consistently ignored and undervalued as some of the cost-cutting/productivity promised has not materialized. Investors with a longer-term outlook should be buyers at this point, since I believe ultimately Oracle would have come out far ahead, thanks to these acquisitions.

On the lower end, Oracle will likely have to give away its database for free, but the resulting revenue loss should be made up by selling newer higher-level bundles.

So, who will it be next for Oracle ? I had made a list of possible candidates in two posts - here and here. I would assume that BEA (BEAS), Lawson (LWSN) and Informatica (INFA) are the ones on the top of the list.

Previous hit - Cronos(#149)

Hit #149 (Cronos)

2007-03-08T01:08:00.000-08:00

Cronos (CRNS) is being taken private in a management-led buyout. The $133 million cash offer translates into a per-share price of $16, representing a gain of 34.2% over my average cost of $11.92.

The only other public company in this sector, InterPool (IPX), got its own offer earlier this year. The company is yet to decide on the offer, and is probably just waiting for the bid to be raised before accepting.

While not a direct sector play, Pacer (PACR), a spin-off of APL, makes for a long-term dividend-yielding bet on intermodal service.

Since we are on containers, for the interested I would recommend this recent book The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger. I have read a few pages, but will be waiting for the softcover edition to read further!

Previous hit - Smith & Wollensky(#148)

Hit #148 (Smith & Wollensky)

2007-02-28T00:57:00.001-08:00

Smith & Wollensky (SWRG) accepted a $80 million offer from Patina Restaurant Group. The cash offer, of $9.25/share, makes for a gain of 75.5% over my average cost of $5.27. This position was a relatively recent one, compared to others where I had to wait for a long time for a buyout with such a large gain.

Smith & Wollensky earlier last month got an offer of $7.5/share from Landry's, but rejected it. I mentioned just last week that the stock continued moving up for some reason - well, it seems like somebody knew!

I will be looking at sectors other than restaurants to reinvest the proceeds. Most of the remaining public competitors are expensive. In fact, given the consumer downturn ahead, they may even make for good short candidates. But watch out for buyouts to upset short-selling strategies - Applebee's short sellers must have learnt a bitter lesson recently when it announced that it is looking for a buyer.

Previous hit - Wild Oats (#147)

Buffett the flipper ?

2007-02-26T01:10:00.000-08:00

Buffett's stake in PetroChina is coming under scrutiny from activists over the latter's Sudan connection. But anyone else notice that the recent update to Buffett's portfolio involves what looks like dumping of some holdings after only a short period. Whatever happened to buy and hold forever ? Or does that hold only for a selective few core holdings ?

Updates to Fidelity and Gates Foundation holdings also seemed to involve some short term flipping.

I am wondering if the continued market rise over the last few months has forced some into a different mindset than before. Either that, or long term must have been redefined!

What will Bill Miller's portfolio update look like ?

Starbucks memo - a response

2007-02-26T00:02:00.000-08:00

By now, the Schultz memo has been confirmed and received widespread attention. If you haven't seen it yet, you can read it here.

As a former Starbucks regular, I liked the contents of this mostly honest review of past actions, while taking collective responsibility for it. While mostly on track, the memo misses a few items :

Responding to customer suggestions : as I have posted before, my mails to customer service were not even acknowledged, let alone acted on. Where do these go ?
Cleanliness : There are Starbucks outlets that are unlikely to pass health department checks. Whether it is restrooms that are worse looking than public restrooms, or employees not washing their hands (I was a witness) when they should have, some of these outlets are plain health risks. I wrote about it here.
Store size : In its search for growth, Starbucks has built outlets in some locations that are so small that you need to stand on your toes while waiting for your drink!
Rude service : Service with a smile is non-existent at most Starbucks today.

Anybody listening ?

More deal news

2007-02-23T23:19:00.000-08:00

A few updates to earlier deals and notes on deals where one or more of my holdings were involved but not as the target.

Converium (CHR) rebuffed an advance from Scor. Converium shares have almost doubled since I bought them hoping for a buyout. I will be holding onto them since I believe that Scor is not done wooing. Scor shares may themselves have a decent upside from here.
Keane (KEA) (Hit #143) is being hit with lawsuits challenging the takeover. I suspect that a higher offer may be coming. If I had a penny for every such sellout where owners pocketed the proceeds without worrying much for ordinary shareholders ... well, I wouldn't be blogging at this time!
Meanwhile, Warner Music Group (WMG) is still trying to buy EMI. The two were earlier involved in an interesting bid deadlock. I own Warner shares, and I believe they are a good value right now. The combine should also be a stronger force.
Aegon raised its cash offer for Clark (CLK) shares to $17.21/share. I marked it as a hit earlier. This new higher offer now makes for a total gain of 18.3% over my average cost of $14.55.
Winston Hotels (WXH) was acquired for around $400 million in a cash deal this week. I did not own any shares, but I had mentioned it twice in the past - here and here. The cash I received from Jameson Inns (Hit #67) went into Lodgian (LGN) and ILX Resorts (ILX). Lodgian has already announced that it is looking at strategic alternatives, which is usually just another phrase for we are seeking a buyer. ILX still looks attractively valued.
Sirius (SIRI) and XM Satellite Radio (XMSR) announced their, by now rumored for long enough to almost be real, merger. It will still be a hard one for regulators to approve. Having traded both shares for short-term gains in the past, I had bought into Sirius again after their recent slump. I think that the combined merger makes sense as the cost reduction potential is very high if executed well. Shares of the combined entity are worth buying and holding for the really long run. Satellite radio on its own is doomed to fail inspite of the quality of content. But when that content is combined with online radio, reception on handheld/undocked devices, Tivo-like recording on those devices, and integrated GPS/traffic/add-on location services, they can survive and thrive. One satellite radio player to watch is Worldspace (WRSP), which is growing its customer base in India quite rapidly. The company's financial backers' connections were under a cloud, and that may explain the low price/volume and apparent lack of interest. But this could be a very good buy right now when no one wants it.
Chrysler, currently part of Daimler Chrysler (DCX) is likely going its own way. GM is a possible buyer, but that could only make things really bad for GM. I have owned DaimlerChrysler shares for a long time. If Chrysler is sold, Daimler likely will not have any reason to remain listed in the US. Latest reports indicate that private equity groups are also eyeing Chrysler. If that means a higher cash offer, I am all for it!
Smith & Wollensky (SWRG) and 21st Century (TW), both of which have received offers that are being considered, are inching up steadily. Investors are expecting the offers to be raised substantially. I am hoping that they (and I) will not be disappointed.
Docucorp is going for the lower bid and rejecting the slightly higher bid from Ebix. That means I will be losing money after all in this deal.
The buyout bid for Lesco from Deere has already received opposition from one party, Hawkshaw Capital. I am all for a higher bid especially since someone like Deere can surely afford it.
Jupitermedia (JUPM) last week confirmed that it is in talks with Getty Images about a buyout. I have mentioned Juiptermedia in the past and had bought a few recently after a sharp pullback. The stock had started to recover, and got a further boost on confirmation of buyout interest. Waiting for the formal bid to mark this as a hit.
Dow Chemical (DOW) is supposedly the target of a private equity buyout bid that will make it the largest buyout, ever after adjusting for inflation, ever! I hold a few shares, bought mainly as a dividend/long-term play during the depths of 2002/2003. The bid rumors are from a British newspaper known for things other than business reporting, so this story needs to be taken with a large grain of salt.
TXU is being bought by private equity groups in a another record-setting buyout. While I am surprised this particular takeover interest, I have mentioned that utilities could see a surge in merger activity due to deregulation and that Buffett may be looking at some as well. KeySpan was acquired not too long ago by National Grid.

Hit #147 (Wild Oats)

2007-02-23T02:18:00.000-08:00

Finally! Wild Oats (OATS) is being acquired. I have been waiting for this for quite a while now, having started to buy the stock after a disastrous earnings disappointment more than a year ago.

Wild Oats is being bought by Whole Foods, which did come as a surprise to me. The purchase does make sense for Whole Foods to cement its stranglehold on the organic crowd. But given the Yucaipa/Ron Burkle/Democrat connection, I was expecting a Safeway/Wild Oats combine to be more natural. Even Kroger as a buyer made sense.

The buyout has got a great welcome. How many takeovers do you see where the buyer's stock goes up almost as much, in percentage terms, as the target, after the announcement! This, even after considering the fact that Whole Foods is the leader, and Wild Oats as a standalone entity didn't pose any threat.

While Wild Oats got a good price, they were in a position to get a better price with possible competing bidders in an auction.

The buyout is valued at $565 million. The cash offer, of $18.5, represents a gain of 138.4% over my average cost of $7.76. With some confidence I had built a somewhat larger position than usual here, even as the mainstream press was touting overvalued (at that point) Whole Foods stock, which pulled back later, disappointing, I am sure, quite a few readers. I had mentioned Wild Oats a couple of times in the past, here and here.

I would have been equally glad to receive Whole Foods stock which has been languishing after a long runup. While I am not a fan of the crowd that shops there (and the prices! - check out Undercover Economist for some explanation), I admire the honesty and integrity of its CEO. Check out his letter to his employees here. Sample this line -

I am now 53 years old and I have reached a place in my life where I no longer want to work for money, but simply for the joy of the work itself and to better answer the call to service that I feel so clearly in my own heart.

How many CEOs can say something like that ? Please read the letter in full - it is inspiring. Jack Welch will never be a role model for me. Whole Foods CEO ? Possibly.

Previous hit - Lesco (#146)

Hit #146 (Lesco)

2007-02-23T01:49:00.000-08:00

Lesco (LSCO), a retailer of landscaping supplies, is being bought by Deere for around $133 million. The cash offer, of $14.5/share, represents a profit of 9.6% over my average cost of $13.23/share.

This was among my earliest speculative purchases, and I still remember being nervous about buying into a company that never really got any press. I mentioned, and recommended, it here on a post about service plays.

There is a link, though a personal one, between this and the previous hit (Smart & Final). I would like to brag, oops, I mean blog about it at some point. But that will have to wait for another hit!

Previous hit - Smart & Final (#145)

Hit #145 (Smart & Final)

2007-02-23T01:19:00.000-08:00

The smaller warehouse store, Smart & Final (SMF), is being taken private by Apollo Investments in a $815 million transaction. The cash offer, of $22/share represents a gain of 70.9% over my average cost of $12.87.

Unlike the big gorilla in this business, Costco, which is membership based, non-membership Smart & Final is mostly unknown. I was attracted to the stock due to the financials, low debt in particular, that made it look like a great target. In addition, an unusually honest endorsement hidden deep within a celebrity interview a long time ago piqued my interest.

Costco (COST) itself remains a great pick for long-term investors. Costco is a true anti-Home Depot. The executives and the board members have not sold their souls to the green stuff! There have been rumors that Costco's pristine balance sheet may make it a juicy target for private equity groups. I sincerely hope not. The precious few gems like Costco should be left alone as public entities so that others can look up to them. We all need role models; these days that is especially true for American executives.

Previous hit - Corillian (#144)

A bit late to the party

2007-02-18T13:43:00.000-08:00

A few recent cover stories, including ones in Smart Money and Kiplinger, talk about tech being back, and why this time it is for real, urging readers to invest in technology now.

To that I say, it is a bit too late. The time to buy tech at bargain prices was close to two years ago. At this point it is hard to find a reasonably priced tech stock. Moreover, these new stories were touting Akamai, Apple, HP and Cisco, which are far from cheap, instead of atleast recommending beaten down stocks like Dell and Symantec.

The land of self-delusion is in another, though mercifully much smaller, bubble. The last remaining see-through/vacant buildings have been taken up - this includes the Excite@Home office complex and the Siebel building off of 101 (the latter has a nice color/curvature and is among the few buildings in the valley that don't drain life and energy from humans).

So-called experts - Jack Grubman, Quattrone, Mary Meeker, Henry Blodget, Abby Cohen - all have gained back atleast some of the trust/respect. The sheep are ready and waiting to be led to the slaughter house again.

Bay Area residents have reached a point where they think that phony clicks on targeted ads, worthless user-generated content and mutual admiration forums called social networking sites can solve world hunger and fix the Iraq problem. Cisco is getting into social networking, while the CEO is probably still milking the options cow like there is no tomorrow.

Some things never change. How come lemmings have not gone extinct ? Does evolution work ?

Who is next for Rabobank ?

2007-02-18T13:26:00.000-08:00

Rabobank, the Dutch agri-bank leader, has been acquiring regional/community banks in the US over the last few years, mostly in areas where farming is the primary economic activity.

Two such acquisitions recently, Central Coast Bancorp (Hit #65) and Mid-State Bancshares (Hit #121) were in my portfolio. I think that a few more such buys are on their way, and plan to be prepared to profit from them.

One obvious candidate, as I mentioned in an earlier post, is Heritage Oaks Bancorp (HEOP). While it looks attractive with some insider buying, and a small dividend, its exposure to bubblicious California Central Coast areas represents a downside risk. I do own a small number of shares, and will be buying more at opportune times.

I can now add two more to the potential list of interest for Rabobank.

Pacific Valley Bank (PVBK) operating mostly in Salinas, CA. The stock is thinly traded.

Farmers Capital Bank (FFKT), a Kentucky bank mostly operating in small, rural communities, also looks attractive. There is some insider buying, and the yield is juicy. I have opened a small position recently, and will be looking to add more over time.

Know of any others ?

Hit #144 (Corillian)

2007-02-18T13:03:00.000-08:00

Corillian (CORI) is being bought by Checkfree for $257 million in a cash deal. The offer, of $5.15/share gives me a gain of 47.1% over my average cost of $3.5/share.

This was a speculative bet, based on insider buying and the cash hoard at Corillian. I have opened a small position recently in a competitor S1 (SONE), for the same reasons.

Checkfree (CKFR) itself is a stable, long-term bet, and is worth buying even at current levels. Like Digital Insight, which was bought out by Intuit not too long ago, I suspect somebody will find Checkfree attractive as a takeout candidate.

I own a few Checkfree shares, bought a long time ago, and plan on adding more.

Previous hit - Keane (#143)

Hit #143 (Keane)

2007-02-12T08:29:00.000-08:00

Keane (KEA) is being bought by privately-held Caritor for $854 million in cash. The offer, of $14.3/share represents a measly gain of 5.4% over my average cost of $13.56.

Caritor is a name I have never heard of before! Apart from the buyer being small and unheard of, the deal is also interesting in that Keane seems to have sold itself short. Keane should have fought for and received a better price.

I did mention Keane in the past, though my list of prospective buyers for Keane was completely different.

While on IT service providers, major federal/defense service providers like SRA International (SRX), SI International (SINT), MTC Technologies (MTCT) and the recent IPO, SAIC (SAI), are looking very attractive. Expect defense biggies like General Dynamics, Raytheon and Northrop Grumman to make moves.

Previous hit - Longview Fibre (#142)

Everybody panic now

2007-02-07T23:21:00.000-08:00

I have occasionally posted on the state of the real estate market. It is about time to panic, looking at the developments of late.

2 out of the top 20 subprime lenders have gone under. A few more are on the brink. Banks/lenders like Coast Financial (CFHI), HomeBanc (HMB) and IndyMac (NDE) have warned, and have seen their stocks crumble.

To top it, HSBC and New Century Financial have come out today with more unexpected (really ? what were they expecting ?) news, that is stunningly bad.

At some point we will see the mainstream media take these events of the last two months much more seriously. That is when panic should set in, possibly affecting the equity markets as well.

Wait and watch. This should be a fun ride. I am hoping that the ride is named 1987 and not 1929.

Hit #142 (Longview Fibre)

2007-02-05T06:39:00.000-08:00

Longview Fibre (LFB), a large owner of timberlands in the Pacific Northwest, is being acquired by Brookfield Asset Management for $2.15 billion in a cash deal. The offer, of $24.75/share represents a gain of 18.36% over my average cost of $20.91.

Longview had seen some drama earlier, with a hostile offer, and subsequent plans to transform itself into a REIT. This is definitely a better outcome for shareholders.

Previous hit - Altiris (#141)

Deal updates

2007-02-05T06:28:00.000-08:00

NetRatings (Hit #118) got a revised offer of $21/share in cash from Nielsen. This now represents a gain of 73% over my average cost of $12.21. This offer is unlikely to be raised again.
Docucorp (Hit #135) got a rival offer valuing it at $11/share from Ebix. If it goes through I will be breaking even on this investment.
21st Century (TW), the auto-insurer, has received an all-cash bid from AIG. The shares are trading at $21.5, above the offer price of $19.75, indicating that a higher offer is likely. I will mark it as a hit in a much longer post when that happens.

Hit #141 (Altiris)

2007-02-01T23:24:00.000-08:00

Altiris (ATRS) is being acquired by Symantec for around $830 million in a cash deal. The offer, of $33/share, represents a gain of 77.6% over my average cost of $18.58/share.

I have mentioned Altiris repeatedly in the past as a target - here and here. I did not see Symantec as a buyer, and in fact still think that Macrovision or BMC could have made for a better fit, though there would be a lot of overlap with the former. In fact, there was some interesting price/volume action the day following the acquisition announcement, but whatever rumors may have led to that action must have died down soon.

With Altiris gone, I see Opsware (OPSW) as the last man standing in this sector. Fow how long is anybody's guess. I own Opsware shares, and, even with the current gains (~ 50%), I plan to hold on till the eventual buyout.

For Symantec, someone like Guidance Software (GUID), a recent IPO, would have been a better long-term fit.

Previous hit - USI Holdings (#140)

Time for a pause

2007-01-27T19:48:00.000-08:00

A recent CNN headline, titled 2007 - Year of the mega-buyout, shows how expectations of a buyout boom are now widespread. Along with countless other similar pieces over the last 3 weeks, we have now reached a point where a number of takeover targets are going for inflated prices making it very hard to pick bargains.

I will be going slow on accumulating stocks of such targets for a while, in the hope of building a pile to invest if and when there is a pullback. As usual, I will not be selling anything I am holding right now, just not buying at premium prices.

There are still occasional opportunities created by bad earnings news and similar disappointments, but even they have started to have little impact of late.

I will make sure that I make another post when I reverse my view.

A few deal updates

2007-01-21T13:23:00.000-08:00

Swift Transportation (SWFT) (Hit #126) received, and has accepted, a higher bid from its former CEO. The new cash offer, of $31.55/share is a premium of 82.48% over my average cost of $17.29. I will be seriously considering redploying the proceeds into Forward Air (FWRD). Another player in this sector, EGL (EAGL) got a management buyout bid recently.
Icos (ICOS) (Hit #119) received a final higher offer from Eli Lilly. The new offer, at $34/share, now represents a premium of 25.05% over my average cost of $27.19.
Clear Channel (CCU) (Hit #131) is likely to get a higher offer, now that institutional investors are fighting the current lowball bid. Yes, it is about time, that these overcompensated, underdelivering fund managers did something to justify even a tenth of what they are taking home!
Smith & Wollensky (SWRG) got a takeover bid from Landry's. The cash offer represents a substantial premium to my buy price, but I not marking it as a hit yet since Smith & Wollensky has not accepted the offer, and a higher bid is very likely.

Hit #140 (USI Holdings)

2007-01-19T01:35:00.000-08:00

USI Holdings (USIH) is being acquired by Goldman Sachs for $1.4 billion in a cash deal. The offer, of $17/share, is a premium of 45.5% over my average cost of $11.68. USI has been rumored to be a target before, and it is a bit of a surprise that a deal announcement took so long.

A recent related addition to my holdings is Arthur J. Gallagher (AJG). The stock's dip had made the yield very attractive, with the outlook not looking all that bad. Shares have since recovered. I will be looking to add on further dips.

Previous hit - Placer Sierra (#139)

Hit #139 (Placer Sierra)

2007-01-15T00:27:00.000-08:00

Placer Sierra Bancshares (PLSB) is being acquired by Wells Fargo in a stock-swap valuing Placer Sierra at around $645 million. The actual formula being used for the swap is dependent on Wells Fargo share price over a few days, but it comes to around $28/share, a premium of 18.94% over my average cost per share of $23.54.

It may look like Placer sold itself short, but looking deeper at the fast deflating real-estate bubble in Placer and Yolo counties, Placer seems to have timed this well. Wells could have waited for a better price, but given its size any price difference would have been largely immaterial. This gives Wells a much needed entry point into counties which will grow over the next few decades.

Given the premium I will be receiving, I intend to hold onto the Wells shares I get for a long time to come, as the effective yield is juicy.

I have posted frequently on banks which have featured prominently on my hit list in the past. Vineyard National Bancorp (VNBC), which I have mentioned recently, still looks attractive, and I have added to my position. I have also opened a small position in Severn Bancorp (SVBI). Virginia Commerce Bancorp (VCBI) is increasingly looking like a bargain given its takeover potential.

Previous hit - Intralase (#138)

Hit #138 (Intralase)

2007-01-09T00:57:00.000-08:00

Intralase (ILSE) is being acquired by Advanced Optics (EYE) for around $880 million in a cash deal. The offer, of $25/share, represents a premium of 47.6% over my average cost per share of $16.94/share.

This is another one of those acquisitions where I would have gladly accepted shares of the buyer, as Advanced Optics shares appear undervalued. Advanced Optics itself remains a target for a larger fish, and if not, there is more growth to come in this area.

My position in Intralase is small. At various points, I did consider buying more, but the lack of supporting insider activity kept me away.

Another target to watch is Iridex (IRIX), currently trading at attractive levels.

Previous hit - Praecis (#137)

Hit #137 (Praecis)

2006-12-24T11:57:00.000-08:00

Praecis Pharmaceuticals (PRCS) is being bought by Glaxo SmithKline for around $55 million in cash, valuing the shares at $5, an eye-popping 151% premium over the previous day's close of $1.99, but still a discount of 33% to my buy price of $7.4 a few months ago.

There is more to come as big pharma goes about trying to replenish pipelines. The premiums have in general been stunning, but we could see crazier valuations.

Two other eventual buyout targets that I have recently opened positions in, mostly due to insider buying activity - Dendreon (DNDN) and Javelin Pharmaceuticals (JAV).

Previous hit - @Road (#136)

Hit #136 (@Road)

2006-12-10T23:24:00.000-08:00

Trimble Navigation (TRMB) is buying @Road (ARDI) for $7.5/share in a part-cash/part-stock transaction valuing the company at $496 million. The offer represents a premium of 139% over my average cost per share of $3.14.

Trimble, Garmin, Ituran and Navteq are long term winners in the GPS growth story, which is still in its early stages. Of these, Ituran (ITRN) and Navteq (NVT) look attractive at current price levels.

Also worth looking at are related players like MapInfo (MAPS), Motient (MNCP), SiRF (SIRF), LoJack (LOJN), GlobalStar (GSAT) and KVH Industries (KVHI).

Earlier this year Lowrance Electronics (LEIX), another GPS systems manufacturer, was acquired by Simrad Yachting of Norway. KVH Industries also makes for a perfect target for Simrad.

I own LoJack, KVH, Navteq and SiRF shares, with Navteq being a very recent addition on a sharp pullback. I am looking to add more LoJack and KVH shares.

Previous hit - Docucorp (#135)

Hit #135 (Docucorp)

2006-12-10T12:56:00.000-08:00

Docucorp (DOCC) is being acquired by Skywire Software for $127 million in cash, amounting to $10/share. The offer is a discount of 9.1% to my average cost per share of $11.

Docucorp is being sold for less than what it would get in a competitive auction, and needless to say the buyer is getting a good deal.

As I mentioned previously when Stellent was bought out, very few players in this field now remain public. Companies like Mobius (MOBI), Interwoven (IWOV) and Omtool (OMTL) will all cease to be independent companies soon.

Previous hit - Agere (#134)

Hit #134 (Agere)

2006-12-10T12:32:00.000-08:00

Agere (AGR) is being acquired by LSI Logic in a stock-deal valuing Agere shares at around $22.8, a premium of 106% to my average cost per share of $11.04.

The value of the deal has gone down a bit since the announcement as LSI shares pulled back. While the price paid may be high, the combination will be a strong player in a number of markets, and will be in a position to compete against the likes of Marvell (MRVL).

Marvell shares themselves have gotten cheap over the last few weeks, and I have opened a small position since I see a potential for a management-led buyout.

Previous hit - Mellon Financial (#133)

Hit #133 (Mellon)

2006-12-10T12:07:00.000-08:00

Mellon Financial (MEL) is being bought by Bank of New York (BK) in a deal valuing Mellon shares at around $42. The offer price represents a premium of 52.1% over my average cost per share of $27.6. I will be holding onto the shares in the new company, and will be looking to add when possible.

This particular combination has been rumored to be in the works for a long time now, since Bank of New York had tried unsuccessfully to buy Mellon in the past. The deal has been welcomed broadly, with shares of both companies surging ahead post-announcement. Then again, what is not to like, except for the new name Bank of New York Mellon!

The combined entity will have a big share of the asset custodian / management market. Any sharp pullback will be a good time to accumulate the new company's shares for long-term investors.

Previous hit - Rita Medical (#132)

Hit #132 (Rita Medical)

2006-12-03T21:11:00.000-08:00

Rita Medical Systems (RITA) is being acquired by AngioDynamics for around $220 million. The actual terms of the deal are a bit complicated, but Rita shareholders will get around $4.7 per share in stock and cash. The offer is a small discount of 4.3% to my average cost of $4.91.

I have been holding Rita shares for a long time now. While a better price would be definitely welcome, the fact that Rita shareholders will get mostly AngioDynamics shares is a positive as AngioDynamics itself seems to be undervalued given its takeover appeal down the road.

Previous hit - Clear Channel (#131)

Hit #131 (Clear Channel)

2006-11-17T00:52:00.000-08:00

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)

2006-11-17T00:50:00.000-08:00

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)

Hit #129 (RailAmerica)

2006-11-16T23:51:00.000-08:00

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)

2006-11-16T23:24:00.000-08:00

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)

That was a takeover Monday!

2006-11-07T01:03:00.000-08:00

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)

2006-11-07T00:34:00.000-08:00

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)

Hit #126 (Swift)

2006-11-06T23:53:00.000-08:00

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)

2006-11-06T23:33:00.000-08:00

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)

2006-11-06T23:17:00.000-08:00

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)

Sierra Health in the bargain bin

2006-11-05T12:49:00.000-08:00

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)

2006-11-05T12:06:00.000-08:00

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)

Hit #122 (Clark)

2006-11-02T09:27:00.000-08:00

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)

2006-11-02T09:19:00.000-08:00

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)

Weekend notes

2006-10-29T12:23:00.000-08:00

Sentiment towards private equity groups is turning negative even though we are still in the early stages of this boom. Check out this Business Week piece titled Gluttons at the gate.
Andy Serwer writes about possible bigger deals to come! Serwer's regular column is an enjoyable read.
Business Week looks at another way that insiders maybe fooling regulators and shareholders.
Bethany McLean exposes another options trick, backdoor options used by insiders.
While the masses have not yet woken up to the M&A boom, a few brave souls are daring to name big targets for private quity or management buyouts. The names include Dell and even Microsoft. The latter, if it ever happens, will signal the end of this boom.
Private equity groups may be a target of federal antitrust investigation. Allegations include possible collusion to keep a lid on buyout prices. As a shareholder of some of the targets, I will definitely welcome more competition and better prices!
The Wall Street Journal reported that United Health CEO may actually have found a way to get the same options twice! Criminal - don't you think ?
A number of Silicon Valley executives are calling the options investigation as a witch-hunt, providing various excuses for the amazingly well-timed, gigantic grants. Hmmm! I hope more civil and criminal charges follow, and some of these visionaries(!) end up in prisons.
A while ago, I had written about a possible bad ending for some of the buyouts, given the high debtloads they are forced to take by their buyers. More and more observers are now predicting a bankruptcy spike, and reduced return to investors in private equity. This is probably still a couple of years away, given the low interest rates, but something to keep an eye on.
A couple of pieces over the last few weeks have highlighted the emergence of London and Hong Kong as alternate choices for IPOs. When I first wrote about it, I got some interesting ("Come on now") responses. Finally, the authorities seem to be waking up to this reality where the US may not be the premier choice for companies to list. Unfortunately though, the press (and ofcourse, the industry) is focusing on Sarbox as the deterrent, instead of blaming post-9/11 restrictions.
Predicting upcoming LBO deals by watching CDS moves ? Check this out! There was a related piece recently (can't recall the source) that argued that CDSs are being undervalued, possibly by a substantial amount, with credit troubles and bankruptcy chances being discounted.

Hit #120 (Connetics)

2006-10-23T09:36:00.000-07:00

Connetics (CNCT) is being acquired by Stiefel Labs for $640 million in an all-cash deal. The offer price of $17.5/share translates into a gain of 82% over my average cost of $9.62.

I had posted earlier in July mentioning that I was recycling cash from Serologicals takeover into Connetics. This buyout thus makes for a nice, and unexpectedly quick, compounding.

I will be posting soon about a few more buys I made recently with cash from just closed transactions.

Previous hit - Icos (#119)

Hit #119 (Icos)

2006-10-22T10:55:00.000-07:00

Eli Lilly is buying out its partner Icos (ICOS) for $2.1 billion in cash. The offer, of $32/share represents a gain of 17.7% over my average cost per share of $27.19/share. Since my initial purchases there were multiple opportunities to buy the stock at much lower prices, but I balked everytime due to lack of insider buying.

I had bought Icos shares expecting exactly this buyout, though I was hoping for a much higher price. After reading various comparative studies of Viagra, Cialis and Levitra, I concluded, wrongly, that Icos' Cialis would gain a much larger marketshare. That was not to happen.

While on this topic, it seems like male sexual dysfunction has received all the attention from the medical/investing communities. According to studies, female sexual dysfunction could be a much larger problem, and potentially a much larger market. Big firms have essentially ignored this segment, leaving only a few small players to do early stage work. Most companies involved in this research are extremely small and hence make for very speculative investments. Except for Palatin's Bremelanotide , most treatment candidates are nowhere close to making it to the market. But if you are willing to take some risks, you should checkout Palatin (PTN), BioSante (BPA), Vivus (VVUS)) and Novavax (NVAX).

WIRED carried an interesting piece on this topic a while ago, mentioning Palatin's progress. I own a few shares of Palatin and Vivus, and will consider adding more.

Previous hit - NetRatings (#118)

Another construction peak sign ?

2006-10-15T20:25:00.000-07:00

Oshkosh Truck just announced that it is acquiring JLG for $3 billion in cash. While not anywhere as bad for shareholders as the recent takeover of Golden West, this seems like another sign of a top in the construction/housing boom.

Over the last 4 years, I have seen the name JLG practically every single day at one construction site or the other. In fact, as I am writing, there is one JLG boomlift just a couple of blocks down the street, working at a near-complete condominium project site. Here is the JLG page that may help you recall the logo.

For the same duration, I have been watching the stock, though I never found a good entry point. I did end up buying stock of another, though not as commonly spotted, construction vehicle maker - Gehl (GEHL). Having bought the stock at $15/share, I ended up selling (I needed the money!) at around $48/share in just over a year. Gehl is still a takeover target, though an expensive one.

Interestingly, there has been some open market purchase of Gehl shares recently by France's Manitou SA, which bills itself as the world's largest supplier of certain categories of lifts. Will Manitou make an outright offer down the road, as it already seems to own around 12% of the company ? Note that Manitou, though it sounds similar, is not related to US-based Manitowoc (MTW), another player in the construction equipment/vehcicles sector.

In the related mining equipment sector, the boom has been much bigger, as it was driven by the global commodities bubble. The bubble ended a few months ago, or atleast is in a deep correction, and mining equipment makers have correspondingly pulled back. For those who believe that the commodities boom is a very long term one, the recent pullback should be an opportunity to buy into a few of these. These include Bucyrus (BUCY), Joy Global (JOYG), Terex (TEX). These may become fodder for giants like Japan's Komatsu or Hitachi or even Caterpillar.

Here is the list (at Yahoo Finance) of all the major players in this sector.

In the farming equipment sector, I do own shares of Agco (AG), and shares have gained substantially over the last few months. I still see it as a takeover target, though I wouldn't recommend buying now.

One that looks extremely attractive, both from valuation and insider activity perspectives, in the above list is A.S.V (ASVI). I would recommend buying the stock now. I may open a position soon.

Boob tube!

2006-10-09T22:48:00.000-07:00

The much talked about Google - You Tube deal is here, with Google shelling out an insane $1.65 billion (thankfully, not cash!) for something that deserves much less. With so much idle cash in hand, it was just a matter of time before Google started doing bad deals. Though this wasn't a cash deal, it still shows some desperation on the part of the buyer. Is this the top of Bubble 2.0 or will there be more to come ?

This deal also marks an intersection of two bubbles - will this, and similar video/mobile/blog/wiki deals to come, save San Mateo real estate by minting millionaires overnight ? San Mateo has already seen year over year declines, and unless something dramatic (and positive) happens, is headed much lower.

The two who get left out now are CBS/Viacom and Yahoo. Losers unite! And they well may, as I speculated here.

For those looking to benefit from the hoped for surge in online video, I suggest reading an earlier post on increased bandwidth plays.

To that list I would add device makers like Logitech (LOGI), whose video cameras capture a good portion of those videos on You Tube and elsewhere, and content network providers/accelerators like VitalStream (VSTH). Akamai is another play, but looks extremely expensive right now; VitalStream on the other hand looks cheaper as a takeover target, even though much more riskier.

Update: Just 2 days after the initial post, VitalStream got a takeover offer from Internap! I do not own VitalStream shares as I am (was) still in the process of studying it. For Internap this is a good buy, and at a great price too, since VitalStream shares had just recently taken a hit, after warning about a possible loss of MySpace revenue. I do own Internap (INAP) shares, bought as a speculative play when they came very close to bankruptcy after the tech bust. Shares have since gone up 5 times, but I am still holding onto them, as I expect Internap itself to be ultimately swallowed by a telco/cable major. I had mentioned Internap in the earlier post on bandwidth plays.

Hit #118 (NetRatings)

2006-10-09T22:26:00.000-07:00

NetRatings (NTRT), the web analytics firm, got a cash offer from Dutch firm VNU which already owns 60% of the firm. The offer, of $16/share, is a premium of 31% over my average cost of $12.21/share. The shares are trading higher at around $16.9 with shareholders expecting a higher bid.

I had bought the shares, on weakness, just a few weeks ago expecting exactly such an offer from VNU. I do expect a higher offer, as this still undervalues NetRatings given its cash position.

The funds for this investment came completely from the recent takeover of SSA Global (Hit #97), and hence represents a nice compounding.

Another player, NetIQ had gone private (Hit #94) not too long ago. I have also started buying shares of Websidestory (WSSI) whose shares were hit when Google made Google Analytics available for free. The large insider buying indicated a bottoming, and I expect the company to be sold eventually, hopefully at a premium to my cost basis.

Previous hit - CNS (#117)

Hit #117 (CNS)

2006-10-09T22:08:00.000-07:00

Nasal strip maker, CNS Inc. (CNXS), is being acquired by GlaxoSmithKline for $566 million in an all-cash deal. The offer, of $37.5/share, represents a gain of 220% over my average cost per share of $11.69.

To give credit where it is due, this company was first brought to my notice by Motley Fool's Hidden Gems newsletter, the only content on TMF worth paying for. I did not invest immediately after that mention, but took my time looking for other factors like insider buying. CNS looked like the perfect takeover candidate, though the one trick pony nature of the business made it risky. Such naturally strong takeover candidates are rare.

Since I mentioned the Hidden Gems newsletter, there is one more item in there that I would recommend to those who have a stomach for volatility and lots of patience - the Tiny Gems section in the newsletter. There are some great long term winners there, if you follow a disciplined approach to add on dips, and never overpay.

Previous hit - Maritrans (#116)

A few pointers ...

2006-10-03T22:19:00.000-07:00

Here are three interesting pieces that I came across in the last few hours that I consider a must read (or must hear)

Justin Fox says more, in under half a page, about population and prosperity than what most experts can convey in a tome.
Mark Hulbert's research confirms that investing in turnaround plays is more profitable, though volatile (and hence risky for some), than normal investing.
Mish has a post linking to ex-CEO of Goldcorp, Robert McEwen's address at the Denver Gold Forum. Please listen to the address in full. It is an amazingly honest speech, making it unlikely he will be invited to speak anywhere in the future. We need more people like him.

Honoring the dead

2006-10-01T22:28:00.000-07:00

Halloween has arrived a bit early to this blog!

Various cultures have found different ways of honoring departed souls with the objective of helping them find peace and not come back to torment those left behind.

Add to these practices the granting of stock options to the dead. We thought we had seen all sorts of bad things that could be done with options. We have seen backdating, and we have seen backdating by executives in hurriedly setup meetings just weeks after 9/11 even as some of their own employees lay dead (according to a Wall Street Journal piece that was mostly ignored by other media outlets!).

Now we get informed that Cablevision made an options grant to a dead executive, and backdated it to a time when he was still depleting earth's oxygen supply, just so that his estate/family could benefit. That should help his soul rest in peace! The ancient Egyptians bundled items needed for daily activities when they buried their dead, assuming these items would be useful in the after-life. In this era when executives love money, their options and their shower curtains, I hope coffin makers find a way to make space for these items to accompany their former owners in their after-lives.

Don't these overpaid executives, the companies and the boards have any decency left!

Another recent case of paying unwarranted respect to the dead was when a few people heaped praise on Kenneth Lay, former Enron head. Lay was looking at a sentence of more than 10 years. But the truth is that white-collar criminals like him often get light sentences. For someone like Lay, nature's punishment was timely - just look at the number of people whose life savings have been destroyed by him. Did he deserve any better than what states like California do to victims of the three-strikes clause ?

Look at the light sentence, if you can call it that, awarded to a Walmart executive recently, for stealing around half-a-million. Citing health concerns, he was handed a 27 months house arrest instead of the expected 10-30 year imprisonment. I for one hope that he meets the same fate as Lay. Interestingly, if you don't look like an executive, you can get 67 years for robbing just $15K.

It is time to treat white-collar crimes seriously. They destroy lives, plain and simple. War on drugs ? What a waste of resources! We need a war on thugs-in-suits-and-ties. Whether by signing themselves sweet packages, after laying off hundreds, in a bankruptcy deal or just walking away with millions in exit packages or asking and getting companies to cover tax payments on gains in the form of gross ups, these people have insulted investors. Enough is enough - show them the door or better still, the noose!

Full disclosure: I oppose capital punishment. The apparent support for it here is just an indication of the anger/disgust/frustration at corporate crimes that go unpunished or very mildly punished. From talking to others, I can say that an overwhelming majority of individual investors feel the same way.

HP needs some magic

2006-10-01T14:19:00.000-07:00

HP definitely needs some black magic to make its current troubles go away.

This may not help on the snooping front, but HP's just announced acquisition of niche game PC maker Voodoo PC is a good move, atleast over the short term.

Voodoo PC founder and CTO, Rahul Sood, has been blogging for a while. The blog is among the more informative and readable tech/PC-business blogs out there.

HP's buyout seems to be in response to Dell's recent acquisition of Alienware, another high-end game PC maker.

Why did I say "over the short term" above ? In the longer run, I expect HP, like IBM, to exit the PC business. The costs/margins will deteriorate further, and for a company like HP it just doesn't make sense to be there. I would say the same thing about the printer business, which, for now, enjoys higher returns than the PC business.

Are HP shares a buy now ? I will not be buying at their current price, but I am holding onto my shares bought during the bear-market lows. They have more than doubled since then, and the dividends also have been hiked. The contrarian in me recommends DELL instead, especially now that most experts/observers have turned very negative on it. I did open a small position recently, and I intend to add to my position substantially, as part of my long-term buy and hold positions.

HP's acquisition of Mercury Interactive, about which I posted here, was more in line with the long-term focus on software/service.

Hit #116 (Maritrans)

2006-10-01T13:48:00.000-07:00

Maritrans (TUG), an oil/pertroleum shipper, is being acquired by Overseas Shipholding Group for $453 million in an all-cash transaction. The offer, of $37.5/share makes for a gain of 73% over my average cost per share of $21.67.

While the takeover and the premium are welcome, I did not see Maritrans as a target, nor did I expect to see a consolidation wave in the shipping sector anytime soon.

The takeover makes sense for OSG which mostly has its operations outside the US. Maritrans is a US-only operator, and with this takeover, OSG now has a significant share of the US market.

I have been buying shares of a few others in the beaten-down shipping sector over the last few months. After what looked like a golden-era of shipping leading to a flood of public offerings, shipping stocks tanked starting late last year. I used the opportunity to buy into such companies as Seaspan (SSW), Diana Shipping (DSX), Genco Shipping (GSTL), Quintana Maritime (QMAR) and Eagle Bulk (EGLE). These also pay large dividends, and unlike the bigger operators, that are expensive due to heavy following on Wall Street, were marked down substantially.

Shipping has always been a notoriously cylical sector, with the past downturns being brutal, taking down a number of companies. Any future downturn will not be much different, as most of the players operate with huge debt loads. For that reason, I may decide to sell some of my holdings as and when opportunities present themselves.

Previous hit - Serono (#115)