Special Situation Investing

Thursday, April 27, 2006

(BOL) Bausch & Lomb knew of lens solution problems in advance

In a recent news article, BOL has admitted that months before the lens solution scandal broke, it knew about potential problems. From the article:

"Bausch stock price fell 3.5 percent after The Wall Street Journal reported Thursday that Hong Kong authorities had told the Rochester, N.Y.-based company about eye infections among users of its contact solution in November, 2005. But the company only stopped selling ReNu with MoistureLoc, the product in question, on April 13, 2006. A Bausch spokeswoman acknowledged to CNNMoney.com that the report was accurate."

Friday, April 14, 2006

(F) Ford Motor Co. Bankrupcty Play

You can't have a special situation blog without talking about American auto manufacturers, so I thought I'd start with Ford.

Crippling pension & medical obligations, defiant unions, foreign competition, and perhaps just inferior cars have been driving Ford (and GM) stocks down over the past couple of years. However, Ford has started a major restructuring which includes: lowering manufacturing capacity, reducing the workforce and renegotiating health-care costs.

In this time of inflated executive compensation, Ford CEO Bill Ford brought in 40% last year than the previous. This number might be dropping even more:

"Bill Ford said last May that he would take no salary, bonus or other awards until the automaker's automotive operations return to profitability. But he did receive nearly $5 million in restricted stock equivalents under an incentive plan established before he made that commitment. Ford plans to donate that amount to charity, the company said."

Thursday, April 13, 2006

(BOL) Bausch & Lomb Plummets on Federal Investigation

1:55 PM April 14,2006

Bausch & Lomb has issued a general recall on the ReNu with MoistureLoc (lens solution) product. At the same time, the company has indicated they are committed to fixing the products and just seem to want to get this behind them. To put things into perspective:

"MoistureLoc hit stores in late 2004 and generated $45 million in U.S. sales last year -- a small portion of Bausch & Lomb's more than $2 billion in annual revenues. The company also makes contact lenses, ophthalmic drugs and vision-correction surgical instruments."

12:30 PM April 13,2006
Bausch & Lomb is currently being investigated to see if a batch of it's len solution may cause fungal infections in users. It is currently under pressure to issue a large scale recall of it's contact lens solution and in fact many retailers have begun to pull the lens solution off their shelves. In additon the company has delayed filing it's 10-K. As a result it's stock price has plummetted by ~1/3.

In recent news, Sears has announced that they are pulling BOL's products from it's shelves.

Wednesday, April 12, 2006

(FDC) First Data Corp. Spinoff

First Data Corp. is planning to spinoff payment processor Western Union, to existing shareholders. Western Union accounted for $4 billion in revenues last year, out of FDC's $10.5 Billion total revenue. The spinoff is expected to complete in second-half 2006.

Interestingly, FDC shares shot up 7% on the day the spinoff was announced, despite simultaneously reporting a 14% drop in earnings.

Saturday, April 08, 2006

(TYC) Tyco Split-Up

2:02 PM April 14,2006

An opinion piece on the Tyco split-up with mixed signals.

April 10,2006
Tyco announced last January that they are going to split the conglomerate into 3 independant entities. The breakup will probably occur early 2007. Analyst opinions on the potential value unlocked is mildly optimistic at best. However, it seems that part of the indifference stems from recent weakness in core business results. Specifically:

"net income fell to $570 million, or 28 cents a share, compared with $730 million, or 34 cents a share, in the year-earlier period. Adjusting for a $237 million after-tax loss from the sale of its Plastics, Adhesives and Ludlow Coated Products businesses, income came to 39 cents a share.

Analysts polled by Thomson First Call forecast earnings, on average, of 38 cents a share."

In the latest news, Tyco has announced that it's electronics division, will be relocating it's headquarters to the Philadelphia area.

Friday, April 07, 2006

General - Spinoff Results

Fortune has a follow-up article on the performance of some recent spinoffs. These turned out to be some good picks, perhaps due to the specialized nature of the new companies. On average the 4 stocks have returned 50% since March 2005.

The article also lists some up and coming spin-offs: Tyco (TYC), Acco Brands (ABD), Cendant (CD) and Wendy's (WED).

Also, of note was another analysis piece on the historical performance of spin-offs (future results may not reflect past performance ...):

"Lehman Brothers strategist Chip Dickson recently studied 88 spinoffs done between 2000 and 2005 and found that they beat the S&P 500 by a staggering 45 percentage points on average in their first two years as independent companies."

General - Spinoff Analysis

BusinessWeek had an interesting article on recent and proposed spin-offs with some analysis as to why they tend to product above-average results:

"Why do spin-offs tend to outperform? In S&P's view, their shares tend be inexpensive initially because investors often sell when they receive stock in a new company they did not intend to own. Also, spin-offs are dumped by index funds when the new company is not in the original index, and institutional fund managers sell shares as a result of a spin-off's lack of liquidity or dividend."

Thursday, April 06, 2006

(CD) Cendant Split-up

Cendant, the travel and real estate conglomerate, is planning to split into 4 separate, more stream-lined (purportedly) companies throughout the year. It's current holdings include Orbitz, Century 21, and Avis.

In the latest news, Cendant has filed to spin off it's real estate division, Realogy in June. The new company will include Century 21, Coldwell Banker and Sotheby's International Realty..

The real estate division accounted for approx. 40% of 2005 revenue.

The company also announced that next in line, will be the separation/creation of a hospitality /time share business. The hospitality business accounted for approx. 8% of 2005 revenue, while time share made up 10%.

(KFT) Kraft Potential Spinoff

Looks like Kraft might be a potential spin-off (85% owned by Phillip Morris (MO). A date has not been set yet, as they are still waiting to clear some lawsuits. To quote from Reuters:

"The "lights" case has been closely watched not just because of the size of the ruling, but because it is one of the legal hurdles management has said need to be cleared before it could spin off Altria's Kraft Foods Inc. (NYSE:KFT - News) business from its tobacco businesses."

What really drew my attention to Kraft, was this bit on a post-spinoff sellof, from Buisness Week:

" But some analysts wonder if the market will welcome another helping of Kraft, whose margins have been shredded of late. Shares are down 12% from their 52-week high and trade 4% below the IPO price. If Altria shareholders decide they don't want Kraft, the subsequent sell-off would put more pressure on an already struggling stock.

Complicating matters, Altria's now 87% stake in Kraft is worth $43.5 billion. The value of large-cap food stocks in the hands of public investors is roughly $100 billion. So post-spin, Kraft would account for one-third of the industry, a huge hunk of cheese for the market to digest.

Not a perfect stock by any means but nevertheless, large-scale selling may create a bargain.