Glen Bradford's  Instablog

The short covering is putting in a very strong bid for Dex One. I know because I was slamming it with blocks of shares yesterday as I scrambled to sell Dex One (DEXO) above $1.80 and rolled that cash directly into SuperMedia (SPMD) at less than $3.40.

Look at the merger ratio history below. If you note that a Dex One share converts to a new share at a ratio of 0.2 and a SuperMedia share converts at a ratio of 0.4386, the merger ratio should be 0.45599. When the chart below is above that value, you should sell DEXO and buy SPMD and when it is below that value you should buy DEXO and sell SPMD.

(click to enlarge)

Right now, with a value of 0.556, you can get 21.95% more of the post merger company by selling Dex One and buying Supermedia.

Take the money and run! Thanks shorts!

Disclosure: I am long SPMD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I sold all of my Dex One and bought SuperMedia. I intend to sell back and forth between the two companies to maximize my future ownership of Dex Media.

How is this not making headlines? The ECRI is an organnization that I've relied on to assist in figuring out what is going to happen. Anyone can tell you what has happened. People build entire careers and livlihoods telling you what has happened. I'll say that a little prescience is far more valuable than documenting the past. They're saying now that we are likely going to see a hit to the global industrial sector, led not by overspeculation, but from actual demand contraction.

The Implications - Who is Right?
Jim Chanos, Marc Faber, Ben Benanke, George Soros, Jeremy Grantham, Cullen Roche --- all are looking ridiculously intelligent. Jim's been calling for a China crash, and China's economy is mostly based on pouring concrete, building buildings people can't afford to live in, and hiding liabilities in off-balance-sheet entities if you ask him. Marc Faber's been shooting bullseyes from the hip for a few years now and he sees a hit to the industrial sector being followed by more quantitative easing and high inflation. Ben Bernanke has advised that we aren't seeing high inflation because we are simply seeing cyclical speculation in commodity prices. George Soros and Billionaire Carlos Slim reportedly got out of Gold and Silver at the top. Jeremy Grantham's calling the squeeze on the poor due to China's economic policy Cullen Roche went short into the madness as opposed into the fall when things were getting crazy at the top. Well Played.

The Dow Jones Industrial Average:
Well, if the growth peaks for the Global Industrial Sector, how can you possibly be bullish on the Dow Jones Industrial Average? The components of the Dow that I am the most worried about are: Bank Of America (BAC), Caterpillar (CAT), Exxon (XOM), Alcoa (AA) United Technologies (UTX).

Commodities to Short:

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

There's a website that tracks the bankruptcy proceedings of Lee Enterprises. Visit it here. I've been browsing and I came across some interesting financial pro forma projections all the way through 2015 and boy oh boy do they look good.

They've even gone as far as to lay out some FAQ about the Chapter 11.

Anyway, it's all pretty interesting but what matters to me? The pro forma financials. Let's talk about those. Here's a snapshot:




Plug it all together and you end up with some pretty strong cash flows.

Add back the amortization and depreciation to the net income and you're looking at a company that is over $70M of free cash for the next 4 years and comes at a valuation of less than $40M at current prices.

How much would you be willing to pay for a company that looks this good? If they are ever able to get a better credit rating their positive cash flows only increase. I think that this type of opportunity would be fairly attractive to a business entity with a better credit rating that might be able to join forces with Lee Enterprises, effectively improving the credit rating of Lee Enterprises and possibly augmenting these annual cash flows towards debt payments by another 40% or so.


Disclosure: I am long LEE.