Seeking Alpha

John Tobey, CFA

View as an RSS Feed
View John Tobey, CFA's Comments BY TICKER:
Latest  |  Highest rated
  • Demystifying Investors' Preference For Bonds And Why It Could Be Changing [View article]
    lpitzalis -
    I like your new "black swan" definition: 1000 year event.
    Thank you for the comment.
    John Tobey
    Feb 8 03:24 PM | Likes Like |Link to Comment
  • PPG Shareholders: Beware Of Georgia Gulf Exchange Offer [View article]
    Maxwell Hurd -
    I'm glad the offer worked out for you and others (truly, I am). For me, I'm glad to have sold PPG without taking the risk.

    Thank you for the comment.
    John Tobey
    Feb 5 07:52 PM | Likes Like |Link to Comment
  • Cyberonics - Short-Selling Creates Buying Opportunity [View article]
    ajcowen-
    Great comments. Thanks for taking the time to submit your observations.
    John Tobey
    Jan 31 11:03 PM | Likes Like |Link to Comment
  • Cyberonics - Short-Selling Creates Buying Opportunity [View article]
    JkGarvey-
    Thank you relating your son's (and your) experience. I know that learning the facts, reading the literature, and examining research studies is no substitute for personal experience.

    Thank you again for writing.
    John Tobey
    Jan 29 11:14 PM | Likes Like |Link to Comment
  • PPG Shareholders: Beware Of Georgia Gulf Exchange Offer [View article]
    Thomas Lott-
    Trying to analyze the exchange offer's final payoff is premature. Once the 35 million shares are issued and in the hands of the new owners, we'll see what's what.

    Thank you for the comment.
    John Tobey
    Jan 28 05:27 PM | Likes Like |Link to Comment
  • Cyberonics - Short-Selling Creates Buying Opportunity [View article]
    yostuller-
    Yes, and I cannot blame that on my spellchecker. I'm putting in the edit now.
    Thank you,
    John Tobey
    Jan 28 01:29 PM | Likes Like |Link to Comment
  • Cyberonics - Short-Selling Creates Buying Opportunity [View article]
    ** UPDATE **
    Cyberonics just announced a one million share increase in its stock buyback program. (http://bit.ly/Yzi6dX)
    Jan 28 09:56 AM | Likes Like |Link to Comment
  • PPG Executives' Actions Wave Red Flag - Time To Sell [View article]
    poormaniam-
    First off, I think most brokerage firms required instructions by yesterday, 1/23, so you can check that first.

    Regarding the offer, it does look appealing. The executives, with insider status, are precluded from tendering. Your 80 shares, being an odd lot, would be fully exchanged (100+ share holdings join the pool that will be pro-rated).

    Now, about that free money. The source of the discount is the deal's use of a rights offering: new shares (GGC) at a price equal to 90% of the average market price. However, compared to most rights offerings, this one has two major differences. First, it is gigantic, equalling over 100% of GGC's outstanding shares. Second, the current shareholders are not getting the rights, as is virtually always done because rights offerings are necessarily dilutive because the company is not receiving full value for the newly issued shares.

    To understand the implications, let's look at the numbers:

    Currently, GGC shareholders own about 35 million shares, meaning, at a market price of $50, GGC's market cap is about $1.75 billion. (PPG's is about 150 million shares times $150 = $22.5 billion.)

    After the offering there will be about 70 million GGC shares outstanding. Will they still be selling at $50 per share? Probably not, because GGC received only about $45 for each of the new shares. (i.e., about $1.575 billion, or $0.175 billion less than market value if priced at $50). Therefore, we would expect that the new share price would be $47.50, down 5%. (This calculation is a basic one: $1.75 current market value + $1.575 new capital = $3.325 billion / 70 million shares = $47.50.)

    While a bonus of 5% still sounds good, the math should have been presented. Moreover, note that the source of the +5% comes from the current GGC shareholders, who just lost 5% ($50 down to $47.50). In addition, the GGC shareholders just went from 100% company ownership to 50% (actually, slightly under 50% -- a minority position), with the new PPG-derived owners taking over control.

    These effects (not to mention the business deal, itself, plus GGC's need to sell bonds that it can give to PPG so that they can immediately sell in order to fund the "cash" portion of the financing) is why I describe the exchange offering as convoluted, confusing and uncertain. And the frequent touting of the 10% discount without fully explaining its source and probable effect on GGC's market price is misleading and shareholder unfriendly.

    So, when the dust clears, what will GGC (actually, the new Axiall) sell for? We simply don't know. What we do know is that, after putting the deal together, but before it was completed and the results were seen, PPG's CEO and EVP decided to exercise their options years early and then dump the shares.

    All the above makes me view the exchange offer as too risky. Moreover, the deal's construction, the PR touting, the hopelessly confusing prospectus and, as a final straw, the insider selling led to my conclusion to skip the exchange offer and join those executives by selling PPG.

    Thank you for the comment and question. In particular, it allowed me to address the math surrounding the 10% discount.
    John Tobey
    Jan 24 03:41 PM | 1 Like Like |Link to Comment
  • PPG Executives' Actions Wave Red Flag - Time To Sell [View article]
    Arthur-
    Your case example is excellent, pointing out two differences in today's business world. First, that executives used to take significant positions in their companies. Second, that company boards nowadays make it easy to build those positions through freely-granted options -- no money needed until exercised. Therefore, they need not commit anything like all their assets to accumulate significant holdings -- and no risk because, should the share price drop, they can simply let them expire (or, as we saw in recent years, ask the board to lower the expiration price).

    You know, writing that makes me wonder all the more why PPG's CEO and EVP, both men in the know and with power to direct the company's future, would willingly cash in their long-dated options now.

    Thank you for the comment.
    John Tobey
    Jan 23 12:56 PM | Likes Like |Link to Comment
  • PPG Executives' Actions Wave Red Flag - Time To Sell [View article]
    kwm3-
    Sale and holding details are in the PPG Investor Center website, under "SEC Filings." There are three recent "Statement of changes in beneficial ownership of securities" filings: Charles Bunch, J. Richard Alexander and David R. Whitwam (a director). Each is for option exercises and share sales. Here are the details:

    Bunch exercised his 100,000 @ $68.61 option with an expiration date of 2/13/2017. After the exercise/sale, he holds 0 options and about 297,000 shares (the same as previously).

    Alexander exercised his 3 options, totaling 46,800 shares: 13,600 shares @ $59.63 (2/14/2016), 17,000 shares @ $68.61 (2/13/2017) and 16,200 shares @ $63.69 (2/19/2018). After his exercises/sales, he holds 0 options and less than 24,000 shares (down 10,000 from before the exercises/sales).

    Whitwam exercised his 2,500 share @$47.89 option (2/18/2013). After the exercise/sale, he held 0 options and 0 shares (the same as previously).

    Hope that helps. Thank you for the comment.
    John Tobey
    Jan 22 01:41 PM | Likes Like |Link to Comment
  • PPG Shareholders: Beware Of Georgia Gulf Exchange Offer [View article]
    Chris Zocca-
    If PPG were buying shares with surplus cash, the per share earnings would mathematically rise since total earnings would stay the same. However, PPG is losing a money-making business, so the resulting effect is uncertain. The number of shares outstanding will decline, but so will the company's total earnings.

    Plus, the exchange offer does not represent the entire $2.1 deal. The "cash" portion appears to be GGC bonds that PPG plans to immediately market through investment bankers.

    In other words, it's unclear how much of the $2.1 billion will be available for investment in a replacement money-making investment.

    Thank you for the comment.
    John Tobey
    Jan 21 04:49 PM | Likes Like |Link to Comment
  • Wall Street Hits PC Escape Key - Or Is It A Ploy? [View article]
    StewBaby-
    You hit on a key analytical question: What, exactly, does "PC" refer to? Some analysts would have us add tablets to laptops to show that growth is good. Barron's tries to include smartphones, simply because they can do some of the things that laptops/desktops can do. Your statement that your smartphone is "useless for doing real work" is accurate and negates such all-inclusive analysis.

    I have been working on computers since the late 1960s (tab cards!) to do analysis and produce communications. Improvements in computing power, analytical software and data access have been true productivity gains. Likewise, business communication capabilities (i.e., report writing, chart/graph creation and presentation abilities) have made giant gains. However, smartphones and tablets are not on that trajectory. Yes, I can do some of the same things on each device, but I can't do as much. The productivity gains are in communication - the ease and quickness of reaching someone, passing information about and accessing the web. Flash memory, touch screens and apps are useful and can augment productivity through improvements in speed and ease. That's why I think the Windows 8 blending of smartphone/tablet strengths with laptops (PCs!) could be the next, real work advancement.

    Thank you for the comment.
    John Tobey
    Oct 22 11:25 AM | Likes Like |Link to Comment
  • Wall Street Hits PC Escape Key - Or Is It A Ploy? [View article]
    byloe n. selheigh -
    I agree that there is not some conspiracy organized by unseen forces. Rather, the problem is the natural flow of "news" when trends look ready to bend and opportunities or risks are developing. Wall Street (and by that, I mean all the unaffiliated professionals in the stock market) are silent while they are building or reducing their positions. Therefore, the news tends to be old, reflecting past thinking, not what is happening now.

    Thank you for the comment.
    John Tobey
    Oct 22 10:44 AM | Likes Like |Link to Comment
  • This Market's Gift: 3 Unloved Tech Stocks With Upside Potential [View article]
    Here is a good article that came out today describing some of the excitement in store when Windows 8 is released: "Will Windows 8 lure buyers back to PCs?" (http://bit.ly/URxAbL)
    Oct 12 05:10 PM | 1 Like Like |Link to Comment
  • It's Time To Adopt A Non-Intuitive, Irreverent View Of The Market [View article]
    klarsolo-
    What I meant by "true" growth is earnings gains through industry improvements, company changes, strategic moves and/or product developments. My comparison is not to accounting trickery but to the natural earnings increases we've seen from the recessionary bounce back, augmented by the leverages I mentioned. Those increases were real, but I believe the effects have occurred for the most part.

    Thank you for the comment.
    John Tobey
    Jun 4 09:00 PM | Likes Like |Link to Comment
COMMENTS STATS
281 Comments
282 Likes