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Marty Chilberg
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I'm a retired CPA who spent the majority of his working career in technology companies. My work included management stints at Atari Inc, Daisy Systems Corp, Symantec Corp and Visio Corp. My last position at Visio (VSIO) was as CFO and VP Finance and Operations.
  • Analyst Notes May 27 2015:$LO, $HRL, $RAI, $STLD

    Morningstar Analyst Notes. Full reports available with subscription

    As we had anticipated, the Federal Trade Commission on May 26 approved the proposed transactions involving Imperial Tobacco ITYBY, Lorillard LO, and Reynolds American RAI. The deal will now proceed as planned, and we expec t it to close within a month. The ruling proposes no major changes and requires Reynolds to divest cigarette brands Winston, Kool, Salem, and Maverick as well as Lorillard's manufacturing facilities in North Carolina. We are reiterating our moat ratings for the companies involved and believe the transactions are priced into the stocks. Our pick of the tobacco group remains Philip Morris International PM. The dissolution of Lorillard will transform the landscape of the U.S. tobacco industry. Imperial's market share will rise from 3% to 10%, while Reynolds' will rise from 27% to around 36% with a strong brand portfolio including Camel, Newport, and Pall Mall. Imperial's portfolio will comprise a collection of brands declining at a faster rate than the industry. Leading manufacturer Altria MO (50% share) will face a stronger number-two player and potentially a more aggressive number three in Imperial. However, we think the strategic options available to Imperial in the United States are fraught with risk. The firm could either attempt to expand its acquired brands by cutting prices and margins, o r it could maximize cash generation with volume continuing to underperform in a declining industry. For the entire note, click here.
    Philip Gorham, CFA, FRM

    We're maintaining our $50 per share fair value estimate for Hormel HRL following its acquisition of Applegate Farms, as the target's solid growth prospects are offset by the relative size, lack of synergies, and purchase price (which is about 2.3 expected 2015 revenue and 25.6 times estimated EBITDA). After several months of rumors surrounding the potential to buy Applegate, Hormel announced that it indeed intends to acquire the natural and organic prepared meats manufacturer for $775 million (in-line with prior cited figures in the $600 million to $1 billion range, as discussed in our March 23 note), through a mix of cash on hand and newly issued debt. The addition is not particularly significant in terms of Hormel's consolidated business; management noted that estimated 2015 revenue will be about $340 million--3.5% of our current forecast for Hormel's sales--and that the deal should add $0.07 to $0.08 in EPS in 2016, roughly 2.5% to 3.0% of our current $2.73 estimate. Moreover, because the firm plans to operate Applegate as a standalone entity, management does not expect any substantial cost synergies. Overall, however, we think the addition of Applegate will be a positive for Hormel's business, given the growth prospects of the category, which is growing more than three times as fast as overall grocery sales; management confirmed this thinking by noting it expects Applegate's growth to average low-double-digits. For the entire note, click here.
    Adam Fleck, CFA

    On the morning of May 26, Steel Dynamics STLD announced the 24-month idling of its Minnesota ironmaking operations in Chisholm and Hoyt Lakes. The Mesabi Nugget project, a jointly owned iron nugget production facility that will now be idled, was originally designed to provide low-cost iron units to Steel Dynamics' electric arc furnaces. Ultimately, however, the operation's unit costs were not competitive relative to global pig iron export prices. Although management had held out hope that process improvements might allow the project to become value-accretive, the recent decline in global pig iron export prices all but sealed the facility's fate. Pig iron prices remain below $300 per ton, significantly lower than Steel Dynamics' expected iron nugget cash costs of $340-$350 per metric ton. In recent months, the procurement of iron units via imported pig iron became increasingly more cost-effective for Steel Dynamics because of the growing global iron ore supply and the strengthening of the U.S. dollar relative to the currencies of key pig iron-exporting countries such as Brazil and Russia. Per CEO Mark Millett's commentary in the associated press release, management expects low pig iron prices to remain in place for some time. As we already expected the Mesabi Nugget Project to be idled, our valuation model and $22 per share fair value estimate are unchanged. For the entire note, click here.
    Andrew Lane

    De La Rue finished a difficult fiscal year roughly in line with our expectations. Total revenue was down 8% year over year. The company's core currency division saw a 5% year-over-year increase in print volume and a 2% decline in substrate volume, but weak pricing due to industry overcapacity pushed revenue down 7% year over year. Results in the other segments were similarly weak, but we are encouraged that management delivered on its promise to return its cash processing solutions segment to profitability, albeit very meager. This business provides useful intelligence on the performance of De La Rue's and competitors' bank notes, but we would prefer that this information not come at a cost. Operating margins fell to 14.7% from 17.4% last year, as the pricing issues dinged profitability, partially offset by GBP 7 million in cost savings the company realized. We maintain our fair value estimate and narrow moat rating and consider the shares about 20% undervalued.
    Brett Horn

    Tags: PM, LO, STLD, HRL, Analyst Notes
    May 27 7:19 PM | Link | Comment!
  • What Is The Dark Web?

    Simple yet effective article from Wired link here

    WITH THE RISE and fall of the Silk Road-and then its rise again and fall again-the last couple of years have cast new light on the Dark Web. But when a news organization as reputable as 60 Minutes describes the Dark Web as "a vast, secret, cyber underworld" that accounts for "90% of the Internet," it's time for a refresher.

    The Dark Web isn't particularly vast, it's not 90% percent of the Internet, and it's not even particularly secret. In fact, the Dark Web is a collection of websites that are publicly visible, yet hide the IP addresses of the servers that run them. That means anyone can visit a Dark Web site, but it can be very difficult to figure out where they're hosted-or by whom.

    Hiding in plain sight

    The majority of Dark Web sites use the anonymity software Tor, though a smaller number also use a similar tool called I2P. Both of those systems encrypt web traffic in layers and bounce it through randomly-chosen computers around the world, each of which removes a single layer of encryption before passing the data on to its next hop in the network. In theory, that prevents any spy-even one who controls one of those computers in the encrypted chain-from matching the traffic's origin with its destination.

    When web users run Tor, for instance, any sites they visit can't easily see their IP address. But a web site that itself runs Tor-what's known as a Tor hidden service-can only be visited by Tor users. Traffic from both the user's computer and the web server takes three hops to a randomly chosen meet-up point in the Tor network, like anonymous bagmen trading briefcases in a parking garage.

    Just because the IP addresses of those sites are kept hidden, however, doesn't mean they're necessarily secret. Tor hidden services like the drug-selling sites Silk Road, Silk Road 2, Agora and Evolution have had hundreds of thousands of regular users; Anyone who runs Tor and knows a site's url, which for Tor hidden services ends in ".onion," can easily visit those illegal online marketplaces.

    Not to be mistaken with the Deep Web

    When news sites mistakenly describe the Dark Web as accounting for 90% of the Internet, they're confusing it with the so-called Deep Web, the collection of all sites on the web that aren't reachable by a search engine. Those unindexed sites do include the Dark Web, but they also include much more mundane content like registration-required web forums and dynamically-created pages like your Gmail account-hardly the scandalous stuff 60 Minutes had in mind. The actual Dark Web, by contrast, likely accounts for less than .01% of the web: Security researcher Nik Cubrilovic counted less than 10,000 Tor hidden services in a recent crawl of the Dark Web, compared with hundreds of millions of regular websites.

    A few cracks of light

    Though the Dark Web is most commonly associated with the sale of drugs, weapons, counterfeit documents and child pornography-and all those vibrant industries do in fact take advantage of Tor hidden services-not everything on the Dark Web is quite so "dark." One of the first high profile Dark Web sites was the Tor hidden service WikiLeaks created to accept leaks from anonymous sources. That idea has since been adapted into a tool called SecureDrop, software that integrates with Tor hidden services to let any news organization receive anonymous submissions. Even Facebook has launched a Dark Web site aimed at better catering to users who visit the site using Tor to evade surveillance and censorship.

    Just how completely Tor can evade the surveillance of highly-resourced law enforcement and intelligence agencies, however, remains an open question. In early November, a coordinated action by the FBI and Europol known as Operation Onymous seized dozens of Tor hidden services, including three of the six most popular drug markets on the Dark Web. For now, just how the feds located those sites remains a mystery; Some security researchers speculate that government hackers used so-called "denial of service" attacks that flood Tor relays with junk data to force target sites to use Tor relays they controlled, thus tracing their IP addresses. Or they may have simply used old-fashioned investigative techniques such as turning administrators into informants, or found other hackable vulnerabilities in the target sites.

    Either way, the message is clear: Even on the Dark Web, it only takes a few small cracks to let the light in

    May 27 8:57 AM | Link | 1 Comment
  • April 2015 M&A Activity
    U.S. M&A Deal Activity Down 6.2%, Private Equity Down 17.0%

    May 26, 2015

    Via FactSet Mergers staff

    U.S. M&A deal activity decreased in April, dropping 6.2% with 956 announcements compared to 1,019 in March. Aggregate M&A spending decreased as well. In April 31.2% less was spent on deals compared to March.

    Over the past three months, the sectors that saw the biggest increases in M&A deal activity, relative to the same three month period one year ago, were:

    1. Technology Services (519 vs. 440)
    2. Finance (392 vs. 357)
    3. Consumer Services (236 vs. 209)
    4. Distribution Services (166 vs. 147)
    5. Communications (41 vs. 29)

    Eleven of the 21 sectors tracked by FactSet Mergerstat posted relative gains in deal flow over the last three months compared to the same three months one year prior.

    Over the past three months, the sectors that saw the biggest declines in M&A deal volume, relative to the same three month period one year ago, were:

    1. Utilities (35 vs. 56)
    2. Producer Manufacturing (169 vs. 189)
    3. Commercial Services (467 vs. 482)
    4. Consumer Durables (36 vs. 48)
    5. Transportation (58 vs. 69)

    Ten of the 21 sectors tracked by FactSet Mergerstat posted negative relative losses in deal flow over the last three months compared to the same three months one year prior, for a combined loss of 98 deals.

    The largest deals announced in April were:

    1. Wells Fargo & Co. agreeing to acquire GE Capital Real Estate's Commercial Real Estate Loans in the United States, United Kingdom, and Canada for at $9 billion
    2. Prologis, Inc. and Norges Bank Investment Management, through their joint venture, Prologis US Logistics Venture, signing an agreement to acquire KTR Capital Partners LP for $5.2 billion
    3. Permira Advisers LLP, a subsidiary of Permira Holdings Ltd., and state-owed Canada Pension Plan Investment Board agreeing to acquire Informatica Corp. for $5.1 billion; FedEx Corp. agreeing to acquire TNT Express NV for $4.8 billion
    4. Blackstone Mortgage Trust, Inc.'s deal to acquire GE Capital Real Estate's commercial mortgage loan portfolio for $4.4 billion.

    U.S. private equity activity decreased in April, down 17.0% from March. There were 88 deals in April compared to 106 in March. Aggregate base equity also decreased, down by 19.7% to $20.4 billion from March's $25.4 billion.

    Canadian firms were the biggest buyers of U.S. companies in April. They announced 22 deals for the month, with U.K. companies in second with 21 deals, followed by France, Australia, and Japan. The largest deal to purchase a U.S. business was the British Permira Advisers LLP, joining with Canada Pension Plan Investment Board agreeing to acquire Informatica Corp. for $5.1 billion. U.K. firms were the biggest sellers to U.S. firms with 30 deals, followed by Canada, France, and Netherlands. The largest U.S. deal to acquire a foreign company was FedEx Corp. agreeing to acquire the Netherlands-based TNT Express NV for $4.8 billion.

    The top financial advisors for 2015 based on deal announcements, are Goldman Sachs & Co., Bank of America Merrill Lynch, JPMorgan Chase & Co, Morgan Stanley, and Houlihan Lokey. The top five financial advisors, based on the aggregate transaction value of the deals worked on, are JPMorgan Chase & Co, Centerview Partners LLC, Morgan Stanley, Bank of America Merrill Lynch, and Lazard.

    The top legal advisors for 2015 based on deal announcements, are Kirkland & Ellis LLP, Jones Day LP, Skadden, Arps, Slate, Meagher & Flom LLP, Fenwick & West LLP, and Weil, Gotshal & Manges LLP. The top five legal advisors, based on the aggregate transaction value of the deals worked on, are Sullivan & Cromwell LLP, Davis Polk & Wardwell LLP, Skadden, Arps, Slate, Meagher & Flom LLP, Kirkland & Ellis LLP, and Simpson Thacher & Bartlett LLP.

    FactSet Flashwire Monthly ReportDownload the full report for more, including:
    • Key trend information for the Overall and Middle M&A Markets, such as deal volume, deal value, mega-deals, leading buyers, leading industries, leading sectors, cross-border deals, U.S. regional deals, average P/E, average premiums, payment methods, and much more
    • Report on U.S. Sector Activity and Value
    • Sector Spotlight
    • U.S. Strategic Buyer Report and U.S. Private Equity Report
    • Top U.S. Financial and Legal Advisor Rankings
    • Top U.S. Deals Scoreboard

    Download most recent FactSet U.S. Flashwire Monthly report.

    May 27 8:17 AM | Link | Comment!
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