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  • Warren Buffett the Activist

    Yesterday, Buffett made clear that he is not happy about Kraft’s plan to authorize share-issuance to facilitate the Cadbury acquisition. For years, Buffett’s strategy has been to invest in businesses with talented and trustworthy managers and then remain mostly on the sidelines, even when Buffett was on the board of those companies. Does this move represent a subtle shift in Buffett’s investing style to a more active approach?

    Apparently that’s not the case.

    According to Buffett insiders, it’s not unusual for Buffett to actively protect its investments from value-destroying actions such as issuing new stock to overpay for acquisitions. For example, when the Coca-Cola was considering buying Gatorade, Buffett was behind the scenes actively trying to persuade the company not to overpay for the sports-drink maker. We do think, however, that the language Mr. Buffett used on the press release is stronger than the typical annual letter, and hence all the press coverage.

    Buffett’s press release is included below:

    Berkshire Hathaway has voted “no” on Kraft’s proposal to authorize issuance of up to 370 million shares. Berkshire, taking into account both its own holdings and those of its pension funds, believes that the 138,272,500 Kraft shares it owns – 9.4% of the total outstanding – make it the company’s largest shareholder.

    The share-issuance proposal, if enacted, will give Kraft a blank check allowing it to change its offer to Cadbury – in any way it wishes – from the transaction presented to shareholders in the proxy statement. And we worry very much that, indeed, there will be an additional change from the revision announced this morning.

    To state the matter simply, a shareholder voting “yes” today is authorizing a huge transaction without knowing its cost or the means of payment.

    What we know with certainty, however, is that Kraft stock, at its current price of $27, is a very expensive “currency” to be used in an acquisition. In 2007, in fact, Kraft spent $3.6 billion to repurchase shares at about $33 per share, presumably because the directors and management thought the shares to be worth more.

    Does the board now believe those purchases were a mistake and that Kraft’s true value is only the current price of $27 per share – and that it is therefore fine to structure a major acquisition based upon that price? Would the directors use stock as merger currency if the price were, say, $20 per share? Surely the true business value of what is given is as important as the true business value of what is received when an acquisition is being evaluated. We hope all shareholders will use this yardstick in deciding how to vote.

    Our understanding is that Kraft must announce its final offer for Cadbury by January 19th. If we conclude at that point that the offer does not destroy value for Kraft shareholders, we will change our vote to “yes.” At this time, however, we believe no shareholder should vote “yes” when he can’t possibly know what he is voting for.


    Tags: MDLZ
    Jan 07 12:02 AM | Link | Comment!
  • Aspen Exploration Corporation: A Possible Liquidation Play

    Aspen Exploration Corporation (NYSE:ASPN) is being added to the ValueHuntr Portfolio. ASPN is an interesting special situations play we have been following for some time now. Based on yesterday’s trading price, we believe there may still be some value for shareholders in the event of a sale, merger or liquidation. For the purpose of keeping our estimates as conservative as possible, we assume liquidation is possible in the near future.


    Aspen Exploration Corporation does not have significant operations. It intends to seek possible business combinations with third parties. Prior to June 30, 2009, the company operated 67 gas wells and had a non-operated interest in 26 gas wells in the Sacramento Valley of northern California and approximately 37 oil wells in Montana.


    On November 30, 2009, Aspen held its annual meeting of stockholders in Greenwood Village, Colorado. Two proposals were submitted to the stockholders for approval as set forth in Aspen’s definitive proxy statement dated October 19, 2009. A total of 5,965,534 shares (approximately 70% of the total outstanding as of the record date) were present at the meeting in person or by proxy.

    According to the 12/02/09 SEC Filing, Aspen’s stockholders did not approve the resolution to grant Aspen’s Board of Directors the discretion to dissolve the company. To be approved Delaware law required that this proposal be approved by a majority of shares outstanding and entitled to vote thereon. Although more stockholders voted in favor of the proposal than voted against it, only approximately 41% of the total shares outstanding and entitled to vote on the proposal voted in favor of its approval. As a result, Aspen maintained its corporate status and decided to explore other business opportunities.

    On November 2, 2009 ASPN declared a cash dividend of $0.73/share. The news release describing the dividend said:

    The distribution follows the final settlement of the sale of Aspen’s California oil and gas assets to Venoco, Inc., at which the parties made a number of immaterial adjustments to the purchase price paid at the June 30, 2009 closing, and made certain other payments that were not determined until after the closing. At the final settlement date Aspen received a net payment from Venoco, but was required to make various payments to third parties which ultimately resulted in a cash outflow from Aspen in an amount not considered to be material.

    Aspen expects that after the payment of the dividend, and its anticipated operations through the end of the current calendar year, on December 31, 2009 it will have more than $3 million of working capital remaining. Aspen currently intends to utilize its remaining funds to maintain its corporate status as a reporting issuer under the Securities Exchange Act of 1934 and to explore other business opportunities. "


    It is likely that if no interested buyer is found for ASPN’s remaining assets, the company will end up liquidating. Our rough estimates for an eventual liquidation, including expected operational expenses to be incurred until March, 2010 is shown below.

    Currently trading at $30/share, our estimates show that there is still some value in ASPN. However, our estimates are highly dependent on the timing of the potential liquidation and on the assumptions outlined above. We believe that management will do what is right for shareholders, as the company’s CEO owns 20% of all shares.


    ASPN has no significant operations, but it may have enough cash on its balance sheet to offer some value to shareholders. Although we wish we had a larger margin of safety, we believe it is likely that ASPN’s CEO will find the best deal for shareholders, or liquidate the company. As we have shown, even in liquidation the company’s value is above the company’s current price.

    Disclosure: No positions
    Jan 05 8:20 PM | Link | Comment!
  • Hedge Fund Manager Kicked Out of Investor Meeting

    Last week Harvest Capital Strategies manager Andrew Kaplan tried to attend an analyst meeting for First Solar, which he says he was invited to. Upon arriving at the Westin in New York, where the event was taking place, Kaplan received a badge, grabbed himself a Diet Coke, and waited for the conference to begin. Unfortunately, Andy never got to find out what the company had to say for itself, because he was approached by an IR person who informed him he need to leaving the building ASAP. Kaplan e-mailed First Solar officials to ask why he was barred and request that the company pay his $9 taxi fare from the hotel back to his office on Park Avenue, where he listened to the analyst conference on the Internet.

    Andrew Kaplan’s letter to FSLR managent is posted below.


    Sent: Thursday, December 17, 2009 12:40 PM
    Subject: Cab Fare & an Offer
    Dear Mr. Meyerhoff and Mr. Polizzotto,
    Several weeks ago I received an invitation to your December 16th analyst event in New York City. As directed, I confirmed my attendance with Ms. Mannion at your investor relations firm.
    Imagine my surprise when I attempted to enter the auditorium last evening only to be informed by Ms. Mannion that First Solar management had instructed her to eject me from the premises.
    While, I suppose, you have the right to refuse admission to your event to anyone whom you have reason to believe might be disruptive, I find it hard to see how I might fit into that category. I was dressed nicely. My hair was combed. I have always conducted myself with decorum at other events, and my questions to management members have always been pertinent and respectful.
    The harm I suffered at your hands, other than the embarrassment of having to explain my departure to colleagues, was minimal. My investors did incur a $9.00 taxi cab expense because I was forced to hurry back to my office to hear the webcast of the event, and I believe it would be fair for you to reimburse them. After all, you did invite me and, if you wished to rescind the invitation, it would have been common courtesy to do so BEFORE I traveled to the event.
    More than the $9.00, though, I’d appreciate an explanation. I am negative on your stock, I do currently hold a short position, and I have communicated some of my thoughts on the challenges your company faces to other investors with whom I am friendly. Perhaps in your mind this is sufficient reason to bar me from your event. Just the very thought of having someone in the audience who disagrees with your outlook may be too distasteful for you to tolerate.
    I’m sure it goes without saying that that’s not the way most successful management teams operate. Generally, they welcome the opportunity to provide their viewpoint to analysts who disagree with them, because they believe their case to be persuasive. And, if they don’t succeed, it doesn’t matter, because in the end the stock will follow the company’s results. 
    Managements who go out of their way to stifle dissenting viewpoints fall into one of two camps: 1) Those who are actively attempting to deceive investors, and therefore find it threatening to have analysts around who may see through the ruse; or 2) Those who truly believe that their company will succeed, but are simply offended by the audacity of analysts who disagree. In my experience, it is worthwhile to short both groups; the first because the truth eventually emerges, and the second because managements who can not bear to hear dissent from analysts are also not open to new information from within their industry, and are likely to become road kill at the expense of more nimble competitors. Mr. Meyerhoff, who spent six years as the CFO of Form Factor, a company once as arrogant as First Solar, but in recent years humbled by industry transitions they failed to predict (or, at least, failed to adequately signal to investors), should understand this as well as anyone.
    Of course, arrogance and intransigence work both ways. I have also seen analysts who become so wedded to a point of view (positive or negative) that they are physically unable to listen to information which contradicts their beliefs. I believe the term for this is “cognitive dissonance.”  I hope I never fall into this category. That is exactly the reason I planned to attend your event: to hear management’s point of view and see whether there was anything in it which required me to rethink my position. Nothing that I heard on your webcast or read in the transcript had that effect.
    But I remain open, and to that end I issue the following invitation: If there is anything that you are aware of that I have written or said which you believe to be false or misleading, please tell me what that is. I will, promptly, and without editing, include your perspective in written materials which I periodically send to the same group of industry colleagues who received my earlier views. This should, presumably, undo any harm you feel I’ve caused your firm by disseminating information which you believe to be inaccurate.
    I believe my offer is more than fair, and I look forward to your response. You may forward the $9.00 to the address below.

    Sincerely yours,

    Andrew Kaplan – Harvest Capital Strategies

    Tags: FSLR
    Jan 02 12:08 PM | Link | Comment!
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