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A mid-30's Canadian that has been trading since 1999. Awarded CFA Charter in 2007. My focus is always on the risk-return balance. Finding plays that have limited downside either through strong cash balances or intrinsic value. Alternatively, looking at options with low margin... More
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  • Good bet on Airgas / Air Products merger
    It seems likes a deal is going to be worked out between these 2 companies.. 
    but first, the backstory:

    In the past year, Airgas (NYSE:ARG) has been playing the victim of an unwelcome takeover bid by Air Products (NYSE:APD). 
    It all started with APD making a bid of $60 cash per share back in February.
    The bid was rejected as insufficient an opportunistic. Airgas was trading at $43.53 the day before, but had traded as high as $62 prior to the Oct2008 market crash, and had continued to generate strong earnings and growth throughout.

    After being turned away, Air Products raised their bid, first to $63.50, then to $65.50.  Each time, the Airgas Board of Directors rejected the price. 
    Perhaps more infuriatingly, they also refused to let their shareholders tender.
    Being that this is a hostile takeover, Airgas’s board’s consent is crucial to the deal. The company has a poison-pill provision which makes a direct-to-shareholder solicitation more costly due to a rights plan.  

    As a scorned suitor, but viewing their offer as fair, Air Products decided to support 3 nominees for the Board of Directors of Airgas, to gain a measure of control.  These were successfully elected in June.  However, ARG has a staggered term policy, and it would take another full year to have a majority Board position. 

    Thus Air Products took another step by initiating a court case to review - and they hope - remove the poison-pill blockage.  Effectively, they want to let Airgas shareholders to make up their own minds. 
    It was the belief at this time, at least publicly, that most shareholders would support negotiations and the Airgas Board was not acting in the majority interest.

    The goal of these actions was for Airgas to finally come to the negotiating table.  Eventually, Airgas did, and they replied with a valuation of their own, a hearty $78 per share.    

    Air Products rejected that as too high.
    This week they issued their final and best offer price of $70, with a mid-January deadline.  Airgas’s share price dropped on the news, as the real possibility of APD walking away surfaced.


    Airgas’s Board is reviewing the new offer and has not yet reacted.  They have hired investment banks to consult on their valuation.

    Also, there is a decision pending in the court case re: the shareholder rights plan.

    Whew!  That should cover most of the history.

    Now, as an investor looking at this deal, I believe there are 2 positive situations here:

    #1, While there are many rules in life, to win in negotiating, rule #1 is this: Always appear ready to walk away. That is how you get the best deal. 

    For months and months, it appeared that Airgas was simply not interested at all, and the deal kept getting better.  From a $60 to $70 bid, this negotiating tactic earned the shareholders $840 million dollars extra.

    A second, less rigid, negotiating tactic is: to close a deal, you must to appear to let the other side win. 

    Once Airgas finally admitted their internal valuation at $78, and considering the original price of $60, Air Products effectively has ‘let them win’ by offering greater than 50% of the difference with this final offer.   

    #2, Immediately following the $70 revised offer, an institutional shareholder with 6.1% of the company issued an open letter to the Airgas Board advising them to start listening to offers.  This joined a previous open letter issued by a 1.8% shareholder.  

    There is now public pressure.

    Capital management firms are notoriously private – just visit their websites - and with two of them speaking out, one can only imagine the behind-the-scenes uproar taking place from the other major holders.  
    It appears the time for real negotiations has arrived.

    I believe the board has done a good job of maximizing shareholder value. 
    Do they want more? Of course they do.

    But the bigger question is:  If they block the deal - ie. do not pursue negotiations in good faith - are they willing to take the blame as the share price falls?

    With the offer price now at a happy medium and pressure from shareholders, in my opinion, there is a much-greater-than 50% chance of a deal for Airgas.

    Airgas closed Friday at $63.50. 

    Disclosure: I am long ARG.
    Tags: ARG, APD
    Dec 12 9:24 AM | Link | Comment!
  • Univeral Travel Group (UTA) insider buy, CFO.
    Hat tip to username Hudsonate at YMB.

    The CFO of UTA just purchased nearly $250,000 worth of his own company's stock.

    This was filed with the SEC as 39,850 shares bot at $6.20, on Dec 8th.

    Since then, the share price has climbed and is at $6.40+ at 1pm est on Dec 9th.
    It seems that the prospects for the company are good.

    (Disclosure: Long call options)
    Tags: UTRA
    Dec 09 1:06 PM | Link | Comment!
  • Rimage (RIMG) growth plans

    Rimage corp (RIMG) has a mature business where they offer CD and DVD one-stop copying systems, used for storage of records and for small quantity custom distributions.
    These all-in-one units have applications with the government and with corporations for data management.

    While Rimage is still generating steady but declining revenues from the sale of these units, and importantly from the proprietary consumables needed to run these units, they have identified the need to evolve and find new areas of growth.

    Last year, they started a launch into the Chinese medical market.  Using mostly existing hardware, they offer a digital solution to hospitals which currently record client medical information on film.  In Q3, they received the business license for China, have established a Shanghai office, and are building out the sales force.  Revenues are expected in the near term.

    Taking their existing hardware and making slight changes and software modifications, they also created products for video surveillance.  This includes security applications - with government sales already delivered, and a collegiate sports video program - with sales already delivered as well.

    However, as a $150mm market cap company with $106mm (Q3) in debt-free cash, those were the easy fruit to pick as they came with very low R&D expenses and good ROI.

    Rimage recently decided it was time to open the pocketbook and build for the future. 
    They are taking their war chest and working toward a new solution.


    In discussions with their broad base of clients, Rimage identified the need for a secure online publishing platform - to manage, store, and securely deliver digital content direct to desktops.
    The company is getting ready to shift into the software space, while continuing to focus on data storage.  This is their wheelhouse.

    To proceed, Rimage recently secured floor space in the Indian city of Hyderabad - a well known IT hotspot.  Getting a tax-favored office of 3200 sqft, they will put together a development team to build out this new initiative.

    With a new technology rollout and turnover of a mature business, the company has added new officers for the challenge:
    - A new Chief Technology Officer, who came over from leading the critical products group at Seagate,
    - A new VP Marketing, who was previously a VP Business Development at GWW, 
    - A new CFO with a background as CFO in technology focused companies with market caps up to $2 billion,
    - Led by a new CEO who was previously a VP Marketing at Seagate.

    In the investing world, RIMG's strategy is termed 'organic growth', building from the ground up based on their existing strengths.  They have also not ruled out the inorganic approach, and may in fact be looking for a partner or acquisition to speed along their online publishing solution.

    This is a time of change at Rimage.  It continues to have sales, revenues and earnings from its mature product line.  It finds and develops add-on capabilities for existing hardware, seeking new markets and growth areas.  And it is building the next generation of offerings with internal cash and new leadership. 

     Keep an eye on this name.

    Disclosure: I am Long RIMG.
    Tags: QUMU
    Dec 09 10:46 AM | Link | Comment!
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