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Today's Top News1. Michael Dell fights for his company
It's entirely possible that Michael Dell's computer company may be wrestled away by outsiders. The Dell Computer leveraged buyout saga took a dramatic turn over the weekend, as Blackstone Group, which had been seeking partners to invest alongside it (notably GE Capital), put forward a competing proposal to the special committee set up by the Dell board. The details of the offer were not clear, but it has been widely reported that Blackstone is reaching out to Mark Hurd, the former CEO of Hewlett Packard, whose career was derailed by allegations from a former consultant of impropriety, to perhaps run the company should they end up with the winning offer. Blackstone has every reason to try and work out a deal with Michael Dell, as any deal would be easier to consummate with his support. But the Dell CEO may not prove to be a willing partner after having invested so much effort in this current proposal with Silver Lake. The board's go-shop period is schedule to end March 22, and at least one other group has been pondering a competing bid. Carl Icahn might submit his own proposal that would call for a leveraged recap that would pay out massive special dividends to shareholders while allowing them to hold onto their stock. Michael Dell and his partners at Silver Lake are smart enough to have factored in the likelihood of a competing bid. My guess is that they have some dry powder somewhere that can now be deployed. The time to come through with a higher bid is at hand. Shareholders are no doubt salivating at the possibility of an active bidding war. For more: Related articles: Read more about: Carl Icahn, lbo
2. Banks criticized for moving into payday loans
Traditionally, banks and credit unions have looked down with disdain at payday lenders, considering them little more than shady operators preying on the unbanked. But in this era of severe revenue deprivation, the business model started looking a lot better. In the wake of the Durbin Amendment and the financial crisis, mainstream banks entered this market with products that they sought to differentiate. They certainly do not use the term payday loans, preferring direct-deposit loans or advance loan. Other more marketable names include "Early Access" or "Ready Advance." But the idea is the same -- they charge fat fees for relatively small loans. If you work the fees out in terms of net interest, you end up in the realm of usury. JPMorgan Chase (NYSE:JPM) was hit hard for its willingness to aid payday lenders by allowing them to withdraw payments from accounts directly and to charge fees when the withdrawals left accounts overdrawn. It recently announced it would reform its policies. Bank of America (NYSE:BAC) and other banks may be forced to follow suit. For some perspective on this issue, consider the recent report from the Center for Responsible Lending, which said some of the interest rates amount to 300 percent on an annualized basis. The Washington Post notes that, "Critics say the structure of advance-deposit loans promotes a cycle of debt. Account holders typically pay up to $10 for every $100 borrowed, with the understanding that the loan will be repaid with their next direct deposit. If the deposited funds are not enough to cover the loan, the bank takes whatever money comes in, triggering overdraft fees and additional interest." Banks that offer such loans include Wells Fargo, U.S. Bancorp, Regions Bank, Fifth Third Bank, Guaranty Bank and Bank of Oklahoma. In the end, banks will have to work hard to satisfy regulators and portray the product as benign and even as a helpful service for people in a bind. The problem is that as payday lenders step up their lobbying activity, the banks could get lumped in with them, which isn't necessarily ideal. They need to distinguish themselves in readily identifiable ways, which might not be simple. Of course, the CFPB and other regulators are already taking a look. For more: Related articles: Read more about: banks, Payday Loans 3. Gasparino rips both sides in Herbalife drama
The big battle over Herbalife has already faded a bit as a front-burner news event, but that hasn't stopped Charles Gasparino, author and FOX Business journalist, from offering some pointed commentary. He seems to take glee in eloquently ripping both William Ackman, who is short the stock, and Carl Icahn, who is long the stock if only to punish Ackman, in quite entertaining fashion. "So in the battle of the scumbags, who should we be rooting for?" he asks. "It's kind of like the Russians fighting the Germans during World War II because you want them both to lose." His opinion of Ackman: "if Herbalife is such a fraud, why do we need Bill Ackman to tell us? This guy makes it sound like he discovered gold, when in fact he used publicly available information, spun it through a research report and leaked his 'exclusive' findings to a few gullible reporters when he announced his short late last year. Like I said, if Herbalife is such a scam, my bet is that we wouldn't be hearing about it now, and not from someone like Ackman." Icahn fares even worse. Gasparino, who is obviously not worried about burning sources, calls him "slimy" and asserts that executives at Herbalife merely consider him the lesser of two evils. He continues: "Icahn is no long-term investor looking for under-valued gems in the market à la Warren Buffett. The 77-year-old former "greenmailer" made his name attaching himself to mergers during the 1980s boom and quickly cashing out after he forced corporate boards to buy out his stake at a higher price." All in all, it's doubtful this battle will be resolved anytime soon---though the costs of carrying a large short position can be high, unless Ackman has a deal worked out with his prime brokers. The potential for pyrotechnics in some or fashion is always there, however, especially when the pundits decide to weigh in. For more: Related articles:
Read more about: Carl Icahn, Bill Ackman 4. Rajaratnam's brother indicted
The saga of Raj Rajaratnam is in many ways a family saga. Raj and his younger brother, Rengan, were tight at one time -- colleagues in crime, a cynic might say. But now the elder brother, beset with health problems, is serving an 11-year prison sentence in Massachusetts, while the younger brother lives in Brazil, where he anxiously awaiting the news about whether prosecutors in New York will charge him with insider trading. As it turns out, he has indeed been indicted. The state of the brotherly relationship at this point is unknown, though the WSJ has reported that "Raj Rajaratnam places blame on his younger brother for drawing him into the insider-trading probe." Indeed, Rengan was a critical player early in the unfolding drama, providing investigators with valuable links to his brother and others. DealBook notes, "Though he was a much smaller player on Wall Street than his billionaire older brother, Rengan Rajaratnam is seen a seminal figure in the government's broad inquiry into insider trading at hedge funds.The origins of the investigation, which has led to more than 75 prosecutions of hedge fund employees and corporate executives, stretch back more than a decade. But a crucial breakthrough came in 2006 during an inquiry into Sedna Capital, a fund run by Rengan Rajaratnam. While reviewing e-mails and instant messages, securities regulators discovered damning communications between Rengan and his brother." Prosecutors have a huge decision to make soon, as critical statutes of limitations are close to expiring. With the indictment, the U.S. Attorney in Manhattan now will move ahead with an attempt to extradite him or persuade him to turn himself in. If he were getting good advice, he would do the latter. Remaining a fugitive abroad will not serve him well in the long-term. Meanwhile, another confidant of Raj Rajaratnam has felt the ripple effect emanating from the one-time insider trading kingpin. David Loeb, a salesman at Goldman Sachs, who spoke often with Rajaratnam, has left the firm. Also, Zvi Goffer, who some see as a less influential player who nevertheless got a 10-year sentence, continues to seek a reduction in his term. For more: Related articles:
Read more about: insider trading, Raj Rajaratnam 5. How IPOs change the technology industry
Just last year, a new conventional wisdom seemed to emerge in the tech IPO market. People were salivating over the likes of Facebook, Groupon, Zynga, LinkedIn and so many other tech companies that had opted to go public. Some were reminiscing about the dotcom era, taking pains to note that the IPO boomlet this time around was different in that the companies were much more mature. Fast-forward to now, and it's clear that the new dotcom era didn't last very long. Sure, there have been some successes, like Workday and a handful of others, but for the most part, despite the strong market, tech IPOs have been relatively scarce. In 2012, only 37 tech companies managed to make it to an IPO, raising $4.4 billion. This year, the pace is even slower, notes Fortune. "This is not what investment banks were hoping for in the wake of the long-awaited Facebook IPO, which was once expected to reignite a recession-battered IPO market the way Google's 2004 offering wiped away all the bad memories of the dot-com crash." To hear some talk about it, we're right back in a situation in which the old "conventional wisdom" holds, that is, companies are less interested in going public than finding a companies to sell to. I can understand the pessimism, but I am not sure I buy it. While the pace has been anemic, there are plenty of companies on deck, and hopefully it will not be long before more companies test the waters. In the end, the promise of an IPO will prove a very powerful allure, as it always has. For more:
Read more about: IPOs, Technology IPOs Also NotedSPOTLIGHT ON... ETF sponsors can now pay for liquidity Liquidity is hard to come by in some corners of Wall Street these days. The Nasdaq has come up with an interesting solution that was just approved by the SEC. It will allow sponsors of ETFs to pay market makers to provide liquidity. That loosens a ban that had been in place since 1987, according to Bloomberg. Back then, the idea was that sponsor payment would corrupt a market that ought to be determined by supply and demand. But these days, people are willing to put that argument in the drawer given the massive liquidity needs. What's next? Small companies paying for stock research and liquidity? Article Company news:
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Monday, March 25, 2013
| 03.25.13 | Michael Dell fights for his company
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