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2. SAC Capital defends its CEO

Ever since audit firm Arthur Andersen was dealt the death penalty by prosecutors for its role in the Enron scandal, a decision that was overturned on appeal, the government has been hypersensitive about criminally prosecuting companies. To the concern of many, the preferred route recently has been deferred prosecutions, which allow companies to remediate their wrongful ways and avoid criminal charges. Some see this as letting companies off with a wrist slap for significant crimes.

In the case of SAC Capital, the wrist-slap argument does not apply. There is no deferred prosecution in the works. The government has taken off the gloves and is going after the hedge fund firm criminally, aiming apparently to put it out of business. To be sure, the heavy drumbeat of enforcement action against the firm and its former employees has already taken a toll, as more limited partners defect.

The criminal indictment against the firm, expected soon, may be the final blow. It will certainly allow the firm to exist as a family office. But for Cohen as an investment advisor, it's lights out. The SEC is similarly seeking to end his career as an advisor with its civil administrative proceeding.

So should Cohen count his lucky stars that he has been spared a personal criminal indictment? Perhaps so. He's not going to jail. It seems that the government has finally bowed to the reality that unless it could flip Mathew Martoma or Michael Steinberg, it would have no case. That said, the Financial Times reports that there is chance that other individuals will be named in an indictment. Not a great time to be an executive at SAC Capital. Recall that no fewer than 5 were called to provide testimony before a grand jury.

For more:
- here's an article from the Financial Times

Read more about: insider trading, SAC Capital
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By Jim Kim

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3. Third Point's exit from Yahoo raises questions

SAC Capital has decided it's time to fight in the court of public opinion. This runs counter to the ethos of its founder Steven Cohen, a famously private man. But even he has bowed to the reality that perception is reality and that people in his circumstances have to define themselves, or others will do it for them. The results of the latter will not be kind.

So the firm has released a 46-page white paper to employees that makes a passionate defense of their hero. Various media outlets also read the paper.

The paper addresses trading in the shares of Elan and Wyeth, on the advice of Matthew Martoma, former SAC portfolio manager, now facing a trial---an issue central to the government's case.

"The SEC does not allege, and there is no evidence, that Martoma ever said or hinted to Mr Cohen that he had improper information," the white paper was quoted by the Financial Times.

The white paper says that "share sales of two pharmaceutical stocks were normal following 'the dramatic price run-up in Elan' in June and July of 2008 ahead of the publication of key drug trial data. It also says that a decision to sell short Elan – betting its price would fall – merely balanced a long position in Wyeth."

The white paper also notes that the SEC inaccurately categorizes the firm's position in Wyeth as "net short" by ignoring another derivative transaction designed to rise if the share price rose.

The white paper also makes clear that Cohen reads few very of the emails forwarded him by certain underlings, including the one who sent an email referring to a "second hand read" on dell earnings. Cohen apparently has a "research trader" who sends him various emails, few of which he actually reads.

For more:
- here's the article

Read more about: SAC Capital, Steven Cohen
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By Jim Kim

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4. Michael Dell raises LBO offer

What to make of Dan Loeb's decision to abandon Yahoo?

Some would argue that he's a canny investor, generating $650 million in profit from his investment in Yahoo. Hedge fund managers exist to make money, not build companies. So on Wall Street anyway, few will begrudge his move to take his profits and run.

But others think differently. The Deal Professor has weighed in with some interesting criticism. He says Loeb and his appointed directors, are all stepping away, "when Yahoo's hard work is still left to be finished. It appears that Mr. Loeb and his cohorts are departing Yahoo midvoyage."

In addition, "the sale is arguably suspect in terms of its timing. Right now, Yahoo's valuation is floating on two pontoons. The first and biggest driver of Yahoo's share gains over the last few years has been its stake in the Chinese Internet giant Alibaba Group. Yahoo still owns 24 percent of Alibaba, which is planning an I.P.O. that could value it at more than $100 billion. Analysts estimate that up to two-thirds of Yahoo's approximate $30 billion market cap may simply be this stake.

"Alibaba has driven up Yahoo's share price over the last two years, as Yahoo's main business still struggles, even under Ms. Mayer. Yahoo's revenue in the quarter was down 7 percent from the previous year, and the company lowered its forecast, with ad revenue in particular declining 12 percent in this quarter compared with last year. To be honest, the rest of the premium in Yahoo's stock is mostly based on the hope that Ms. Mayer can deliver."

The other criticism is that the sale of his shares back to Yahoo was somehow untoward. It might have made for better optics to sell shares on the open market, but Third Point would have likely gotten a worse price. Some have used terms like greenmail and insider trading, but in the end, all was legal. It pays to be an insider.

Perhaps the biggest issue here is whether Yahoo will miss Loeb and his gang. The stock has tanked in the wake of his exit. And there are some huge challenges ahead.

For more:
- here's the article

Read more about: Dan Loeb, Third Point
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By Jim Kim

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5. Rate risks loom large for big banks

Michael Dell, founder of his eponymous computer company, has faced the reality of his situation and did what everyone knew he had to do: raise his offer to buy his own company.

He and his partner Silver Lake have announced that they will sweeten their bid for the company to $13.75 a share, from $13.65 a share, in hopes of finally winning shareholder approval. The special committee has scheduled a vote on the deal for August 2. Recall that the vote was originally scheduled for July 18 but was delayed to unfavorable partial results.

The new proposal is conditional upon Dell's special committee changing the rules of the voting such that the buyout will pass if the majority of votes is in favor of it. Currently, the voting rules hold that unvoted shares count as "no" votes.

Assuming the board makes a change, the big question is whether a 10 cents bump in the offer price will be enough to sway the arbs, who were holding out for a better deal.

Michael Dell and the committee had lobbied shareholders actively for the original deal terms. But it likely became clear that to lock in a win, they had to do something dramatic. As the rescheduled vote date approached, they had no reason to think they would win. So in their minds, they have now done what they had to do.

But opponents of the original deal may not be so easily appeased. You can bet that Carl Icahn and his merry band of disgruntled shareholders will renew their battle for a leveraged recap.

My sense is that given the dire state of the computer industry, long-term shareholders may need to accept that they've taken a bath on Dell. It's been a stinker for them, and there's no way they'll ever break even, public stub or not. A 10 cents bump in the price may be best deal they'll get. Long-term capital losses are inevitable.

For more:
- here's an article from Reuters

Read more about: Leveraged Buyout, Dell
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By Jim Kim

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