Filed under: Management, Value and lack thereof

One of the top IPOs for 2007 is comScore (NASDAQ: SCOR), which is up more than 71%. The firm provides sophisticated measurement tools for online advertising, and has clients like Verizon (NYSE: VZ), Google (NASDAQ: GOOG), Yahoo! (NASDAQ: YHOO), and Microsoft (NASDAQ: MSFT).

However, this day comScore announced that it is canceling its follow-on equity offering. Why? According to the company’s press release, there’s “unwillingness of management and other selling shareholders to sell under current capital market conditions.”

Actually, we’re seeing other signs of weakness for equity offerings. For example, CreditCards.com and Paradigm (which is a software company) have withdrawn their IPOs.

Most likely, these companies will go to private investors for funding. In fact, this may be an opportunity for private equity firms looking for deals.

Also, keep in mind that the IPO market has only a few weeks left — because of the Christmas holiday. In other words, don’t anticipate much action until next year.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements

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Filed under: Management, Activist investing

Robert Falcone, CEO of Nautilus (NASDAQ: NLS) has sent a letter to the company’s shareholders. He urges them to support the current management team, oppose Sherborne’s efforts to give the board of directors the boot, an also outlines some of the steps the company is taking to turn the company around.

Mr. Falcone owns 25,000 shares of the company — an astoundingly pathetic .08% stake. Sherborne owns about 25% of the company.

In his letter to shareholders, Mr. Falcone writes the following, in capitals:

“SHOULD ONE SHAREHOLDER’S NOMINEES CONTROL NAUTILUS?”

Perhaps not… But isn’t that at least better than having Nautilus controlled by people with no stake in the company?

Sherborne Investors should show up at the annual meeting an recite this speech from Gordon Gekko: Substitute Nautilus for Teldar Paper, and it’s the exact same situation,

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Filed under: Deals, Management, Rumors, Engagements, Investments

Tesoro(NASDAQ:TSO) share price down into Tracinda $64 cash tender expiring Dec. 6. TSO is recently down 82c to $55.03. Tracinda announced on October 26 the intention to make cash tender for up to 21,875,000 shares of TSO for $64 per share. TSO, an independent refiner and marketer of petroleum products, has a market cap of $7.6 billion. Crude oil futures are up 0.21% to $98.39 according to Bloomberg. TSO is expected to host an analyst meeting on December 5. TSO over all option implied volatility of 44 is near its 26-week average of according to Track Data, suggesting non-directional price fluctuations.

Royal Philips Holdings (NYSE:PHG) say’s it has concurred to pay $2.7 billion for Genlyte (NASDAQ:GLYT).

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

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Filed under: Management, Cerberus Capital

H&R Block Inc. (NYSE: HRB) Chief Executive Mark Ernst today resigned as his efforts to unloaded the company’s money-losing subprime mortgage business Option One Mortgage Corp. to Cerberus Capital Management LP nears collapse, according to Bloomberg News.

Former SEC Chairman and hedge fund manager Richard Breeden, who had long complained about losses at Option One and lead a proxy battle against the company, was named chairman and Alan. M. Bennett, a former CFO of Aetna Inc. (NYSE: AET), interim chief executive. H&R Block is conducting a search for a new CEO. Bennett has told the company he doesn’t wish to be considered as a candidate, the company stated in a press release.

Cerberus concurred to pay H&R Block $800 million for Option One in April, well under the $1.3 billion the company had hoped to get. Cerberus may scuttle the deal entirely now given the continued uncertainty of the credit markets. It’s unclear what’s going to happen to Option One which Ernst had stated H&R Block may close if it couldn’t find a buyer, Bloomberg said.

Shares of Kansas City-based H&R Block, which have slumped more than 17% this year, rose in pre-market trading. It will be interesting to see if Breeden will be able to help turn around H&R Block now that he’s become an insider.

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Filed under: Management, Shareholders, Public or private?

On November 9th, I wrote about Trans World Entertainment Corporation (NASDAQ: TWMC) CEO Robert Higgins’ offer to acquire the company for $5 per share. On Friday, shares of TWMC shut at $5.25, indicating that investors anticipate that either Higgins will raise his offer, or a competing bidder will emerge. What happened?

Sherwood Investments, which owns 4.34% of the company, put out a press release containing a letter to Mr. Higgins and the board, voicing the view that the offer was “grossly inadequate”, and urging the company to solicit other offers.

Sherwood’s argument is pretty hard to dispute: At a price of only $8 per share the entire Trans World business would be valued at under $250 million or $259,000 per store (using the 963 stores reported as of August 4th, 2007) which is less than their replacement cost. Furthermore, $8 per share would represent less than the $11.81 per share of tangible equity on the most current balance sheet and half the cost of current inventory. Let us remind you that just last year Trans World paid $78.8 million for 335 Musicland stores from bankruptcy. That deal equated to $235,000 per bankrupt store and now you are proposing to pay $161,000 per store for all the stores which represents a 31% discount, and Trans World is a going concern!

Why should shareholders accept $5 per share when liquidation should generate proceeds in excess of $8 per share? We’re certain that in making a “preliminary proposal” you realize that significant additional consideration would need to be forthcoming in order to satisfy your minority shareholders.

The paltry valuation that Higgins is placing on the company with his offer is underscored when you consider that Trans World actually closed 125 of the 355 Musicland stores that it acquired, according to the most recent 10-K. Using the 210 stores from the Musicland acquisition that TWMC currently operates, it really paid more than $375 thousand per store — 2.3 times as much as Higgins is offering for Trans World.

Trans World’s board will in all probability have to solicit other offers to avoid a proxy fight and, if Sherwood is right, that auction process would make Trans World a screaming purchase at its current price.

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Filed under: Management, Activist investing

Even Homer nods and so, apparently, does Carl Icahn.

Losses on WCI Communities (NYSE: WCI) and Lear (NYSE: LEA) have given his activist hedge funds their first quarterly declines in their 3-year history, according to Bloomberg News. The funds are only down 1.5%, and are are still up nearly 20%, before fees, on the year. The funds manage $7.1 billion.

What’s interesting is that Icahn’s massive losses came on companies that he sought to acquire and saw his bids rejected by management. But given that WCI rejected Icahn’s $22 a share bid and the stock currently trades around $4, the failure of Icahn’s overtures is probably a boon to shareholders.

A 1.5% decline is pretty minor setback — and I would expect Icahn to recover. While his career has been a massive success landing him in the upper echelons of the Forbes list, it’s also been marked by several high profile failures: Icahn’s blunders at the helm of TWA that led to its bankruptcy exposed his weakness as an operational manager.

But as an activist investor and bottom-fisher, Mr. Icahn is virtually unparalleled. His publicly traded company Icahn Enterprises (NYSE: IEP) continues to be an extremely strong performer, even as virtually everything else touching real estate has floundered.

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Filed under: Management, Venture capital industry

2007 Nobel Prize Winner and 2000 Presidential election winner Al Gore has another notch on his belt — partner at Silicon Valley’s most prestigious venture capital firm — Kleiner Perkins. (Thanks to the Supreme Court, Gore — who won the 2000 Presidential vote — did not serve.)

But he handled the disappointment well. His work on the documentary An Inconvenient Truth — easily the highest payoff PowerPoint presentation ever made — has helped make the world aware of the threat it faces from global warming and what people can do about it. Gore insightfully points out that climate change is a matter of war and peace. It has created conflict — the drying up of a lake in Sudan contributed to genocide there and the melting of the polar icecap has set off an international sea grab at the top of the world.

So what’s the deal with Gore at Kleiner Perkins? According to the New York Times, President-elect Gore’s part-time job at Kleiner will be to assess the potential of alternative energy companies and to opine on whether Kleiner Perkins should invest in them. Gore plans to donate his salary from the venture to the Alliance for Climate Protection, a nonprofit policy foundation. But he wasn’t clear about whether he’d get the partner’s share of the 2% of assets under management and 20% of the profits from successful “exits.”

He was clearer about his political aspirations — noting “I don’t anticipate to be a candidate again.”

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

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Filed under: Deals, Management

With the pain of the real estate plunge, Restoration Hardware (NASDAQ: RSTO) has had a hard time (the company is a specialty retailer of bath ware, furniture and so on). But is it really a good time to sell out?

Well, the company’s management thinks so. Late last week, Restoration Hardware announced a going-private transaction for $267 million or $6.70 per share. The buyer is Catterton Partners, which has quite a bit of experience with retail deals.

The premium comes to about 150%, which is nothing to sneer at. Yet, keep in mind that a variety of institutional investors are keeping their shares (yes, they are betting there could be a nice turnaround).

In fact, Restoration Hardware has already been making some restructuring moves (such as slicing jobs). But, as a private company, I suspect the actions will be even more substantial.

More importantly, this may be a sign that other specialty retailers might seek an exit, such as Pier 1 Imports Inc. (NYSE: PIR). And if so, I think managements will point to the super premium on Restoration Hardware’s deal.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements

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Filed under: Management, Engagements, Public or private?

Shares of Trans World Entertainment Corporation (NASDAQ: TWMC) were up massive today for the first time in a long time. CEO Robert Higgins handed the company’s board a “preliminary proposal” seeking to take the company private for $5 per share in cash. Mr. Higgins already controls about 40% of the company’s stock, and the board is evaluating the offer.

Shares of TWMC soared more than 27% to close at $4.96 — so close to the “preliminary proposal” that it indicates that investors anticipate that the company could well sell for a higher price.

Here’s what makes this interesting. According to the company’s latest proxy statement, Mr. Higgins has been CEO for a little more than 5 years, although he founded the company more than 30 years ago. The chart at right shows how the stock has performed during that period. In early 2005, shares of Trans World were trading well over $14 per share — Mr. Higgins’ offer is for just over a third of that.

What has happened since then? Trans World is in the CD and DVD business, with stores including FYE, Strawberries, Sam Goody, and Suncoast, some of which were acquired by the company out of bankruptcy. Of course, the internet has made those industries sluggish at ideal, and declining same-store sales and profitability have sent the stock tumbling.

Does Higgins deserve all the blame for the company’s woes? Of course not. But as an executive in the industry, he should have seen the changes coming and made adjustments. He didn’t, and now he’s looking to take the company private at a fire-sale price, way below the company’s book value.

To some, this may be akin to hiring a carpenter to renovate your home, watching him trash it, and then receiving an offer from him to buy it — at a small fraction of its value before he went to work.

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Filed under: Management, Activist investing, Value and lack thereof

As BEA Systems (NASDAQ: BEAS) management attempts to justify its decision not to let shareholders decide the fate of their company with regard to a takeover offer from Oracle (NASDAQ: ORCL), CEO Alfred Chuang has taken an uncommon step.

He has given shareholder and vocal opponent of his strategy, Carl Icahn, confidential information that purportedly shows that Oracle’s bid “significantly undervalues the company.”

No word yet on King Icahn’s reaction, but he probably isn’t buying it. In an October letter to the company, he wrote that “I view your public declaration of a $21 per share ‘take it or leave it’ price as a management entrenchment tactic, not a negotiating technique.”

He’s probably right. Some of the most trenchant analysis of the BEA situation comes from our own Georges Yared, who stated this:

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