Emulex – This Is Why You Lock It Down

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Opps Tracker Pick Emulex Surges Ahead of Earnings

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Reassessing a Lock-In Price on Previous Opps Tracker Pick, Timken

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How Icahn Worked His Magic With Netflix Payday

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Elliott Associates Sets Its Eyes on Emulex Corp.

Issuer:  
Stalker:
Conclusion: Elliott Associates gets results.  We expect Emulex to structure a transaction for shareholder benefit in the medium term.

We are a bit late to this party, but we are adding Emulex Corp. (ELX) to the Opps Tracker, prompted by the large stake owned by the awesome Elliott Associates funds.

Here’s the breakdown:

Emulex has been sucking wind lately, beginning 2012 at $7.03/share before quickly shooting to the $11.00/share range in Spring 2012, presumably on favorable earnings announcements and projections of positive outcomes from some nasty litigation and takeover antics from Broadcom Corp. (BRCM).  And then, [cue “Behind the Music” voiceover about spinning out of control . . .]

  • Quarter-to-quarter earnings began to slip as you can see for the quarterly numbers below:
January 1, 2012
April 1, 2012
September 30, 2012
Net Revenues
Net Earnings
Net Revenues
Net Earnings
Net Revenues
Net Earnings
$128.7 M
$15.0 M
$125.7 M
$8.7 M
$119.2 M
$657 k
  • the consequences from the adverse jury verdicts in its patent litigation with Broadcom were emerging, such as injunctions against certain Emulex products and forced royalties to Broadcom.  In addition, retrials on various claims were scheduled, but Emulex stated that the uncertainty would continue for at least a year;
  • Emulex and Broadcom reached a partial settlement that resulted in some limited licenses to Emulex and a $58 million license fee to be paid by Emulex to Broadcom.  The remaining claims were not settled or released; and
  • in response to a Broadcom acquisition proposal in April 2009, Emulex instituted a share repurchase plan.  As of April 1, 2012, it had repurchased approximately 9.0 million shares of its common stock for an aggregate purchase price of approximately $78.4 million at an average purchase price of $8.67 per share under this plan, including 2.9 million shares for an aggregate purchase price of approximately $20.1 million at an average purchase price of $6.83 per share were purchased during the nine months ended April 1, 2012.

The share prices fell sharply after March 2012, trading between the low-$6’s and the mid-$7’s.

Then, in walks Paul Singer’s Elliott Associates, L.P.  We previously discussed one particularly awesome story about Elliott trying to foreclose on the Argentine navy in an Underdisclosed.com post.

Elliott Associates is an activist investment fund with a strong history of promoting shareholder interests and “encouraging” issuer transactions, such as:

Elliott Associates filed a Schedule 13D in November 2012 disclosing a 9.96% stake and some additional derivative positions in EmulexElliott Associates also provided plain vanilla disclosure regarding their investment purpose:

“From time to time the Reporting Persons may express their views to management, the Board of Directors of the Issuer, other shareholders or third parties regarding the Issuer or its securities. The Reporting Persons may also formulate positions, plans or make proposals with respect to the Issuer.”

Translation:  “We have some ideas about how you can do better for the shareholders.  Details to follow.”

In the 60 days prior to the filing, Elliott Associates has purchased a net 4.7 million shares for a weighted average price of $6.88/share.  In sum, Elliott Associates disclosed a holding of 8.9 million shares, an aggregate purchase price of $65.7 million and an average purchase price per share of $7.36.

The stock price has continued to bounce around the $6’s and $7’s, closing at $7.41 prior to this writing.  Elliott Associates did not invest for a 0.6% increase over its average cost of purchase.

This may be a long-term play, but it is going in our Opps Tracker.  We are looking forward to how Elliott Associates’ strategy plays out.

Links:
Emulex Form 10-Q (January 2012)
Emulex Form 10-Q (April 2012)
Emulex Form 10-Q (September 2012)
Emulex Form 8-K – Broadcom Settlement 
Elliott Associates Schedule 13D
Elliott Associates Schedule 13D/A

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Reading the Intentions of the Parties in the Clearwire, Dish, Softbank, Dish Square Dance

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Update for 2013

We are planning big things for our PRO Reports or 2013, both in terms of what we cover and how we cover them.  We cleared some private project issues and are ready to concentrate on Underdisclosed PRO to give subscribers access to private, in depth insight into all kinds of market and economy related issues.  In addition, we will provide exclusive access to our Opps Tracker moves in the PRO Section before we post it in our public section.

Happy New Year!

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Like David Caruso On CSI Miami, Facebook Rips Off The Sunglasses and Looks Into The Future to See That It Is Mobile While The Who Plays Into The Opening Credits

Issuer:     
RE: Is Facebook Going Mobile?
Conclusion: Seeing the Writing On The Wall, Facebook Gives a Glimpse Into Its Mobile Strategy

Out in the woods
Or in the city
It’s all the same to me
When I’m driving free
The world’s my home
When I’m Mobile.
-The Who, “Going Mobile”

In the wake of a huge but disastrous IPO, much has been made of role of Facebook’s mobile strategy for its post-IPO stock price woes.  Search “Facebook mobile strategy” in any search engine, and you will find reams of pontificators pontificating on how Facebook will or won’t successfully execute a mobile strategy.

Does Facebook/Zuckerberg care?

A quick look at Facebook’s recent Form 10-Q shows that Facebook is well-aware of the need for a mobile strategy and is working to develop and execute on, well, something.

In its earnings release for the 2012 third quarter, Facebook made much of the fact that it had reached 1.01 billion monthly active users (“MAUs”).  This was a 26% increase from the prior year.  As they put it, Facebook “[C]onnected 1 billion people since founding the company eight years ago.  [Ed: As someone with about 100 FB friends, I personally do not feel connected to the other 9,999,999,900 MAUs through Facebook, many of which I would like to take proactive steps to disconnect from.]

In the 10-Q, Facebook stated that daily active users (“DAUs”) increased to 584 million, or 28% from the prior year.  Like the June 30 Form 10-Q, Facebook stated that this growth was driven largely by increased mobile usage.  However, in the September 30 10-Q, they expanded on this to say that:

the number of DAUs using personal computers increased modestly compared to the second quarter of 2012, butin certain key markets such as the United States and Europe the number of DAUs using personal computers was essentially flat quarter-over-quarter after having decreased modestly during the second quarter of 2012.

Translation:  User growth is coming from mobile.

It doesn’t stop there.  Mobile MAUs increased 61%, including key markets such as India, Brazil and the U.S.  Facebook went on to describe the situation as follows:

While most of our mobile users also access Facebook through personal computers, we anticipate that the rate of growth in mobile usage will exceed the growth in usage through personal computers for the foreseeable future and that the usage through personal computers may be flat or continue to decline in certain markets, including key developed markets such as the United States, in part due to our focus on developing mobile products to encourage mobile usage of Facebook.

“. . . in part due to our focus on developing mobile products to encourage mobile usage of Facebook”?  Seriously.  People are not accessing Facebook through mobile apps because Facebook is developing mobile apps.  Facebook is NOT the driver.  Mobile is the driver and Facebook is trying desperately to keep up.  How do we know?  Look at the next sentence:

The number of MAUs, DAUs and mobile MAUs discussed above do not include Instagram users unless such users would otherwise qualify as MAUs, DAUs and mobile MAUs, respectively, based on activity that is shared back to Facebook.

There were those who believed this acquisition was a sign of social networking consolidation. However, in context, Instagram is looking less like a mere social network consolidation than a push into a mobile strategy, a noted Facebook weakness, even before the IPO.  Here is a snippet of the IPO disclosure surrounding Facebook’s mobile capabilities:

Advertisers will not continue to do business with us, or they will reduce the prices they are willing to pay to advertise with us, if we do not deliver ads and other commercial content in an effective manner, or if they do not believe that their investment in advertising with us will generate a competitive return relative to other alternatives. Our advertising revenue could be adversely affected by a number of other factors, including . . . increased user access to and engagement with Facebook through our mobile products, where we do not currently directly generate meaningful revenue, particularly to the extent that mobile engagement is substituted for engagement with Facebook on personal computers where we monetize usage by displaying ads and other commercial content . . .”

Facebook included similar caveats in the 10-Q, where it outlined the risks related to its lack of mbile history as it began to include “Sponsored Stories” in its mobile news feeds to generate mobile revenue.  It continues:

Accordingly, in the first nine months of 2012, we generated only a small portion of our revenue from the use of Facebook mobile products, and our ability to continue [Ed:  “continue” is new disclosure.] to increase mobile revenues is unproven. If users increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to continue to grow or if we incur excessive expenses in this effort, our financial performance and ability to grow revenue would be negatively affected.

Translation:  Previously, Facebook did not include ads or “Sponsored Stories” in mobile news feeds.  Facebook sees the future and has now started to try to make money from mobile, but it isn’t there yet.

Links:
Facebook 3Q 2012 Earnings Release
Facebook 3Q 2012 Form 10-Q
Facebook IPO Prospectus
Forbes Article re: Facebook Acquisition of Instagram and Social Networking

 

 

 

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And We’re Off . . .

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Groupon Hires New Chief Accounting Officer to Deliver it From the Hell of Material Weaknesses and Securities Lawsuits

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