Tuesday, November 29, 2011

Syms Equity Committee Expanded.

In what I regard to be good news coming from the US Trustee's Office, the Equity Committee in the Syms bankruptcy case has been expanded to 5 members. It now includes a representative from the Kahn Brothers, who have been long term shareholders of the Syms.

Smart move, especially when compared to this one.

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Syms To Auction Off "The Running Of The Brides"

When a retailer like Syms goes bankrupt, it is beyond most value investors (especially when followers Ben Graham) to put much value on intellectual property. However, this may be one of the more interesting cases. Syms is auctioning off it's intellectual property, which includes the famous "Running Of The Brides".

I have no idea what the property is worth. In fact, I haven't the slightest clue. But, I do know one thing, watching what will unfold will be educational from an investment perspective.

Here is a video to give you an idea about "The Running":

It's almost as crazy as people letting their animal spirits run free over $2 dollar waffle makers...

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Monday, November 28, 2011

The Black Swan That Is Cupcakes Meeting Groupon.

As I am apparently a fan of articles on cupcakes, here is one on the downside of some small businesses using Groupon. I truly feel sorry for this lady.

From here:


A bakery owner was forced to make 102,000 cupcakes after being swamped by customers taking up her cut-price Groupon offer, according to reports Tuesday.

Rachel Brown offered a 75 percent discount on 12 cupcakes, which normally cost $40 (£26), the BBC reported.

However, Brown under-estimated the popularity of the deal and was unable to cope when 8,500 people signed up for the $10 (£6.50) bargain.

Video: Who gets the real deal with Groupon?

Brown's Need a Cake bakery, which employs eight staff in Reading, U.K., had to bring in temporary workers through an employment agency to fulfil the orders, at a cost of $19,500 (£12,500) — wiping out her profits for the year.

She also lost between $2.90 (£2.50) and $4.70 (£3) on each batch she sold, the BBC reported.

"Without doubt, it was my worst ever business decision," she told the BBC. "We had thousands of orders pouring in that really we hadn't expected to have. A much larger company would have difficulty coping."

Disclosure/Disclaimer: No position in any securities mentions, though, I do like cupcakes.

Syms: Creditors Seek To Disband Equity Committee.

Basically, the Committee of Creditors in the Syms bankruptcy case are petitioning the court to disband the Equity Committee of Shareholders.

This petition is absurd in my mind. While the shareholder's committee will rack up various fees and such that will go against any pay out that I, as a shareholder will get, let's look at the facts:

1) The Committee of Creditors make the claim that shareholders are already represented by management in this case, due to Marcy Syms' control of more than 1/2 the company, along with the fact that she has a fiduciary duty to shareholders.

While it is true that management does control a lot of the company and should defend shareholder interests, I don't exactly have the most faith management to do a great job on my behalf... After all, they did manage to make not one, but 2 time tested retailers end up in bankruptcy (despite owning a huge amount of their buildings and operating in them rent free). Furthermore, it is noted that Syms' management had elisted the help of various firms when exploring strategic alternatives. I have no reason to think that they will defend my interests from any odd dealings where Syms management has had previous discussions with them.

Furthermore, when there is more or less an ongoing case to determine if there was any wrong doing on the part of management, it seems that the honoring of management's fiduciary duties is in question.

2) The Committee of Creditors claim that a lot of what the Equity Committee would do would simply be duplicating what is already being done in the court.

The Equity Committee members have likely already paid for themselves and can continue to do good things for all involved in the case. In the linked story, creditors and shareholders objected to a part of the liquidation and negotiated better terms- it stands to be a reasonable assumption that the members of the committee were involved in this negotiation.

3) The Committee of Creditors ultimately don't give a damn about shareholders: once they get paid their claims (which will be quite easy to do, especially since in court, it has been said that Syms shareholders are likely "in the money"), they have absolutely no economic interest in getting shareholders everything that is possible. As such is the case, they may be less inclined to fight tooth and nail for better terms in the ongoing liquidation. The shareholder committee however, will do this as they represent everybody that sits outside of Syms and the people that they have dealt with on a nearly daily basis (being their creditors, landlords, and advisors).
Disband Equity Committee

Disclaimer/Disclosure: I am long Syms. This is not advice of any kind. I reserve the right to change my position(s) at any time. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Saturday, November 26, 2011

The Future Of Education.

I am thoroughly convinced that things such as "The Floating University" should replace many of the concrete buildings that we use for our institutions of learning. From my own personal experience, I was held back due to lack of internet use- mainly, because it wasn't as extensive as it is today, and, even when it was, "teachers" were lambasting it as a way to learn. Additionally, a poor educational system in my state and not being able to learn what I wanted to didn't help out... A Floating University form of education would have been wonderful for people like me.

For example, I never got a degree in business, because of the ridiculous assumption that you need to take calculus or take 2 years worth of a foreign language (even if it is a dead one, such as ) to do well in the business world.

I needn't digress though, here is the video:

If you look around the site, there are snippets from the other courses. From what I read, these courses teach people how to think and learn on their own. Which is something that I my mind, Americans generally lack the ability to do, despite how easy it is to use Google search to figure things out...

Tuesday, November 22, 2011

Billionaires Make For Interesting Stories.

Here is an article about one of the more interesting billionaires out there... Nicolas Berggruen.


“I understand the human instinct to want to create a nest and possess things, to show them off,” he says. “But for me personally, it became less and less interesting.”

So in 2000, Berggruen sold his houses, put his art collection in storage and gave away or sold most of his possessions, including his car. He says his decision to live a rootless existence wasn’t a means of dodging taxes; he says he pays them in the U.S.

The investor, who signed a pledge promoted by fellow billionaires Warren Buffett and Bill Gatesto donate at least half of their wealth, says he’ll give away all of it eventually.

“Everything I do now is about growing the pot to have more to give away,” he says.

Anybody who says something like that, immediately gets some of my respect. Plus, he goes on to talk about how he plans to take his genes out of the gene pool. Interesting guy.

Piss Poor Capital Allocation At Netflix.

Netflix has had a heck of a ride the past few years. Here is a link to Whitney Tilson talking about management's move to issue stock.


“When you’re betting on a medium- to long-term turnaround, you first have to make sure that the company doesn’t hit a cash shortfall in the short term. …[T]his capital raise is a good insurance policy.

That said, it is irritating to see a company we own issuing stock at 1/3 the price at which it was buying it only months ago – yet another example of the capital misallocation decisions that are all too common in Corporate America….Netflix should have done a big secondary and issued a lot of stock in the $200-$300 range.”

As we have seen in other areas, price, value, and the potential for returns generated elsewhere are about the only things that should matter when a company issues or buys back stock. When a company makes a boneheaded move, it destroys shareholder wealth. But, as Tilson points out, it will keep the company solvent. Though, Netflix does already have a nice bit of cash on the balance sheet; they must be getting ready to spend a ton on their expansion, or things may be getting REALLY bad for them operationally. Regardless, it's a shame for the company's shareholders that the management of Netflix doesn't appear to have seen how the situation was going to play out, as this dilution has effectively canceled out many quarters, even years worth of share repurchases... Keep in mind, that these previous share repurchases were all done pretty aggressively AND at a significantly higher prices. Granted, if they can re-allocate the raised funds in a manner that is better than the company would do without, it could be accretive to the company, but, still... they were repurchasing shares as recently as LAST QUARTER!

Now, contrast this with a company like Nevada Gold, which, when it issues or buys back stock, does so in a sensible manner: buying low, and selling on terms that make a fair to great amount of sense for the company. Whether it's the acquisition of the Red Dragon card room or AG Trucano, Sturges and Kohn (unlike Reed Hastings) have a history of good capital allocation, and have yet to become the subject of some pretty good satire.

When looking at the capital allocation of various corporations, what kind of company do you want to invest in?

EDIT: Adam, at The Investments Blog, does a good write up on the situation at Netflix as well. He even went to the trouble of adding in a nice chart that shows you where the previous buybacks were made.

Disclosure/Disclaimer: I have no position in Netflix, but do own shares of UWN. My positions can change at any time, for any reason. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as even think about.

Wednesday, November 9, 2011

AG Trucano & Dilution At UWN.

I have received a several comments (both here on Ragnar and on Seeking Alpha) and a lot of emails asking for my thoughts on the AG Trucano deal. Generally, readers are asking how I view the dilution, right after they talk about how much they dislike the deal...

While I generally dislike dilution and am somewhat surprised that the company couldn't have negotiated better terms, we do need to be level headed and view this from a practical standpoint...

First and foremost, we can't forget that Nevada Gold is a super small company. It isn't on the investment radar of most. Additionally, big investors that have more money that God to allocate (and to some extent, end up making the markets pretty efficient) are not able to invest $4-$5 million in this company and have it move the needle on their results. This vacuum of funds makes it hard for Nevada Gold to grow... Given that the company has used a lot of sellers paper and other means of creative finance, this shouldn't have come as much of a surprise to anybody. On this note, if I had $5+ million bucks to throw the way of Nevada Gold in this deal, I would have been willing to pay $2 bucks a share for the stock and warrants... but alas, I don't.

At the announcement of the deal, AG Trucano was trading at a lower EBITDA multiple than UWN. Thus, while UWN stock is by no means expensive (and, I back this up implicitly as Nevada Gold is by far the largest allocation in my stock portfolio), the company seems to have given stock to a group of investors, so that they can continue to keep a generous amount of cash on their balance sheet to have at their disposal for a couple of things:

*Keeps well over $6 million in dry powder for bargaining in acquisitions...
*Makes funds via the S-3 available sooner, rather than later (a time value of money thing).
*Raised some cash to keep in AG Trucano, which, I assume will go to improving operations.
*Gives the potential for even greater leverage to be available for a future mega acquisition (relative to the company's present size)
*Will likely improve earnings on both an absolute basis (good for bankers who they will be needing to lend them money) and on a per share basis (good for me and my fellow owners of the company).
*Leaves a lot of money to lobby the legislature in Washington State... Which, due to the potential for UWN, is likely the most important thing that the company can be allocating limited amounts of capital towards.

I view this transaction as a whole, being one where while my cut of the pie that makes up UWN goes down on a percentage basis, the whole of the pie gets bigger. This in turn, gives me a more full dessert plate. along these lines, I feel richer today than I did a few weeks ago, despite that my holdings have taken a significant hit. If I thought that the shares were cheap at $2/share, I don't see why I should think any different now.

Sure, the price of the shares that were issued was significantly below what the company was trading at, but again, I think that it is a win for the company in the long run. It gets people talking about what the casino operator is doing; never a bad thing for a growing company that likes to do deals. The interest and subsequent investment in UWN also shows that the company is beginning to garner attention in the investment community- the warrants that were attached to the deal were a nice way to juice the deal up for the new investors. I think that they will make a lot of money in the next 5 years. In the event that ELSTs in Washington are allowed in card rooms, this will likely occur in the next year and the transaction will look stupid to have done in retrospect, but the company can't make allocation decisions based on the whims of a legislature that is in a far off state. After all, that would be crazy to do.

I don't like that the warrants probably won't be traded, but, that is sheerly from a selfish standpoint, as if I could get them at the right price, I would be willing to buy a whole lot of them.

I have been surprised that the price of UWN has fallen below what the shares were issued at... It seems rather a sensical to me that people were willing to invest a consequential amount of money in the company and that the market is all of a sudden unwilling to pay that price for a company that seems to be in much better shape than it was. Again, the new investors got what appears to be a sweet deal and I am surprised that UWN couldn't have negotiated something better. However, for the reasons that I have outlined, the terms of the deal seem to be such that present dissenters may be squawking over pennies, and as a result, may end up missing the forest for the trees.

Overall, the more that I think about this deal, the more that I think that it signals that the company is getting close to doing something big... Only time will tell.

Disclosure: Long UWN. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.

Thursday, November 3, 2011

Occupy Oakland Turns On The Working People...

Here we read of Occupy Oakland and how they effectively shut down the port of the city.

Now, Check out this picture:

Notice a problem with the sign on the right? Well, it seems to me that the protestors trying to shut down a port and vandalizing various businesses, is them waging war on working people... No?

C'mon people... I really want to support you, I really do. But, I just can't get behind keeping people from working and being productive.

Wednesday, November 2, 2011

Syms Is Bankrupt.

Today, we learn that Syms is going bankrupt. I view this as a mixed bag of news, bordering on the line of great news, for the following reason:

"The filings today are the result of a process that has been taking place for several months. Our board has conducted a rigorous assessment of all the strategic options and alternatives available and after careful consideration has come to the conclusion that a bankruptcy filing and liquidation is the best way of maximizing value for all stakeholders," -Marcy Syms

From what I gather from this quote, it means that a liquidation valuation is in order. Going on the article that I wrote earlier, it seems that there could be room left for appreciation in the stock price, provided that this is an orderly bankruptcy. Often times, clothing in liquidation sales doesn't go for what said clothing is on the books for... At least they are going to be liquidating in the most favorable time of year to do so: the Christmas shopping season, where people are generally pretty price insensitive, meaning that they may recover more than they would have, in say, July.

Somewhat ironically, what was Syms' greatest operational weakness, may turn out to be one of their greatest assets in bankruptcy: constantly declining same store sales. Landlords may be happy to for Syms to leave their buildings due to how terribly the operations were going for Syms. After all, a landlord wants good tenants that draw people to their properties (which is especially true in strip malls). They generally loathe struggling retailers that almost constantly have double digit decreases in same store sales. Here is some info on leases in bankruptcy... Again, a net gain for Syms, I would argue. Plus, we have the advantage of them already getting out of several leases before this filing.

All this said, at least we in the US have access to (arguably) the best bankruptcy system in the world; it is quick, generally fair, and efficient. Here is my favorite book about the process (with some case studies, that really do shed some light on what may happen with Syms).

There is also the issue of how much each location will bring in whatever manner they are sold off in; allowing time for properties to be listed versus auctioning them can yield very different results. Some of the stores that are owned, are already leased out to third parties (like Bed Bath and Beyond), which, should provide the company with cash flow to operate in corporate. I would imagine that these would be able to be sold off at a favorable cap rate for Syms, as Bed Bath and Beyond is a much stronger company that Syms ever was.

Here are the articles (1 & 2) where I outlined the tax record values for every piece of real estate that the company owns... And that doesn't value the Trinity Store in Manhattan at much of what it is likely worth. Obviously, the company has the potential of distributing more to shareholders than their precent book value.

In light of these facts, if the company only gets out of it's real estate the value that is on it's books in PP&E, and sells it's inventory for 2/3 of it's book value, then, you only go on the remaining tangible book value, shareholders are at a break even point as far as the present value of their shares go. There are obviously a ton of different variables to look at here (some of which were outlined above). But, it might be a good starting point for you to draw your own conclusions.

I fully expect more lawsuits, especially since the company failed so miserably and has mad so many shareholders mad, that I can only expect them to be chomping at the bit for a bit of revenge. This is especially true if the recovery is less than book value. The company may be trying to cover it's back here, as if the issue comes up in court, they can say something to the effect of "You sued us in the past since we weren't good operators. Now that we are liquidating so that we can not be retailers, you are suing us again... You are like ambulance chasers just digging around for cash!"

If I thought that management was good enough to operate a REIT, I would suggest that, but, then again, maybe not.

Personally, my disappointment exists on two levels. First and foremost, I feel for the employees that are losing their jobs solely due to management's incompetence and no fault of their own. Secondly (more tongue in cheek, and not nearly of the same gravity of people losing their livelihood in a time of high unemployment), I am upset that I will likely never get back the book that I left at HQ for Ms, Syms to sign and mail back to me to have as a souvenir of sorts from the research and trip to the annual meeting that I made (where they confiscated my cell phone)... By the way Ms. Syms, since I am betting that you are reading this, I would still appreciate getting it back.

The real fun here, is that we will see how accurate I was when I said that the company was worth more dead than alive.

The bottom line is this, shareholders should receive something.

Oh yeah, almost forgot, here is the filing for your reading pleasure:

syms bankruptcy

Disclosure: Long Syms. This is not advice of any kind. Always do a ton of your own research in regard to anything that I say, do, write, or so much as think about. I may buy or sell shares of this security at any time.