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You are right, maybe I should appologize, but it does seem that you would at least partially be implying that i) the company, after setting aside almost $90 million for this transaction and only spending around $30, would allow investors to continue making money off of them; and 2) that holders who did not accept the $16 will sell them for less. Obviously things might change and you may still be proven right.
That would be a good trade ... you sell at the Tender at $16, then buy back when it gets to $7 again!!! Great idea.
And then, and then, like ... if they tender at $16 again, then, like, you sell them, and like when it goes to $7 again you buy, and ... wow!! You could like, ..., like, really get rich that way!!
Independently of "why", a lot of "who"'s seemed not to have liked the offer.
I have no clue who might be buying (not me). I can picture someone coming in and taking a position with the intention of holding for the $25. Today's volume is significant, hopefully it will be someone with deep pockets and a long-term view.
You don't stop amazing me with you profound knowledge of the legal aspects of securities trading. Any purchase by UBS during the offer period would violate rule 14(e) 5 of the Securities Act. I'm pretty sure UBS would never dream of doing that. but of course someone withyour level of experience and insight already knew that, right?
20,000 shares traded today above $16. Seems like some people might not be thinking of tendering.
So the homeowner is coming to the bank to ask for a discount on a loan that does not cost him anything. Why?
Most likely because he wants to get his equity out and move into a new home, already has a sale planned, and is trying to make the extra buck. Can't blame him for trying.
If the bank says no, do you think he will decide to stay put? And suffer along with the bank?
I figure if it does drag on for 3 or 4 years and it gets back to where it was ($25), you are getting a very decent return, especialy when other options don't look that attractive. (Money in the bank at 3%?) The downside is limited, IMHO, as CC and MM will most likely try to exit within that period. Not a clear situation, but probably not as bad as other stuff.
So you are a holder of SKRUF. Tendering? Undecided?
They are paying UBS $0.50 cents per share actually tendered, out of kindness maybe? Or do they feel it might prove difficult to get people to participate? (It might actually just be the case that a bunch of these securities are in large portfolios whose managers might be too distracted to pay attention to them. I bet Lehman must have had a significant amount).
Very good analogy. With one big difference: in this case, you (as homeowner), have decided to call the bank and offer to settle the mortgage at 65 cents on the dollar.
Would the bank accept the offer?
I don't see how they can "sell the company". That works in the US, but not under "English" law. They can sell the assets, not the company (to sell the company, what they do is sell their shares, in which case the Prefs stay as is).
For whatever it is worth, let me clarify: it were 1,000 shares we were talking about here, I would not have spent a single second on this board. This is for real.
Exactly, gentlemen, that is my point: first a low-ball $5 offer nobody (almost) takes, then nothing for 18 months, and then $16, when they could have been buying cheaper than that all along? Why the hurry? And, if they were to be thinking along the lines of "special dividends" and selling the company piecemeal to avoid paying the $120 million Perp Preferred, why offer anything at all? My point is: there is something else happening, and they ain't telling us what it is!
Regarding the common, I said 50cts, they paid 30cts. The majority accepted, not much you can do about that. They were able to screw the minority dissenting holders (including yours truly).
What I fail to see here is why they would offer $16 now, if $25 is four or five years into the future (and that assuming that $25 ever materializes). Because they will make 10% on their $16 bucks a share? These are NOT 10% return investors, they aim for more. This is private equity, and the clock is ticking.
And if they were able to do that, and distribute the monies to shareholders, there would be no reason whatsoever to offer the poor Perp Pref holders anything for their useless paper. But they are offering $16. Mmmmm ... maybe something is not quite right with the "partial liquidation" scenario.
Liquidation: Occurs when a firm's business is terminated. Assets are sold, proceeds are used to pay creditors, and any leftovers are distributed to shareholders.
So, under a Change of Control scenario, the company would owe them $800 million. To pay them, the company would have to liquidate their assets (i.e. the shares of the subsidiary companies), as they would otherwise NOT have $800 million to pay. The liquidation then triggers the preferential treatment of the preferreds.
That is the way I see it.
And if there is a change in control, how do you get to pay $800 million to the holders of the Mezz without liquidating the company or winding it up?
If the Pref's are indeed junior to the Mezz, then everyone should be taking the $16, right?
What preferred's are out of the money? Not the ones being bought back.
I find it difficult to understand why they would want to pay $16 for something that costs the company $0. That is, unless they figure it will start to cost them 7.25% a year in dividends. Or maybe it is something else?
And thou shall be rewarded (IMO).
What do you mean "lucky"? We need to get "together" and vote NO! Then we will be lucky.
Right. Only you would have to add back $200 million (aprox.) from the de-consolidation of Orkney II, and, to the extent it closes, the $260 million gain from the Orkney I devt-buyback. At that stage, even with an additional $250 assumed payment in order to retire the Convert (on top of the $550 it is carried at), you still have around $220 in book value for the Ordinary Shares. Or roughly $3 each.
Now, regarding the timing of things and the accounting, I bet they planned this VERY well so people might just shrug and say: "With book value at $10 million, this ain't that bad". Haha!!
Interesting reeding ...
IT IS COMMON KNOWLEDGE that directors should act in the best interests of their corporation; however, where the interests of the corporation's different stakeholders are not aligned, directors can face complicated decisions. The board must often choose which constituency'sinterest will dominate. While in the sale of a company, this issue is relatively clear--directors obligations are to seek the best price reasonably available for the stockholders, issues can nonetheless arise when the interests of common stockholders conflict with those of preferred stockholders. A recent Delaware case deals with this situation, and reminds us of the primacy of the common stockholders.
In re Trados Incorporated Shareholder Litigation involved the saleof Trados Inc. to another company. Trados had issued preferred stock to various investors who also appointed four of Trados's seven directors. The preferred holders pushed for a sale of the company; ultimately, a deal was signed with a purchase price that would pay out the bulk (but not all) of the preferred stockholders' liquidation preference and provide Trados's management, which included two directors, with significant bonuses. The common stockholders, on the other hand, would receive nothing from the sale. Not surprisingly, some of the common stockholders sued the directors, alleging that they had negotiatedand approved the sale without considering the common stockholders' interests and, instead, were only looking out for their own and the preferred stockholders' interests.
The Chancery Court denied the directors' motion to dismiss the common stockholders' suit, and in the process illustrated two important lessons.
First, the court found that six of Trados's seven directors had a conflict of interest or otherwise lacked independence, so their actions were subject to the exacting scrutiny of the entire fairness doctrine. The two directors who received management sale bonuses were "interested" because each received "a personal financial benefit [...] not equally shared by the stockholders ... that made it improbable suchdirector could perform his fiduciary duties without being influencedby [his] overriding personal interest." The other four directors also were found to be not independent, not because they had been appointed by the preferred stockholders, but because a substantial part of their livelihood depended on the preferred stockholders (they were allemployees, directors, and/or owners of the preferred stockholders). The plaintiff stockholders therefore satisfied their burden of establishing a lack of independence by showing that such directors were "beholden to a controlling person or so under [the controlling person's]influence that their discretion would be sterilized." And, as often is the case, this conclusion lead to the result that the directors lost their motion to dismiss and will have to proceed to trial (or a more expensive settlement).
The second lesson learned from In re Trados is that when the interests of the preferred and common stockholders conflict, directors' fiduciary duties run to the common stockholders. While the preferred stockholders in In re Trados asserted that their interests were in "obvious alignment" with those of the common stockholders in obtaining the highest price possible in the sale, the court was persuaded by the plaintiffs that the real question could instead be whether the interests were aligned regarding whether to pursue a sale of the company atall or, instead, to continue to operate the company. Reframed this way, the interests of the common stockholders would not have been aligned with those of the preferred holders because selling Trados left the common stockholders with absolutely nothing.
I think there is potential upside to BV from the VIE's (I see them carrying approximately $200 million in losses there that will most likely not materialize), plus the value of NOL's. There might be some significant downside potential that we might not know about because of loss development, but that might well be taken care of by future profits and potential savings in admin costs if merged or sold to another reinsurer. I can see a $1,000 "value" by end of 2011 if they pursue a stategic transaction, but it will remain to be seen if there really is a buyer at that level.
We are in complete agreement as to the facts you state. That gives them the ability to sell the company's assets, and maybe even pay themselves. Their security is senior to the common, so to the extent they take a loss through an arms-lenght transaction, there is no remedy. But if they do not .... Well, even in liquidation scenarios the common normally gets a bone thrown at them!
With respect to your 6 of 11 statement, I should probably ask if you have ever heard of Floss & Harbottle?
You are wrong in the calculation of accrual to the convert. It stops after five years. They are capped at around $60 million more, or $216 million ($816 total). After that their upside is gone, unless they convert. What do they do then?
As to them paying dividends on the preferred, they might not, but that hardly has any big impact on the final outcome. (It's only around $9 million a year).
H man, although in general I am in agreement with you calculations, I find that the scenario in which the common gets wiped out in reality does not exist. How will they get to the point where they sell the company and get paid back their "preference" and give nothing to the common?
I also do not understand what they are waiting for, other than the right moment to sell a large block of Subprime RMBS's. ALL the value to Pref's, Converts and common is lying right there.
Don't foget CC has $700 million face of Orkney Re's debt. Most of the holdings are 2006 vintage, AA's, whose value will become much clearer in the next year or two. CC has to be one of the largest holders on RMBS and private-issue home mortgages (via GMAC). They know the business. Also, one has to consider two additional sources of value: NOL's and VIE's. I can see $300 million right there. How will they play those cards?
Getting back to my question (which you did not answer): what is the upside from here for CC versus pref's or the common? How do avoid giving significant value to the common? All the common is worth $13 million! Versus $600 for the Convts! C'mon, even at $1.00 per share it makes sense for them to buy the common out, IMO.
EI:
I am curious to know if, based on your understanding of current circumstances, you think Convert Pref's at par (CC's position) would be a better holding than Perpetual Prefs at current prices.
Regards.
Wrong, it ends Wednesday.
For what its worth, yesterday I stayed till 10 PM at my office doing a carefull review of the basics for SRe. It was time very well invested, and I ended up being highly reassured in my convictions as to what will most likely happen with this company. Let the $7.60 bid speak for itself (as compared to the $5.00 tender price).
Best of luck to all!
Following is a cummulative volume and price table taken from Pinksheets.com for today. There were 1,000 shares traded at $6.00 (the difference in volume between 2,000 at 8:37 and 3,000, at 8:59, as the table accumulates trades). It never went back again.
Corey, I'll believe you did 1,000 shares at $6.00. That's all.
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Historical Chart Data Download Spreadsheet
Date Open High Low Close Volume
10:30 AM 7.75 17,900
10:25 AM 7.75 17,400
10:24 AM 7.75 15,900
10:23 AM 7.75 15,400
10:19 AM 7.20 14,000
10:17 AM 7.20 12,500
10:15 AM 7.20 9,000
10:10 AM 7.20 4,000
8:59 AM 6.00 3,000
8:37 AM 7.20 2,000
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I have no clue???? Please!!!
So you figure because a subisdiary of a group of companies just happens to be the one with the investments, you can just forget about the rest of it at the parent???? How about rechecking that Balance Sheet of yours for SALIC and telling me how come it does not have the Mezzaninine Equity, and the Perpetual Preferred??? Ohhhh, maybe something magical happened and you are very smart and just found that out??? NOOOO. It so happens that SALIC is just a subsidiary of Scottish Re, and the securities you and the rest of us are holding were issued by the latter.
You HAVE to be kidding me.
WRONG! The difference between the April 30 and the may 7 numbers is the company they are referring to. It's SALIC in May, SRe in April. NOT comparable at all!!
Mr Market long ago stopped caring about SKRRF and SKRUF. Trading volume speaks for itself. The common? I think this tender means very little in the grand scheme of things. Still $0.50 max upside in my view.
I doubt they would get the tender going if they thought there would be no-one selling.
Maybe they've had some discussions.
Is that the price?
I think we are pretty much in agreement as to what the docs say, but not necesarily as to when particular clauses apply or not. My views are that:
- if they sell the assets (or subs), they can't get the money out to pay themselves unless they pay the preferred first;
- if they sell the company (i.e. as majority shareholders), whoever buys it keeps the preferreds as they are.
The clause by which they get the "liquidation preference" paid in case of a sale pretty much means that they need to make sure that they get at least their preference AND the amount needed to pay the preferreds, and even then the preferreds get the money first. (The question really becomes, "is a sale of assets, or the subs, and the distribution of proceeds a liquidation?") I can't figure out a scenario where they sell assets, get the money out, and do not pay the preferreds.
Now, regarding the common, I would argue that the decission to sell the company (or its assets), which would in any case be made by the board, could be seen as unfairly benefitting the convert holders if the common gets nothing. The board is there to make sure ALL shareholder's interests are protected. If the common gets nothing, then why sell? Just so the convert can be paid off? That is a biased decission, would't you agree? A court might easily find that objectionable, IMO.