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I think a deal will eventually get done, but not because management wants to see it happen. It looks like they're drawing out the process as long as possible by providing little information and conducting multiple bidding rounds. Right now I just don't see this as being a quick money maker like the in the VA scenario where you had motivated sellers representing a controlling stake and multiple motivated bidders with clear synergies.
A least owning the shares (versus call options) affords some downside protection because they're trading at a price that estimates the core business as worth nothing with the BABA and Yahoo Japan stakes backed out. I just think that with management's intransigence and the looming proxy fight, there's going to be much drama leading to any sale. It seems difficult to predict when a tangible deal will actually be struck.
Hopefully I'm completely wrong.
I had a 12-bagger on some VA call options that I bought before the deal. I bought some call options on YHOO last week feeling that it might be similar. But I started getting a bad feeling about it even before I saw this story because of way the deal book was being reported as inexplicably lacking details. I think management may be trying to frustrate as many suitors as possible in hopes of preventing a sale.
Needless to say, I sold my options when I saw this Fortune piece.
Fortune
Don't Believe Everything You Read on the Yahoo Sale
by Erin Griffith , Dan Primack @eringriffith APRIL 15, 2016, 9:43 AM EDT
Most of those ’40 bidders’ don’t really exist.
If you believe everything you read about Yahoo YHOO -1.10% , then you’d expect the company to soon be drowning in takeover offers from upwards of 40 suitors. But Fortune has learned that many of the “bidders” identified by media reports have not even signed the 14-page nondisclosure agreement required to view Yahoo’s sale book. This doesn’t necessarily mean they won’t make a preliminary offer, but it makes it far less likely.
Take, for example, reported takeover interest from SoftBank, the Japanese conglomerate that owns stakes in Yahoo Japan, Alibaba BABA -1.00% and Sprint S 1.00% . SoftBank would make sense as a bidder, in part because a deal might help Yahoo Japan eliminate the licensing fees it pays to Yahoo, but multiple sources familiar with the situation say that SoftBank never signed an NDA and has no plans to submit an offer. (The New York Times also reported Friday morning that SoftBank would not bid.)
Or General Atlantic, the private equity firm that reportedly was in talks with The Daily Mail about a joint bid. Fortune has learned that the two groups never discussed working together, nor have any plans to do so.
Microsoft MSFT 0.92% also hasn’t signed an NDA, instead sitting on the sidelines as the process plays out. The tech giant hopes to possibly come into the deal later as a small strategic equity or debt financing partner for the ultimate bidder, in part to protect its existing search deals with Yahoo.
What all of this means is that a lot of this feeding frenzy appears to be a mirage being whipped up by sell-side leaks to the media, rather than legitimate interest (save for Verizon, which everyone agrees is a very interested front-runner). Sources familiar with the situation say to expect fewer than ten first-round offers come Monday’s deadline, and that most of those will be viewed by Yahoo’s board as wildly insufficient, particularly if, per reports, the company is sincerely seeking a $10 billion price tag. (The sale will not include Yahoo’s stakes in Alibaba and Yahoo Japan, which together are currently worth more than Yahoo’s $34.7 billion market cap.)
Moreover, among those who do plan to bid, there has been widespread dissatisfaction with the auction process. “It’s been a f–king joke,” says one senior private equity executive whose firm expects to make an offer.
For starters, most financial bidders were required to listen to a lengthy prerecorded management presentation before Yahoo management would answer questions over the phone.
Very few suitors were granted face-to-face meetings with Yahoo management?Verizon VZ 0.18% , IAC IACI 0.00% and Comcast CMCSA -0.27% are said to have been among the lucky few?and even they struggled to extract information from CEO Marissa Mayer and CFO Kent Goldman. For example, they were rebuffed after asking about current revenue projections for Tumblr, the social media outfit that Yahoo acquired for $1 billion in 2013 and wrote down by $230 million last quarter. One likely bidder called Tumblr’s revenue “the most glaring thing that should have been answered and wasn’t.”
What remains unclear, however, is why Yahoo management is behaving so intransigently. One popular theory among bidders is that it’s an open rebellion by Mayer against activist investor Starboard Value LP and board members who want to sell. Bidders, especially private equity firms that don’t necessarily have the next management team lined up, may be scared off by the dysfunction, or not have enough information to make a confident bid. Starboard’s lack of faith in Mayer helped push Yahoo to formally explore strategic alternatives.
“Management is dragging it out to make it as difficult as possible for Starboard,” says one bidder. “[Yahoo] will have made an effort and talked to all these buyers. They’ll say they ran this process for four months and no one wa
Most of those ’40 bidders’ don’t really exist.
If you believe everything you read about Yahoo YHOO -1.10% , then you’d expect the company to soon be drowning in takeover offers from upwards of 40 suitors. But Fortune has learned that many of the “bidders” identified by media reports have not even signed the 14-page nondisclosure agreement required to view Yahoo’s sale book. This doesn’t necessarily mean they won’t make a preliminary offer, but it makes it far less likely.
Take, for example, reported takeover interest from SoftBank, the Japanese conglomerate that owns stakes in Yahoo Japan, Alibaba BABA -1.00% and Sprint S 1.00% . SoftBank would make sense as a bidder, in part because a deal might help Yahoo Japan eliminate the licensing fees it pays to Yahoo, but multiple sources familiar with the situation say that SoftBank never signed an NDA and has no plans to submit an offer. (The New York Times also reported Friday morning that SoftBank would not bid.)
Or General Atlantic, the private equity firm that reportedly was in talks with The Daily Mail about a joint bid. Fortune has learned that the two groups never discussed working together, nor have any plans to do so.
Microsoft MSFT 0.92% also hasn’t signed an NDA, instead sitting on the sidelines as the process plays out. The tech giant hopes to possibly come into the deal later as a small strategic equity or debt financing partner for the ultimate bidder, in part to protect its existing search deals with Yahoo.
What all of this means is that a lot of this feeding frenzy appears to be a mirage being whipped up by sell-side leaks to the media, rather than legitimate interest (save for Verizon, which everyone agrees is a very interested front-runner). Sources familiar with the situation say to expect fewer than ten first-round offers come Monday’s deadline, and that most of those will be viewed by Yahoo’s board as wildly insufficient, particularly if, per reports, the company is sincerely seeking a $10 billion price tag. (The sale will not include Yahoo’s stakes in Alibaba and Yahoo Japan, which together are currently worth more than Yahoo’s $34.7 billion market cap.)
Moreover, among those who do plan to bid, there has been widespread dissatisfaction with the auction process. “It’s been a f–king joke,” says one senior private equity executive whose firm expects to make an offer.
For starters, most financial bidders were required to listen to a lengthy prerecorded management presentation before Yahoo management would answer questions over the phone.
Very few suitors were granted face-to-face meetings with Yahoo management?Verizon VZ 0.18% , IAC IACI 0.00% and Comcast CMCSA -0.27% are said to have been among the lucky few?and even they struggled to extract information from CEO Marissa Mayer and CFO Kent Goldman. For example, they were rebuffed after asking about current revenue projections for Tumblr, the social media outfit that Yahoo acquired for $1 billion in 2013 and wrote down by $230 million last quarter. One likely bidder called Tumblr’s revenue “the most glaring thing that should have been answered and wasn’t.”
What remains unclear, however, is why Yahoo management is behaving so intransigently. One popular theory among bidders is that it’s an open rebellion by Mayer against activist investor Starboard Value LP and board members who want to sell. Bidders, especially private equity firms that don’t necessarily have the next management team lined up, may be scared off by the dysfunction, or not have enough information to make a confident bid. Starboard’s lack of faith in Mayer helped push Yahoo to formally explore strategic alternatives.
“Management is dragging it out to make it as difficult as possible for Starboard,” says one bidder. “[Yahoo] will have made an effort and talked to all these buyers. They’ll say they ran this process for four months and no one wa
J.P. Morgan Chase JPM -0.88% is leading the process for Yahoo, while Goldman Sachs GS -1.16% and Evercore EVR -0.53% are working to defend the company against a possible hostile raid by Starboard or other activist investors. PJT Capital is involved as a sort of management liaison, but is not in direct contact with potential buyers. Qatalyst Partners, the boutique bank founded by Frank Quattrone, made informal inquiries to private equity firms on behalf of Mayer, but the firm has told bidders that it was never formally retained.
By this point, it’s looking like the bankers’ commissions are tied to the number of potential bidders named in the press, rather than if a deal actually happens.
A Yahoo representative declined to comment.
I wonder if obtaining this qualification is related to the benchmarks required for the Li deal to take place...
Looks like the biggest issue in RJET's bankruptcy has been fixed:
http://www.businesswire.com/news/home/20160324006350/en/Republic-Airways-Holdings-Delta-Air-Lines-Reach
No, I understand completely.
A huge investor with intimate knowledge of the technology valued the company at about $.156/share ($63 million/405 million shares), which is about double the pre-deal PPS. AND...this is the deal he got when the company was cash strapped and over a barrel! There was obviously value in the company that this micro-sized OTC market with limited public information was not seeing.
The market doesn't really care about the price at which Watts values the shares. A company's value is not based on current revenues. It's based on expected future earnings, friend.
You're conflating two different things: market capitalization and paid in capital.
Market cap is a notional value of how the stock market values a company, and is calculated as shares outstanding multiplied by the PPS. You can't take a market cap on a given day and add expected future paid in capital to come up with a future market cap. Paid in capital, which is what we are talking about with this $63 million investment, is a balance sheet entry and has no direct bearing on how the market decides to value an enterprise.
The market cap when this deal is completed is equal to today's outstanding shares, plus 405 million new shares, then multiplied by whatever the PPS is at that time.
Right now there it about $7.30/share in tangible book value. RJET had been profitable up until this past quarter. Their primary problem lies with the fact that they need to pay their pilots more because there are fewer qualified regional pilots under the new licensing requirements. This makes flying smaller planes, like turboprops and E145s, less economical. All regional airlines are facing this same issue and will face costs as they transition some flying to larger aircraft. Where Republic faces a bigger problem is the fact that it's flying under all fixed-fee code sharing contracts that were made before the pilot shortage and the resultant higher wages. However all their major airline partners have shown willingness to renegotiate these contracts. This just needs to be worked out in the bankruptcy.
From what I'm seeing, there really is no major threat to the shareholders. There is plenty of demand for the services Republic is providing. They just need fix the contracts and abandon some of the smaller aircraft for more of the bigger E175s that they already have on order. It's not a case where their business is failing, they are on the brink of insolvency, and creditors are knocking down the door to be made whole at the expense of shareholders. It's a plain and simple restructuring.
The only detriment that I can see coming to shareholders is maybe some kind of dilution to compensate E145 lessors who may be prompted to take back their jets. But this is just speculation on my part, and it probably wouldn't be a huge amount anyway. Let's not forget that this is a company that made $1.33 EPS in 2014, before the pilot shortage issue really took hold. I suspect that they will come out of bankruptcy restructured to be profitable once again.
Also, you can trade the same share a million times a day. My suggestion is that since there probably weren't many shares that were not institutionally owned, much of that volume likely came from people borrowing shares and shorting them. That's probably where large numbers of trading shares came from. People like me have subsequently been taking shares out of circulation. I would be surprised if institutions who saw value in RJET for a few bucks a share in the last few months also didn't try buying some for under a dollar. If this has happened on a large scale, then the shorts are going to have to have high bids to buy back shares to cover their positions.
I don't think that institutions like Soros and Blackrock were so in the dark to be purchasing shares that would soon be worthless. And you're right, SOME institutions have those rules. Usually institutions with such rules are things like mutual funds and pensions. I don't see those types on that list. And regardless of the bankruptcy, the shares were trading in the low single digits while institutions were snapping them up. Those don't seem like the kind of institutions that have strict ownership rules.
I played the AMR bankruptcy too. With the US Airways merger, US Air stock (LCC ticker) was relisted as AAL, and AAMRQ shareholders (along with other stakeholders such as unions, debt holders, etc.) were given new shares of AAL. The thing that struck me about that bankruptcy was that you could go online, read all the publicly available documents from the bankruptcy proceedings, and find out exactly what AAMRQ shares were going to worth in new AAL (former LCC) shares. The share distributions were based on the trading price of LCC. All other AA stakeholders were paid off in new AAL shares at fixed dollar amounts, AAMRQ shareholders got whatever was leftover. So the higher the price of LCC (then subsequently AAL) at the time of each of the five share distributions, the more AAL shares that each AAMRQ shareholder would receive at for that distribution.
Again, this was ALL public information when the company was in bankruptcy. Anybody could read the filings and do the calculations (based on LCC's share price) to figure out how many new AAL shares each AAMRQ share was worth when the merger completed. I did this and noticed that there was a HUGE difference in what AAMRQ shares were trading for and what they were worth in new AAL shares. I bought quite a bit. But I didn't buy as many as I should have because I couldn't believe that the market could be so incredibly wrong.
Anyway, my point is that there is a lot of information out there beside what news organizations publish. Plenty of rewards will be had by those that do their own DD.
This company is almost exclusively held by institutions:
RJET Major Holders
And many of these institutions were buying headed into the bankruptcy:
http://www.americanbankingnews.com/2016/02/24/republic-airways-holdings-inc-rjet-lifted-to-sell-at-vetr-inc/
Several institutional investors have recently made changes to their positions in RJET. Soros Fund Management LLC boosted its position in shares of Republic Airways Holdings by 47.1% in the fourth quarter. Soros Fund Management LLC now owns 1,561,899 shares of the company’s stock worth $6,138,000 after buying an additional 500,000 shares in the last quarter. GLG LLC boosted its position in shares of Republic Airways Holdings by 97.6% in the fourth quarter. GLG LLC now owns 5,038,625 shares of the company’s stock worth $19,802,000 after buying an additional 2,488,683 shares in the last quarter. Deutsche Bank AG boosted its position in shares of Republic Airways Holdings by 24.2% in the fourth quarter. Deutsche Bank AG now owns 752,388 shares of the company’s stock worth $2,955,000 after buying an additional 146,827 shares in the last quarter. Axar Capital Management L.P. purchased a new position in shares of Republic Airways Holdings during the fourth quarter worth $19,803,000. Finally, Schwab Charles Investment Management Inc. boosted its position in shares of Republic Airways Holdings by 18.1% in the fourth quarter. Schwab Charles Investment Management Inc. now owns 498,813 shares of the company’s stock worth $1,961,000 after buying an additional 76,277 shares in the last quarter.
My guess is that these institutions and their research departments have a much better idea about what is going on with this company that everybody on this board. Furthermore, the fact that there has been such high volume with 99% institutional ownership suggests to me that there was a lot of shorting going on with this stock after the bankruptcy filing. Those shorts are going to get burned when there isn't any liquidity to cover their positions.
There was an 8-K filed at the same time as their bankruptcy that said they would no longer trade on the Nasdaq as of March 8
Right, I understand that. My point was that Bedford laid down the goals of the restructuring in his 70-page declaration to the bankruptcy court. The only time in that document that the Bombardier order was mentioned just acknowledges the fact that the order exists. That order is neither mentioned when he spells out the reasons that the company chose to pursue bankruptcy protection, nor when he explains what Republic hopes to accomplish with the restructuring. I've seen a lot written about the Bombardier order and how the company might want to get rid of it, but the record doesn't back that up. This is why I speculated that there might already be an agreement in place with Frontier to lease those jets from Republic, since Frontier was originally slated to use those jets.
The main issue in this bankruptcy seems to be renegotiating the code share agreements with the majors. The agreements that are in place are all fixed-fee agreements that were negotiated in a world where regional pilots didn't need as many hours to be licensed, and consequently weren't paid as much as the labor market now bears. With Republic's new pilot collective bargaining agreement, they just can't make money under those code share agreements.
In Bedford's bankruptcy declaration, he also spells out how American, Delta, and United have all demonstrated willingness to renegotiating the code sharing agreements to reflect the higher costs. However, each airline's willingness to do so was predicated on renegotiating all such agreements with code share partners and with other key stakeholders. In other words, they wouldn't be able to come to any new agreement until they worked through ALL the agreements. Delta was causing some trouble in this regard, but it seems to have been worked out. Bedford says in the declaration, "Republic believes that the protections afforded to debtors by chapter 11 will...afford Republic the necessary time to reach agreements with its key stakeholders."
Declaration of Bryan K. Bedford
I highly recommend reading this document if you're thinking about holding RJET shares through bankruptcy. I personally think this should be a relatively easy bankruptcy, and that buying shares at current prices and holding through the restructuring could be very lucrative and worth the risk.
The following is from Republic CEO Bryan Bedford's declaration to the bankruptcy court:
Republic has been and will continue to pursue the following restructuring plan:
* Obtain modified agreements from our Codeshare Partners to reimburse the increased costs from the new collective bargaining agreement with its pilots and allow an orderly restoration of service.
* Agree to an early return/settlement of claims relating to out of favor aircraft (Q400 and ERJ-145).
* Streamline our operations by operating a single aircraft type (E170/175) and under a single operating certificate.
* Secure additional liquidity to fund future operations and growth.
I assume you were referring to the order for 40 Bombardier C Series jets. Seeing as how Bedford didn't specifically mention quitting that deal as part of the restructuring plan, I'm not sure that that is actually a goal here. Since the new aircraft were originally slated to be used for Frontier's operations before Frontier was sold off, my assumption is that Republic is planning to lease them Frontier.
I thought that the comparison to the Pinnacle and Mesa bankruptcies was interesting and I wasn't very familiar with them. But from what I've been reading, it seems like the RJET bankruptcy is a bit different from each of them.
In the case of Mesa in 2010, 52 of its 130 aircraft remained parked in the wake of a slowdown due to the recession. They had leases to pay on a large number of assets that weren't producing any revenue. That doesn't seem very similar to what RJET is facing.
As for Pinnacle in 2012, it's costs were going up at the same time that revenues were going down. You could argue that this is somewhat similar to RJET's situation. However Pinnacle had a very weak balance sheet when they declared bankruptcy, with only $1.50 billion in tangible assets to $1.43 billion in liabilities. RJET has a bit stronger balance sheet with $3.34 billion in tangible assets to $2.97 billion in liabilities.
This RJET bankruptcy seems to center around the Delta's unilateral contract extension, which RJET is disputing, and for which it doesn't have enough pilots to fulfill. RJET's new contract with the pilots should presumably help them keep and/or recruit new pilots. Is there something else that I'm missing here?