Forgive me for rekindling a two week old story by Michael Santoli in Barron's (subscription required) July 9, 2007 issue but sometimes I need to ponder things a while. In the story Santoli suggests that FedEx Corp (NYSE: FDX) could "lure a private buyer at a 20% premium or more above it's current $110 share price".
This brings several points to mind about private buyouts and LBO's. Before I get to that let me state, short and sweet, I hate this idea - this would be a bad deal! As a shareholder I do not think 20% is enough. These deals don't happen over night. It often often takes six months to a year to close a deal like this, often longer. The stock closed today around $117, already 6.4% higher.
FedEx has been one of the truly great companies on the planet since Fred Smith started it. Not to slight Mr. Smith, who to the best of my knowledge has only done right by shareholders, but sometimes insiders have taken advantage of shareholders in LBO situations. In particular when they trade old public shares for new private shares and are rewarded twice, the second time, at the public shareholders' expense. It is a conflict if insiders receive favorable treatment as part of the buy-out group to go along with the deal.
I understand why a big company might want to take FedEx private. I do not understand why major shareholders would support such a sale without a much larger premium, and this Santoli does not discuss.
Those of you who are new to BloggingStocks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.
July 9, 2007: Brent Archer - Taking advantage of FedEx buyout rumors
AT&T's Meandering Should End Soon
Closing Bell: Does The Market Ever Drop? (TSL, PALM, FDX, NKE, TEVA)
Research In Motion Is in Recovery Mode
Reader Comments (Page 1 of 1)
7-17-2007 @ 6:10PM
Tony said...
Could you please, please start a rumor, float a hypothetical as Barrons did, please I'm begging you. The company is UPS, not as exciting as Fed Ex but been in business 100 years, lot of wealthy retirees, run well, provides good dependable service and could be helped greatly by the same type rumor Barrons put out concerning Fed Ex with no specifics to back it up. Just do as they did throw it out there and then if asked just respond no comment, no comment. What a country.
7-17-2007 @ 6:30PM
Sheldon L said...
Tony,
1) Barron's was pointing out a great value among companies that could become a part of buyout mania. If someone could buyout FDX for this margin there is no denying it would be a steal.
2) Should this come to pass it is business news worthy to take a position, in particular because I am a shareholder as well.
3) I am also a shareholder of UPS which is also a great company. You speak as if you were a shareholder of UPS but are obviuosly not aware that it can't be bought out. It is employee owned and managed. When it went public, it is my understanding they only sold 10% of the shares.
7-17-2007 @ 7:25PM
Tony said...
Why can't UPS be bought out? There are enough former employees with enough stock who would jump at the opportunity Barrons would create by "floating" the hypothetical to drive up the stock value. Back to Fed Ex, who gains as a result of the run up in stock price or should I say, who gains the most? Who would have the single most purpose of increasing their holdings to plant a rumor or a feeling or an illusion or whatever you want to call it that there could be, may be, perhaps, a possibility with no specifics at all, just a thought they had in probably what Wolf refers to as the "Situation Room", you know the room you go to when you have a situation.