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This Week's Activist Filings
Activist filings this week were quiet but nonetheless important in that one familiar name is back again on the list due to some developments. Houston utility company Dynegy (NYSE:DYN) is currently under play by Blackstone Group (NYSE:BX). The company has agreed to sell itself to Blackstone for $4.50 a share and this week received approval from the Federal Energy Regulatory Commission authorizing the deal.
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Not So Fast
Investors may wish to keep an eye on Dynegy in the upcoming weeks, however. Seneca Capital, which owns 9.3% of the outstanding shares in Dynegy, formally sent a letter to the company on October 21, calling the deal with Blackstone inadequate. According to Seneca, "the $4.50 per share merger consideration... does not adequately reflect the long-term value that Dynegy stockholders would be able to receive without the merger." Dynegy shares currently trade for $4.60 a share, so if Seneca has a plan then there may be quality upside remaining. For what's it worth, Dynegy currently shows a book value per share of over $24 on the balance sheet along with a market cap of $554 million and over $4 billion in debt. In addition to Seneca, Carl Icahn's firm is also a major shareholder.
A Fashionable Stake
Luxury fashion retailer Saks (NYSE:SKS) continues to be a love of Italian fashion tycoon Diego Della Valle who has been increasing his stake in the iconic retailer. Mr. Della Valle beneficially owns over 30 million shares, representing over 19% of Saks. Mr. Della Valle's recent purchase of over 7.6 million shares and 8 million options were made at a price range of $9.33 to $11 a share. Saks shares currently trade at just under $11 a share. It appears Mr. Della Valle has no specific goals or requests in mind yet for the company, but his significant stake is notable. For related reading, check out Activist Hedge Funds: Follow The Trail To Profit.)
Share prices in the retailing sector have been on a tear since the market rally in early 2009, and valuations don't look attractive. Saks currently trades for 50 times forward earnings and 1.6 times book. However, the company's luxury market position gives it a consumer base that may not be as sensitive to the economy as other retailers. Nevertheless, discount retailers like The TJX Companies (NYSE:TJX) have been very profitable over the past couple of years. TJX currently fetches under 13 times forward earnings but a very hefty 6 times book value. If Saks can turn its profitability around it may command an even higher premium to book value.
Cooling Down
Activist investments are not guaranteed to succeed and even if they do, the time frame could be months or years. With the recent market rally lifting valuations across the board, any activist idea should be scrutinized especially carefully as the opportunity costs of investing today are incredibly high. (For more, check out Activist Investors: A Good Or Bad Thing?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 9 Simple Investing Ratios You Need To Know
Not So Fast
Investors may wish to keep an eye on Dynegy in the upcoming weeks, however. Seneca Capital, which owns 9.3% of the outstanding shares in Dynegy, formally sent a letter to the company on October 21, calling the deal with Blackstone inadequate. According to Seneca, "the $4.50 per share merger consideration... does not adequately reflect the long-term value that Dynegy stockholders would be able to receive without the merger." Dynegy shares currently trade for $4.60 a share, so if Seneca has a plan then there may be quality upside remaining. For what's it worth, Dynegy currently shows a book value per share of over $24 on the balance sheet along with a market cap of $554 million and over $4 billion in debt. In addition to Seneca, Carl Icahn's firm is also a major shareholder.
Luxury fashion retailer Saks (NYSE:SKS) continues to be a love of Italian fashion tycoon Diego Della Valle who has been increasing his stake in the iconic retailer. Mr. Della Valle beneficially owns over 30 million shares, representing over 19% of Saks. Mr. Della Valle's recent purchase of over 7.6 million shares and 8 million options were made at a price range of $9.33 to $11 a share. Saks shares currently trade at just under $11 a share. It appears Mr. Della Valle has no specific goals or requests in mind yet for the company, but his significant stake is notable. For related reading, check out Activist Hedge Funds: Follow The Trail To Profit.)
Share prices in the retailing sector have been on a tear since the market rally in early 2009, and valuations don't look attractive. Saks currently trades for 50 times forward earnings and 1.6 times book. However, the company's luxury market position gives it a consumer base that may not be as sensitive to the economy as other retailers. Nevertheless, discount retailers like The TJX Companies (NYSE:TJX) have been very profitable over the past couple of years. TJX currently fetches under 13 times forward earnings but a very hefty 6 times book value. If Saks can turn its profitability around it may command an even higher premium to book value.
Cooling Down
Activist investments are not guaranteed to succeed and even if they do, the time frame could be months or years. With the recent market rally lifting valuations across the board, any activist idea should be scrutinized especially carefully as the opportunity costs of investing today are incredibly high. (For more, check out Activist Investors: A Good Or Bad Thing?)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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