SEC Investor - Friday, March 14, 2008 - The Insider's Guide to SEC Filings

Friday, March 14, 2008

Yahoo and Microsoft Begin Talks (MSFT, YHOO)

Microsoft Corporation (NDAQ: MSFT) executives met with Yahoo Inc. (NDAQ: YHOO) today to discuss the proposed takeover offer, according to people familiar with the matter. This would be the first such meeting since Microsoft made its unsolicited buyout offer was made and subsequently rejected. The meeting was not so much a negotiation as an attempt by Microsoft to outline its vision for Yahoo and attempt to smooth over the troubled relations between the two technology giants. So, will this talk help increase the likelihood of a Yahoo acquisition or is it still far fetched?

The talks reportedly covered the impact of such a takeover and were described as mostly a listening session for Yahoo with no financial advisors present. Microsoft reportedly indicated that it wanted very little disruption of Yahoo’s business, but believed the two companies could compete better against rival Google (NDAQ: GOOG) as one unit. Clearly, the combined company would prove to be a big competitor in not only paid search but also Google’s newest venture in display advertising. In fact, the threat was so large that Google was reportedly considering taking action to break up the bid.

Yahoo has held similar meetings with other potential suitors, including Time Warner (NYSE: TWX) and News Corp (NYSE: NWS), in order to thwart Microsoft’s takeover attempt. But Microsoft has been sticking to its guns and rumored to even be considering nominating its own slate of directors to Yahoo’s board to help push the deal through. Meanwhile, the value of Microsoft’s offer is quickly declining, as their shares have dropped nearly 12%, but the technology giant has refused to raise the offer until it gets a good look at Yahoo’s books. It is likely that Microsoft is looking for revenues in paid search and display advertising most closely in order to determine how much it could accredit its own earnings.

In the end, there is no word from either company about the success of the meeting. As of now, Yahoo’s rejection of Microsoft’s $44.6 billion bid stands and there is no word that prominent executives even showed up at the meetings. Investors and analysts will have to wait to see if there is any future progress made by these two companies towards making a deal become reality. However, YHOO and MSFT are definitely two stocks worth watching in the meantime!

Friday, March 14, 2008 7:01:42 PM UTC

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Icahn Sees Value in Enzon (ENZN)

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Enzon Pharmaceuticals (NDAQ: ENZN) shares rose today after activist investor Carl Icahn disclosed a 6.93% stake and suggested that the pharmaceutical company explore strategic alternatives in a Schedule 13D filing with the SEC. The billionaire financier insisted that management conduct a comprehensive review of strategic transactions that could enhance shareholder value. In particular, Icahn suggested the company consider monetizing certain assets like royalty streams and under-performing products through either a spin-off or sale of the company as a whole.

Not surprisingly, shares rose today on news of Carl Icahn’s involvement as many coat-tail investors tried to buy a stake next to the legendary activist. However, many analysts also see potential in Icahn’s involvement. Recently, the company swung to a profit on lower expenses and improved revenues. The bulk of its earnings came from the gain on the sale of its Nektar equity assets of $13.8 million and a $6.7 million gain from the repurchase of 4.5% convertible notes at discount to par. But notably, operating income also came in at $870,000 compared to a loss of $11.64 million in 2006.

Carl Icahn also has had a lot of success in the biopharmaceutical industry. Some of his other successes include ImClone (NDAQ: IMCL) which is up substantially, MedImmume which was acquired, and Biogen (NDAQ: BIIB) which recently put itself up for sale. Many are speculating that the activist investor will try to unlock value by cashing in on royalty streams to fund share buybacks that should increase EPS and subsequently the stock’s price (assuming the multiple remains the same). This activist strategy has worked in countless other cases and should unlock value in this case as well.

In the end, this is great news or Enzon shareholders as it could mean substantial value being unlocked over the short term. However, a lot depends on management willingness to explore these alternatives as any proxy battle could be both expensive and drawn out. Luckily, Carl Icahn is well known (and feared) among corporate circles so management should agree to at least consider the options. Combined, these factors make ENZN a stock worth watching!

Friday, March 14, 2008 6:11:12 PM UTC

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Activist Says Conseco Shares Are Undervalued (CNO)

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Conseco, Inc. (NYSE: CNO) shares have been halved during the past 52 weeks and at least one large investor insists that the stock is substantially undervalued in a Schedule 13D/A filing with the SEC. The insurance holding company’s shares dropped after it fell under scrutiny for improperly reporting benefits and liabilities for insurance products. In fact, it will have to restate nearly three years of financial results that it says may have overstated shareholder equity by $15 million to $35 million.

Steel Partners, which owns an 8% stake, believes that Conseco is trading well below its intrinsic value. As a result, it announced the nomination of two candidates to the Conseco’s board of directors to unlock this value by pushing the company to explore strategic alternatives. These measures could include spinning off or selling business units, executing major stock buybacks, or finding a merger partner.

Normally when companies hear shareholders mutter the words “strategic alternatives” they quickly install poison pills and resist as much as possible. However, Conseco surprisingly agreed to consider the voluntary nomination of Steel Partners representatives for election to the board of directors. This voluntary nomination would greatly speed up the entire process and allow shareholders to realize significant appreciation over the short-term.

Situations like these are very common for Steel Partners, who prefers to find stocks depressed from (relatively) non-material regulatory issues and restore them to intrinsic value. The most likely of the strategic alternatives is a leveraged share buyback that would allow Conseco to increase its EPS, which (at the same multiple) should increase its share price. Other alternatives like a spin-off or buyout are also possibilities that force investors to reprice shares accurately.

In the end, this is all good news for Conseco shareholders. A strong activist investor and a willing board of directors creates a great opportunity to unlock shareholder value for everyone involved. It will be interesting to see just how quickly the company can act, but this is definitely one worth watching closely over the next few months!