Jeffrey's Feed
Mar 26, 2012
via Breakingviews

Wall Street can relate to Hollywood underdog tale

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The dystopian kill-or-be-killed world of “The Hunger Games” isn’t the film’s only apt metaphor for Wall Street. This weekend’s smash box-office debut of the teen lit sensation makes Lions Gate the studio equivalent of a boutique investment bank landing the year’s biggest deal. And Walt Disney’s coinciding flop “John Carter” raises questions about Hollywood’s bulge bracket. Independents from both industries are fighting to stay in the spotlight.
 
Lions Gate is deservedly the talk of the town. In the first few days of its release, “The Hunger Games” delivered $155 million of U.S. and Canadian ticket sales. That makes it the biggest non-sequel opener ever, and leaves it third behind only later chapters in the “Harry Potter” and “Batman” series. It’s a coup for a relative tiddler, especially when a goliath rival announces a $200 million loss on an epic fail even by Tinseltown’s larger-than-life standards, as Disney just did for its own fantastical book adaptation.
 
What’s more, in a banker’s terms, “The Hunger Games” is like having an acquisition-hungry client with an abundance of capital available. Lions Gate plans to release three sequels based on the Suzanne Collins trilogy of bestsellers, so it’s a gift that should keep on giving.
 
But competing against rivals owned by deep-pocketed conglomerates is as hard on the West Coast as it is on the East. Even with the lucre raked in so far from “The Hunger Games,” Lions Gate won’t crack the top five in the studio league tables, according to Box Office Mojo figures. Legendary moguls Harvey and Bob Weinstein have struggled similarly, producing a steady slate of critical successes via their eponymous indie house – including this year’s Oscar winner “The Artist” – that often fail to achieve blockbuster status financially.
 
Smaller shops on Wall Street have capitalized on the misfortunes of their larger peers. Greenhill, for example, is valued at over 16 times expected 2013 earnings, according to Thomson Reuters data. And despite losing money over the last few years, Lions Gate trades at a forward multiple of 15.
 
After spurning the advances of activist Carl Icahn last year at about half the current share price, Lions Gate spent over $400 million to buy “Twilight” producer Summit. That gives it the ability to release more films, on a par with the likes of Paramount. That’s important in a business that feeds on big hits. Just as banking supermarkets can no longer ignore the boutiques nipping at their heels, “The Hunger Games” means Hollywood must pay heed to the Lions Gate mouse that roared.

Mar 23, 2012
via Breakingviews

Watchdogs could change Vivendi’s EMI tune

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Vivendi’s Universal Music feels good. The purveyor of Lady Gaga hits is so confident of getting approval to buy rival EMI that it agreed to pay the full $1.9 billion price even if the transaction is blocked by trustbusters. But beyond outright success or failure, another possibility – being forced to sell various pieces – could prove costliest.

Mar 14, 2012
via Breakingviews

New York Times pay structure isn’t fit to print

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The New York Times Co’s pay structure isn’t fit to print. The venerable U.S. newspaper group revealed a bonus structure that rewards bosses with 175 percent of their target payouts for achieving a mere 2.5 percent return on invested capital. That’s a fraction of the company’s cost of funds, and much lower than its own previous standard. A high bar for journalists doesn’t seem to extend to management.

Feb 23, 2012
via Breakingviews

Twitter revolt could march next on proxy season

Photo

By Jeffrey Goldfarb

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The revolution is being Tweeted. Social media have enabled political uprisings in the Middle East, the global Occupy movement and even a swift blowback against banking fees in the United States. A logical next step would be for Facebook, Twitter and their ilk to intensify the voice of the investing masses.

Feb 22, 2012
via Breakingviews

AT&T board lets CEO off hook for bad call

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

AT&T’s board has let its chief executive off the hook for his bad call. Randall Stephenson’s total compensation fell to $22 million last year from just over $27 million in 2010. That’s a light slap for the badly botched bid to buy T-Mobile USA from Deutsche Telekom. AT&T had to take a $4 billion charge for the break fee related to the deal’s collapse. Though complicit directors factored the monetary costs into their decision, they didn’t hold Stephenson properly accountable for failure.

The T-Mobile takeover plan scrapped by regulators unquestionably took its toll. In 2010, AT&T’s free cash flow was atop its target range and earnings per share surpassed it. Last year, free cash flow settled back into the middle of its range while EPS barely scraped the bottom. Even had the T-Mobile costs been excluded, earnings would have fallen short of target. And while on a longer, three-year horizon, AT&T’s total shareholder return of 9 percent outperformed the broader market, it was near the bottom of its own self-described peer group. That all suggests T-Mobile proved a bigger distraction for AT&T management than even the hefty immediate costs imply.

Feb 21, 2012
via Breakingviews

Deloitte caught in Diamond Foods’ glare

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Deloitte can’t seem to avoid the spotlight. Just a few months ago, it became the first of the Big Four accounting firms to be publicly shamed by their U.S. regulator for past failings. And now another client, Diamond Foods, has admitted to botching two years of financial reports. Deloitte could be headed back into the spotlight.

Feb 9, 2012
via Breakingviews

Diamond Foods crashes after running before walking

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Diamond Foods has been reduced to an injured crawl after it tried to run before walking. The salty snacks purveyor came clean after the market closed on Wednesday about $80 million of bad accounting and replaced its chief executive and chief financial officer. The shares tanked another 40 percent, to under $22, in after-hours trading, and its hope of buying Pringles looks all but dead. It’s a cautionary tale of how hard it is to go from private and small to public and big. But that’s not the only lesson.

Four months ago, Breakingviews pointed to some oddities in Diamond’s financials, including dubious-sounding “momentum payments” to walnut growers. The company brushed off the inquiries. So did most investors: Diamond shares were trading at over $90 apiece at the time.

Feb 3, 2012
via Breakingviews

Super Bowl may settle buy-side/sell-side rivalry

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Sunday’s Super Bowl XLVI clash will reflect another great rivalry – between Wall Street’s sell-side banks and the buy-side investors of Boston’s mutual fund industry. The New England Patriots will be seeking retribution for a loss to the New York Giants in the same season finale just four years ago. The bragging rights this year could help the two groups of financiers decide, Gordon Gekko style, whose form of greed prevails.

Jan 17, 2012
via Breakingviews

TPG can be forgiven its mile-high club fetish

Photo

By Jeffrey Goldfarb
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

David Bonderman hasn’t forgotten his first fling. The former lawyer parlayed his 1982 experience as trustee for Braniff Airlines into a deal to buy Continental Airlines out of its second Chapter 11 filing a little over a decade later. That successful bet enabled the Texas takeover artist to co-create buyout biggie TPG. Since then, he has continued to chase airlines the world over, including now bankrupt American. A recent failure hasn’t dampened Bonderman’s ardor.

Jan 12, 2012
via Breakingviews

Carlyle’s big payday does private equity no favors

Photo

By Jeffrey Goldfarb

 The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Carlyle Group isn’t doing its industry any favors. As part of the private equity firm’s initial public offering process, this week it revealed the lucre reaped by its three founders last year. David Rubenstein, William Conway and Daniel D’Aniello took home a combined $400 million in cash payouts. That’s on top of their nearly $4 million salaries and the profits on $200 million of distributions on personal investments in the firm’s funds. Carlyle’s timing is impeccable.