The warrants may still be slightly undervalued. However, my instinct is to sell stocks/securities on rallies and to reinvest the proceeds into stocks that have dipped (e.g. ASPS).
I sold slightly below $4 (which is terrible trading on my part because I sold near the day low). I still have a few call options which I plan on riding out to maturity. This trade worked out well.
I may be completely wrong about Kinder’s reasons for merger KMI with KMP/KMR/EPB. Here’s my guess.
Things have gotten to the point where the GP/LP structure is becoming unwieldy. Any investments that the LPs make must be accretive to the LP unitholders. Because of this, the hurdle for new investments is extremely high (?somewhere around 18% EBITDA yield?). Because KMP and EPB are so large, there is a limited universe of investments that make sense for the unitholders after paying the onerous Incentive Distribution Rights (IDRs) to the GP. (In the past, this problem has been avoided by the GP waiving its incentive fees.) By getting rid of the GP/LP structure, the resulting company has more flexibility to pursue opportunities with lower returns that are still attractive.
Wow.
Here’s the press release: “Kinder Morgan, Inc. to Purchase KMP, KMR and EPB; 2015 KMI Dividend to Increase to $2 per Share”
Here’s my Google Drive spreadsheet that calculates the merger spreads.
I may do a follow-up post with thoughts on the merger.
*Disclosure: Long KMI warrants and call options.
Defined benefit pension plans give pensioned a defined amount of money each year for the rest of their life. Unfortunately for shareholders, the risks on this liability are very difficult to estimate and can get out of hand. Warren Buffett explains the relevant concepts in a 1975 memo to Katherine Graham. Shareholders are likely better off if the company offered its employees a defined contribution plan rather than a defined benefit plan.
When reading a DEF 14A filing (I have a previous post on things to look for in a DEF 14A filing), it may be worth checking to see if management is giving itself a defined benefit plan while the workers beneath them are receiving a defined contribution plan. I believe that this is an area where management can basically hide some of its compensation. Intel and TJ Maxx are examples of companies that have defined benefit plans for management. In the grand scheme of things however, this practice isn’t that bad compared to other ways that insiders compensate/enrich themselves.
*Disclosure: Long TJX via calls. No position in INTC.
Erbey’s empire of publicly traded companies (OCN, ASPS, HLSS, AAMC, RESI) is a little confusing. Here’s my understanding of what his companies do.
LMCK shares have no voting power while LMCA shares do. In theory, LMCA shares are worth more than LMCK shares and should therefore trade at a premium. Right now, the opposite is true.
Class A: Ticker symbol LMCA.
Class B: Ticker symbol LMCB. These shares have the most voting power. These shares are highly illiquid.
Class C: Ticker symbol LMCK. Non-voting.
In theory, you can arbitrage these shares by shorting LMCK and going long LMCA. I would not recommend that particular trade because I’m not a fan of share class arbitrage in general. But if you enjoy risky arbitrage trades that may take years to work out, there are better share class arbitrage opportunities out there. For example, the spread is dramatically higher with LEN and LEN.B (18.7% versus 0.6%).
This is just my opinion, but I think that Altisource is pretty cheap despite being one of the fastest growing stocks around. Here are the company’s historical earnings per share (diluted):
2008: $0.38
2009: $1.07
2010: $1.88
2011: $2.77
2012: $4.43
2013: $5.19
Trailing twelve months: $6.69
Despite this incredible growth, the current TTM P/E is 12.8.
