Chesapeake Energy Update and Correction. What Does Step Down really Mean! Investors Still Screwed $CHK

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Chesapeake Energy (Photo credit: Wikipedia)

Numerous readers including David J. Chamberlin Executive Vice President / General Manager, Dallas for Edelman who I presume is engaged by Chesapeake (NYSE:CHK) have pointed out that Aubrey McClendon did not resign as the CEO but he did step down as Chairman. In my earlier post I wrote “The recent resignation of Aubrey K. McClendon – Chairman and CEO will not extinguish the fire storm`. The reader comments are correct; Aubrey K McClendon did not resign as CEO. My apologies about a technical issue which may beg the real question.

Aubrey K McClendon also did not step down as CEO. But he did step down as Chairman. So what does step down really mean! The public relations guys see a really big difference. Step down has a softer less harsh connotation than such words as resigned, relieved, pushed out, fired, dismissed, replaced, disciplined or god forbid terminated.

Step down does not adequately address the issue of destroyed shareholder value. Mid March investors valued the company at a few pennies over $25.50. The close on May 3, 2012 $17.19 which was up on the day. That`s just over $8 per share loss! Now that`s a step down. Investors are still wondering if there are more step downs to follow.

But let’s be clear about the facts. Aubrey K McClendon is currently the CEO. The board of directors seems to be OK with Aubrey K McClendon staying on as CEO.

I also still stand by the gist of my earlier post about when you should consider investing in Chesapeake. Mr Chamberlin I hope your OK with this clarification.

Oh by the way Mr Chamberlin of Edelman do you have any comments about Chesapeake confirming a SEC Informal Inquiry. The SEC was careful to point out an informal inquiry does not mean any securities laws were broken or violated. But they have requested that both the company and Mr McClendon retain certain documents. Hey no problem as he is still the CEO.

George Gutowski writes from a caveat emptor perspective.

Related articles

• Chesapeake Is it the New Enron? Value Investor Considerations $CHK (financialskeptic.wordpress.com)
• Is Aubrey McClendon Suddenly the World’s Most Generous CEO? (dailyfinance.com)
• Chesapeake Faces SEC Inquiry, As Does Chairman & CEO (CHK) (247wallst.com)
• Aubrey McClendon Needs to Go (dailyfinance.com)
• Chesapeake Renegotiates Terms Of Wells Deal, Stock Soars On Short Covering Spree (zerohedge.com)

Chesapeake Is it the New Enron? Value Investor Considerations $CHK

Chesapeake Energy (Photo credit: Wikipedia)

Chesapeake Energy Corp (CHK) is in the market for a new boss. We’ve all heard the twisted conflicted governance challenged story. It’s not good. Calls to replace the entire board are only just starting up. Shareholder class action lawsuits are gearing up. My god the world is coming to an end. So is this the ultimate value investor play. Value investing is a buy ugly sell pretty formula. You have to have courage and correct analysis.

Well the price is down. The corporate governance story has destroyed shareholder value. The company is a huge gas play and the market price for gas is down. Very down. So isn’t this the time to buy. Buy low sell high. That’s the formula isn’t it.  Well the price of gas is historically low. We do have a domestic surplus and last winter was very mild so the consumer home owner did not come through as needed. That issue is the same for dozens of other gas opportunities. If you are patient you can make the cycle work for you.

So we default to the governance storm. The recent resignation of Aubrey K. McClendon - Chairman and CEO will not extinguish the fire storm. Who would want to take the job. To many ghosts and skeletons in the closet. So you can go through the executive search which is time-consuming and expensive to come up with what. My thoughts are if a recruiter calls you for the job go to the interview. It’ll be one of the most interesting interviews you’ll ever have. How will the search be conducted? Who makes the ultimate decision? The shareholders will be wanting pristine pureness. Will the candidate fit into the corporate culture or will he need to reshape it. Reshaping cultures is more difficult than finding oil and gas. Another good old boy will not do. By the way the board needs to be revamped. They have their finger prints on this problem as well.

Then you have to consider corporate momentum. The governance issue will be the mother of distractions. Instead of exploiting oil and gas the senior leadership team will be swatting away pesky governance flies. They will not be working full-time on maximizing shareholder wealth. So if you are looking at Chesapeake and wanting to buy when the storm clouds are the darkest, wait up. Do not click the buy button yet.

My personal prediction will be to bring in a one year neutral caretaker type to help stabilize. He should have a personal fixation about opening closet doors and checking out the contents. If we see the caretaker then it’s time to consider being a value investor. If we see someone who fits in with the corporate culture well lets just say shareholder wealth will not be maximized.

George Gutowski writes from a caveat emptor perspective.

Related articles

• Aubrey McClendon Needs to Go (dailyfinance.com)
• Hey Chesapeake Board! Your Company’s Publicly Held! (dailyfinance.com)
• Chesapeake’s Board Reluctantly Steps Up (CHK) (247wallst.com)
• Chesapeake CEO Fails to Disclose $1.1 Billion in Loans – Reuters (CHK) (247wallst.com)
• The Shameful State of Chesapeake’s Board (CHK, BRK-A, UNP, NOV) (247wallst.com)

Alibaba.com One Two Punch Putting the Run on Investors $XHKG:0168 #alibaba $YHOO

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Alibaba (Hong Kong XHKG:0168) announced declining results for Q1 claiming they are cleaning up their act or the act of many of their vendors. The drop in recurring cash flow clocks in at a YoY drop of a mind numbing 87%. But later in the earnings release they claim their cash and bank balances improved  with a 24.3 % increase  year-on-year and flat from December 31, 2011.  Which means the spending is being curtailed somewhere or the bank loans are coming in fast and furious. In any event that needs some splaining by management.

The party line is Alibaba.com stepped up its efforts to upgrade the trustworthiness of suppliers and  enhance the user experience. They have increased staff and operating costs as they attempt to rein in some less than satisfactory market behaviours. OK so this is a classic reset of a broken business model. Some will say this is the poster child for wild west style expansion in China’s boom economy where regulators have no clue about how to regulate. Wild eyed and naïve customers had no idea they could have so many unacceptable bad customer experiences. Wondering if the translation of bad customer experience into Chinese has the same connotation or if they are using something very much stronger.

But wait no sooner were the disheartening results released than a new press release was issued by independent board members recommending acceptance of a share buy out that had been made just recently. The buy out seems generous with a 60% premium over the 60 day moving average but somewhat unsatisfactory given the last two or three-year trading range.

The combination of poor earnings results and independent recommendation puts the run on investors. There are no other possible options. But when someone who is clearly the insider is ready to offer 60% premiums you have to think in the back of your head why?

The stock becomes an allegorical tale about investing in foreign jurisdictions with different governance models. Yes the China market is huge. But western investors may not have the mindset for the nuances of Asian stock markets when a publicly traded company runs into significant trouble.

Oh wait a second Yahoo owns a signifiant amount of Alibaba. There was this really strange sale which did not seem to benefit Yahoo (Nasdaq:YHOO)  and now the minority shareholders are being run off.

George Gutowski writes from a caveat emptor persepctive.

 

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Obituary for Common Sense #commonsense

An Obituary printed in the London Times…..Absolutely Dead Brilliant !!

Today we mourn the passing of a beloved old friend, Common Sense , who has been with us for many years. No one knows for sure how old he was, since his birth records were long ago lost in bureaucratic red … … tape. He will be remembered as having cultivated such valuable lessons as: – Knowing when to come in out of the rain; – Why the early bird gets the worm; – Life isn’t always fair; – And maybe it was my fault. Common Sense lived by simple, sound financial policies (don’t spend more than you can earn) and reliable strategies (adults, not children, are in charge).

His health began to deteriorate rapidly when well-intentioned but overbearing regulations were set in place. Reports of a 6-year-old boy charged with sexual harassment for kissing a classmate; teens suspended from school for using mouthwash after lunch; and a teacher fired for reprimanding an unruly student, only worsened his condition.

Common Sense lost ground when parents attacked teachers for doing the job that they themselves had failed to do in disciplining their unruly children. It declined even further when schools were required to get parental consent to administer sun lotion or an aspirin to a student; but could not inform parents when a student became pregnant and wanted to have an abortion.

Common Sense lost the will to live as the churches became businesses; and criminals received better treatment than their victims. Common Sense took a beating when you couldn’t defend yourself from a burglar in your own home and the burglar could sue you for assault. Common Sense finally gave up the will to live, after a woman failed to realize that a steaming cup of coffee was hot. She spilled a little in her lap, and was promptly awarded a huge settlement.

Common Sense was preceded in death, -by his parents, Truth and Trust, -by his wife, Discretion, -by his daughter, Responsibility, -and by his son, Reason. He is survived by his 5 stepbrothers; – I Know My Rights – I Want It Now – Someone Else Is To Blame – I’m A Victim – Pay me for Doing Nothing

Not many attended his funeral because so few realized he was gone. If you remember him, pass this on. If not, join the majority and do nothing.

George Gutowski writes from a caveat emptor perspective.

Morgan Stanley Vengeance Move Against Former Employee – Actions Speak Louder Than Words $MS $C $JPM $GS

Invitation to join the Morgan Stanley Alumni network (Photo credit: Lars Plougmann)

Morgan Stanley (NYSE:MS) recently won a court case against a former employee and has judgement for about $10 million. Maybe paper judgement but the judge has ruled in favour of Morgan Stanley. Whats this all about? $10 million at Morgan Stanley is a rounding error. Well usually it is but in this specific case Morgan Stanley is building corporate culture and drawing lines in the sand.

It seems that a former employee Joseph F. Skowron, the onetime star hedge fund manager is serving jail time for insider trading, and now needs to pay $10.2 million to his former employer Morgan Stanley. Not a rounding error for Joseph F Skowron. But wait the $10 million is still not enough for Morgan Stanley they are seeking $45 million in civil court.  The case becomes a lawyers delight.

The entire case may not seem strategic but as reported by NYT Dealbook the stakes are high. Morgan Stanley is taking the opportunity to show other employees who may consider some form of malfeasance that they will be subject to both civil and criminal proceedings. You can make rules but for some people it’s not about the rule it’s about the consequences. So while Morgan Stanley could have relied on its insurance policies or just written a cheque and hoped to keep it quiet it now is embedding into its corporate culture that if you are found guilty of securities infractions you will be prosecuted. You will be persecuted. You will be hounded. And if you are married and have children we will not be taking care of them. jail time will not be an embarrassment.

Usually I write negatively about publicly traded companies and I have not been a big fan of the bulge bracket firms. But in this case I appreciate what Morgan Stanley is doing to protect investors and themselves.

Just by way of quick summary if you are not aware of the timeline:

1. Joseph F. Skowron is a former star hedge fund manager for  Morgan Stanley-owned FrontPoint Partners.
2. Joseph F. Skowron  is a Yale educated doctor who was lured into the hedge fund world.
3. FrontPoint partners was acquired by Morgan Stanley in 2006.
4. Skowron tried to bribe another French  doctor to reveal the results of confidential clinical trials.
5. Skowron who was also called “Chip” was caught, sent to prison for five years and was ordered to pay $5 million.
6. No evidence if he has been able to write this cheque or others from his prison cell.

So note to employees who are thinking about it. Don’t do it. especially if you work for those bastards at Morgan Stanley. They’ll come after you.

A short news search of Goldman Sachs (NYSE:GS), Citigroup  (NYSE:C) and JPMorgan (NYSE:JPM) failed to identify a similar situation. Or perhaps it failed to identify a vigorous defence of corporate culture and therefore mitigation of future and embarrassing losses.

George Gutowski writes from a caveat emptor perspective.

 

Related articles

• Sorry, Morgan Stanley. But Chip Skowron Doesn’t Think You’re Really A Victim (businessinsider.com)

Boeing Late Fees Become Material. Reg FD Implications $BA

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Boeing (NYSE:BA) is arguing with Air India and the Indian government over late fees that may be applicable over the much delayed but finally flying 787 Dreamliner. The Indian Government is asking for $1 Billion. Boeing is offering $500 million. Depending on the options package this amounts to about one free dreamliner.

Boeing is not arguing the late fee rationale. They are just negotiating the size of the delay fee. The Dreamliner program is much delayed and Boeing may be looking at billions in late fees. Currently the Indians are asking for 10% of Boeing’s cash on hand. Boeing has countered with 5%. Thats just India. Would it be too racist to accuse them of a nickel and dime mentality? What about side deals and special arrangements which Boeing is only too happy to make. Why do you need to press for the big cash?

There has been no attempt at financial guidance from Boeing for late fees. Looking at it from the profit and loss viewpoint. The $1 Billion Indian position is equal to 25% of last years $4 Billion net profit. Note to regulator check for short sales position ultimately controlled by Indian Government or associated cronies. Note to other regulator review disclosure in the context of REG FD and determine when Boeing splained that this big number and perhaps other big numbers may become detrimental to Boeing’s shareholders in the very near future.

The entire quandary is becoming a gaming theory conundrum. Play poker with the Indian government. Do not alarm shareholders in real-time. Ignore the regulator now while you jaw down a major client who is also a sovereign country. Extraterritoriality is a nice touch. So far Prashant Sukul, joint secretary of the country’s aviation ministry told reporters that they have asked for more. Boeing has not said a thing. So perhaps they can argue that until the negotiations are a done deal they did not have the basis for accurate material disclosure. So Thank You to the Indian government who has taken this out into the public domain.

George Gutowski writes from a caveat emptor persepctive.

 

Related articles

• Boeing takes its 787 to India (bizjournals.com)
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Eastman Kodak face-plant. Bankruptcy and delisting most probable. What did you expect? $EK

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Eastman Kodak (NYSE:EK) seems to be completing their face-plant. NYSE warned of a delisting which comes as no surprise. Every time someone bought a smart phone with a camera Eastman Kodak slipped another notch. The question becomes how will the bankruptcy be managed. Where is the unlocked value that public shareholders have failed to see?

Someone spun this out until 2012 to avoid 2011 tax losses. i smell financial engineering. Thanks a lot guy.

George Gutowski writes from a caveat emptor perspective.

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Tyson erratic chicken dance. Problems in the Hen House $TSN

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Tyson Foods (NYSE:TSN) posted ugly Q4 numbers because of problems in the hen-house. Commodity input costs soared and could not be passed on. Like that’s a negative spread.

Donnie Smith, Tyson’s president and chief executive officer after identifying $675 million in unexpected feed costs was quoted as saying

“This is a testament to our quality, service and innovation and our focus on business fundamentals and operational efficiencies across all segments of our business.”

The same Donnie Smith is on the record in the last conference call identifying the Hen House as a problem. But it was profitable. Just profitable by a whisker. He also points out that in Q1 the hen-house is profitable as well.

OK so we know the hen-house is a tough business. It looks like they bit the bullet and had sudden unexpected costs. It looks like they shifted costs forward to get some of the problems behind them. It looks like they were awarding executive stock options and could use a lower price at year-end. They are openly hoping for higher protein prices this coming year. They claim the hen-house is already profitable in Q1.

That’s the set up. They are reminding investors  that this is still the second highest EPS, so it’s not so bad right. Commodity costs are volatile. Just try to follow the trading action in the pits in Chicago. If a few costs were shifted forward you will get a short-term pop and then the fundamentals start to catch up with you. Not to mention  how to get decent comparables going forward. The fox will be in the hen-house soon.

George Gutowski writes from caveat emptor perspective.

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Margin Call great movie! Trivia question What breed was Kevin Spacey’s Dog? $QQQ

Margin Call great movie. Jeremy Irons and Kevin Spacey play great roles and bring out the true essence of their twisted characters. Demi Moore playing a risk management executive comes out a little flat. The rocket scientists explaining problems to little children is priceless. Even in the strip joint they compulsively explore prices. Go figure.

If you trust your brokerage go see the movie for a caveat emptor perspective.

Does NetJets give Warren Buffett an unusual advantage $BRKA $BRKB #Buffett #NetJets

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If you can read poker tells you have substantial advantage. NetJets is used by many businesses and businessmen. Sudden changes in usage usually mean something. Not exactly insider trading but there is reason to lift an eyebrow and perhaps scratch away err I mean investigate a little further. Berkshire Hathaway (NYSE:BRK.A; BRK.B) seem to have done very well.

Value investors are great watchers. Sometimes the sideways off angle view provides key insight that tons of research will miss.

So when Warren reviews NetJets is he multi-tasking and getting that extra edge.

Just saying, because most of us would do it.

George Gutowski writes from a caveat emptor perspective.

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