Manchester United Hail Mary IPO Differs from Facebook $MANU $FB

Manchester United's crest

Manchester United’s crest (Photo credit: Wikipedia)

Manchester United (NYSE:MANU) differs from Facebook in some highly significant ways. Facebook was a fairy tale which still might come true some time this millennium. Manchester United is a football team (soccer for the Yanks) playing to established metrics. Oh yeah the big metric is Malcolm Glazer’s need to reduce debt and get his ass out of a sling.

So you see sports fans the two IPO’s are very different. There will always be rabid sports fans, soccer hooligans and very over paid soccer stars that make North American athletes look like welfare cases.

It all comes down to valuation and the PE ratio. Facebook was somewhere around a 60 forward PE which of course is ridiculous. Manchester United is based on both A & B shares a 95 PE. Morgan Stanley (NYSE:MS) has fled the deal once they realized it needed to be done in North America.

Somehow I do not believe there will be an order imbalance. NYSE will not be stressed by a deal which just may be DOA.

Will Malcolm Glazer’s empire start to wobble without this deal going through?

George Gutowski writes from a caveat emptor perspective.


Facebook’s Board Do They Have What Facebook Needs? $FB $MSFT $MS $WPO $WMT

Image representing Facebook as depicted in Cru...

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Facebook (Nasdaq:FB) has disappointed. Nothing like a $10 @ share drop in value. $38 to under $29 is atrocious. That’s something like 24% in a blink of the eye. Now everyone is soured. So what should the board do? Not Zuckerberg who probably still cannot find his way to Barney’s. But the board. They have ultimate responsibility.

Lets take a look at the make up.

Reed Hastings also sits on Microsoft’s board (Nasdaq:MSFT) Not that long ago the connection provided credibility. But today Facebook needs to stand on its own two feet so some sort of de facto imprimatur has no further value. Any close connection between Facebook and Microsoft will be scrutinized closely by regulators and competitors with big legal budgets. Also Facebook reputedly has gone to Scandinavia to find a new browser. You can use Bing to search for more information.

Erskine B. Bowles started his career at Morgan Stanley (NYSE:MS) and after a career in financial wheeling and dealing and politics he now sits on Morgan Stanley’s board. Does he recuse himself from portions of board meetings that deal with Facebook issues. I’ll bet Facebook might be on at least an informal never happened agenda discussion. you know drinks after work at the Four Seasons. it’s not far away. Continued value as a director to Facebook; up for discussion.

Donald Graham CEO of Washington Post (NYSE:WPO) which counts Warren Buffett of Berkshire Hathaway fame (NYSE:BRK.A) is there why? Old media advice for the most anticipated high tech IPO is a major non sequitur. He does not sit on any other boards. Big media barons always raise eyebrows when they play outside of their sandbox.

James W. Breyer who hails from the venture capital community is also the lead/presiding independent director for Wal-Mart (NYSE:WMT) which has a snoot full of governance problems in Mexico. While there is no evidence that he has any personal involvement how is this going to help Facebook shareholders.

The remaining directors are venture capitalists who are watching their nest egg very carefully. Not sure if they want or could sell at well under the IPO price as it would only validate generalized market concerns that something was radically wrong with the IPO.

So basically Facebook needs to revamp their Board. Given the low market price of the stock the stock option portion of directors compensation should be very attractive. So attractive that it may become embarrassing and therefore not possible.

So your investment is still in the hands of a twenty something geek who just got married and has little experience in generating sustainable profits and cash flow.Good luck with that.

George Gutowski writes from a caveat emptor perspective.

Facebook Buyers Remorse Is Morgan Stanley Guilty of Something? $FB $MS

Image representing Facebook as depicted in Cru...

Image via CrunchBase

Facebook (Nasdaq:FB) finally went public and did not double or triple over night. Boo hoo boo hoo. Lots of investors if you can call them that want to blame Morgan Stanley (NYSE:MS). This white shoe firm is surely at fault because investors could not double their money over night. And that as we know is Morgan Stanley’s grievous error. Please note that some 33 other firms that were part of the underwriting syndicate are keeping a low profile and desperately trying to keep their names out of the financial pages. OK so the most anticipated IPO in recent financial memory seems to be crapping out. What to look for who to blame?

Morgan Stanley and 33 other large Wall Street investment banks were hired to bring the company public. Their contractual obligation is to Facebook. Their fees will be paid by Facebook. Certain expenses will be paid by Facebook. So we can assume their primary fiduciary responsibility is to Facebook. Search the underwriting documents and I seriously doubt if there is a responsibility to ensure investors double their money over night. In fact there was a lot of boilerplate about risk which many investors even at large sophisticated investment funds probably do not read or contemplate.

Morgan Stanley’s own internet analyst  Scott Devitt came out in the last-minute and warned about lower revenues than first anticipated. A nice touch for any lawyer defending Morgan Stanley. This move probably saved Morgan Stanley from a lot of lawsuits. I couldn’t help but check out Morgan Stanley’s recent price history. It has done well. Facebook has been very good to Morgan Stanley.

What is the duty of senior Facebook executives? Maximize the valuation. They seem to be successful. I have always been disturbed by underwriting which soar in price once shares start trading. why could not the CFO get the best possible deal for the company he works for.  Why could the CFO not maximize the amount of valuable cash being raised. Tech giants need enormous amounts of cash. soaring share values in the secondary market do not fill the corporate treasury.

The Morgan Stanley performed admirably in this case. They wrenched the last nickel out of the market. This by the way maximizes their own fees and would therefore give investors an insight into probable behaviours. They were able to increase both the initial offer price as well as the total amount of shares being offered. In the underwriting world this is like dying and going to heaven. This only happens when investors with cash in hand are scream buy buy buy.

Internet valuations have always defied conventional old school investment logic. Facebook was clever, they hired a very prestigious name to stand behind them. They then assembled an equally prestigious posse. Then they let the investors do it to themselves. This may be a tipping point for the market. The internet mania still continues to attract short-term speculative thinking and trading. Now Facebook and others to come may be priced at more realistic levels. Allowing saner money the opportunity to just dip their beaks once in a while.

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 n...

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.


Morgan Stanley stock promotion Gormon’s Angst $MS #insidertrading #stocks

Morgan Stanley's office on Times Square

Image via Wikipedia

Morgan Stanley (NYSE:MS) CEO James P Gormon has acquired another $2 million of Morgan Stanley stock with his own money. He has also publicly signaled his angst at the low price and declared it is only a matter of time before a large value investor swoops in and makes him an even richer man.

OK so it’s always nice, very nice, when the CEO really and I mean really believes in his value proposition. But when you look at the US economy with it’s 9.2% unemployment and lingering mortgage debt crisis, not surprising that value investors are not piling into the financial sector and or Morgan Stanley.

If this were a smaller company he would be accused of stock promotion. Right now he just has the bi-polar conflicts of chutzpah and angst. Welcome to the bull bear discussion that makes up a stock market.

But wait a second. CEO of Morgan Stanley. Thats a really big job isn’t it? You know stuff. Lots of stuff. You know about the stuff inside the stuff. You meet people, have dinner, drinks, conversation. You have really smart people working for you. Yeah you know stuff.

So when you buy 100,000 shares in the dog days of summer (last Thursday was it?), right in the middle of that crazy debt ceiling problem which you must have followed closely, what does that mean. Insider trading is a time sensitive issue. Lots of guys going to the beach and will only get serious after Labour Day. That’s enough of a window to look good, if as and when a value investor comes in and declares you to be a really smart play.

Of course if the value investor is smart he/she will accumulate slowly (value investors are patient guys) and then declare the large position only when SEC regs force them to.

BTW James P Gormon your timing stinks. Since last week you have lost about 10%. so sorry so sad. 

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours. I bear no ill will toward James P Gormon. I will not be the value investor that swoops down and moves Morgan Stanley’s valuation in a single stroke. When it happens I think it will be some international sovereign fund.

Morgan Stanley Volckerized

Morgan Stanley's office on Times Square

Image via Wikipedia

Morgan Stanley (MS) is being Volckerized. That’s the new buzz word that refers to the Volcker clause of the Barney Frank Financial Reform Bill. Morgan Stanley is shedding in-house hedge funds by Q4 2010 which means in around 60 days. Employees will be coming up  with billions to purchase equity and get Morgan off the hook.

Financial engineering reigns supreme. These guys were good but do they have a few extra billion kicking around? Watch for compliance and governance nightmares to make this one work. After the mortgage mess we will have the hedge fund mess.

The immediate secret benefit will be to reduce mega compensation off the books of Morgan Stanley and hide it on the books of a private entity. Morgan Stanley and copy cat financial institutions will achieve the necessary political optics.   

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.