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E*TRADE Financial Corporation Message Board

  • prescient11 prescient11 May 6, 2008 9:30 PM Flag


    I am breaking my silence here because I would love to get the analysis of some numbers guys here, such as numbersss, quasi, rhtribb, etc., you know who you are. Seeing this share swap and the "other" filing by Citadel has got me thinking.

    I don't know what to make of it, but subconsciously something is screaming out regarding the pieces being put into place for a takeover, sale, or whatever.

    Quasi's breakdown of outstanding debt triggered it. Here it is, although I think it's missing about $100-150M of notes somewhere, of the springing variety.

    from Dec. 31,

    Senior Notes:
    8% notes due 2011 -- $453M -- fair value $471M
    7 3/8% Notes due 2013 -- $512M -- fair value $541M
    7 7/8% Notes due 2015 -- $248M -- Fair value $260M

    Springing Lien Notes:
    12 1/2% due 2017 -- $1786M -- fair value -- $1304M
    Mand. Conv. 6 1/8% due 2018 -- $450M -- fair value -- 445M

    Total $3450M -- Fair value -- $3022M

    As of an early April SEC filing, Citadel owns approximately $2,281,867,000 of Etrade's debt. Blackrock owns $100M of the springing liens. After the $50M swap, and the $450M conversion, there is only approximately $552,548,000 of NON-CITADEL/BLACKROCK owned debt. And guess where the remaining debt swaps are going to go, I guarantee you they will reduce the non-Citadel/Blackrock debt.

    So what I'm saying is, Citadel owns ALMOST ALL Etrade's debt. Now maybe they know ETFC is solid as a rock, and so they could get the debt at a great discount and it's free money, but I don't think these guys operate that way, it's not enough of a percentage gain for that much money imho. Thoughts on just the fact that this debt could be a good investment to get at a great discount are welcome. That's ok for Buffet, but Citadel wants 20% gains, imho.

    So why would Citadel continue to acquire ETFC debt? And also remember that the entire $1.95B springing liens debt can be repaid, WITH NO PENALTY, upon the event of a change of control. All thoughts on this are welcome.

    But second, why the hell does Citadel keep pushing back the date on which it notifies ETFC to distribute the remaining 40M shares? Boys and girls, if they are at 17.4% ownership (which used to be 17.7% no?) then they are not going to be adding any more shares because that additional 40M will get them damn close to 25%, as approved by the OTS.

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    • Simply put, although family members can be estranged, he is a brother to the longs on this board.

      Tonight I listened to the cc for the first time and am leaning towards the stock for debt as being good for stock holders. After Etrade wipes out the debt it could then turn around and concentrate on buying back shares for the next couple of years.

      Think of it.... Fitch, Moooody and SP upgrade their debt... more and more customers come back in droves...therefore they become even more profitable...

      My understanding is this thang aint going to be profitable till mid 09 anyway... I think the delution would be wise.

      I'll be buying a half position this week and probably wont take too long to take my full position within a couple of weeks depending on some other plays.

      One other thing, some of you guys may be smart but if you are sold on ETFC pps being above 15x its earnings 2yrs from now without a buyout you are drinking ETFC koolaid. (And it aint gonna be making $2 a share)

    • Pres, great analysis.

      This thread needs to stay up top.

      I hate jumping on the buy-out train since it has been beaten to death for 6 months; however, I'm almost unable to avoid looking at the large elephant in the corner with a lamp-shade on its head.

      I have to admit that the building blocks are in place and have been "organizing" for a number of months now. Coincidence or reality, I suppose I'd be happy... depending on the offer, of course.

      I find it hard to believe we'd get a great price right now, though. Considering the dilution that could occur from the additional shares if offered as a swap, and the general depressed market -- I'd be surprised if we got even a 100% premium over the current share price. I, like many of you, understand the full potential here... which means that Layton, the BOD, and KG certainly do. Unless they just want to grab their gains and walk away, they'd hold on to E*Trade and see it to a 200%, 300%, or 400% increase within 2 or 3 years.

      So that then begs the question, is there interest here purely a quick turn or the long haul. I'm not sure. Layton was taken out of semi-retirement, and KG and hedge funds are known to turn a quick buck. Perhaps that's the plan. On the flip side, ETFC may be a nice tool in KG's tool-belt for taking Citadel public and realizing his goal of giving GS a new competitor, standing "shoulder to shoulder."

      I don't know. I'll admit I don't have enough information to make a call one way or another here. But either way, I feel we're on the winning side of this bet... just a matter of how much we win!

    • time to counter the long giddiness

      Ever heard of a take under? The company would survive at the expense of common holders and insider like layton, but the big winner in such a scenario would be Citadel.

      Make no mistake KG did not make hundreds of millions by being a nice guy and watching out for longs interests, he did it buy playing hardball and getting the best deal for himself/Citadel. A take under actually would actually benefit him greatly and would explain the large spike in short interest

      • 3 Replies to tradeit_dontloveit
      • That argument has been tossed around before. The big flaw in the logic becomes the motivation for a take-under. Sure, you get a great deal... but on what??

        The company is damaged already, and it's possibly on the brink of regaining its footing. Any attempt at a "take-under" at this point may very well succeed... but there will be NOTHING left worth owning.

        This company is built upon a reputation -- the E*Trade name. If Citadel simply wanted a Brokerage for "cheap", he could have started his own, with a clean slate, for the $2B he has already invested -- not to mention, he would have been off to a great start.

        Sure, the software is valuable -- they have a great platform. But again, if you're willing to invest $2B, you would have gotten a great platform!

        No -- I don't think Ken wants to go the route of a take-under at this point because it would crush the reputation and the E*Trade name... and there goes his investment... now just owning the crumbled stone and memories of a once-great company. Something tells me that's not in his best interest.

      • You assume Layton is a pretty niave fellow!

      • I think were already very close to that price of a take under.... you're probably talking within the $.50 range from over to under in your scenario with what we have to work with today.

    • Citadel paid $.30 on the dollar for some of the subprime already. I think after Edens presentation Fortress declined to get involved in etrade for whatever reason. Etrade probably values the HELOCS of 700+ FICO worth a lot more than Fortress was willing to go.

    • I think assuming anything REMOTELY approaching $.35 on the dollar is pretty ludicrous.

      That's like saying those "moderate" HELOCs (lots of 700+FICO, <80%LTV, etc.) are nearly as toxic as blind CDOs which were sold for $.27 on the dollar.


      I'd think it far more likely that someone like WFC or JPM would step up and buy the HELOC portfolio (or, for that matter, TD) and then the whole OLB could be snapped up for $8+/sh.

      What would the mortgages (HELOCs and First Liens) look like in that scenario? I'd venture a guess in the range of at least $3/share...

      To an operator like WFC, JPM or even USB, that mortgage portfolio could be GOLD. What's more, it should be noted WHO the party is that becomes the referral partner for ETFC's mortgage referrals.

      That would point the way to the future (potential) sale of that portfolio...


    • deserves another look

    • Good assessment.

      The only thing I still don't get is why E*Trade would be in a hurry to make such a deal? I can't explain it without taking conspiracy theories into consideration but maybe that's just the way of the hedge funds ...

      We'll see what happens.

      Question: will Moglia let Citadel steal E*Trade for $8?

    • WOW....

      I've been off the board for awhile myself.... Just checked in and tripped over this thread!

      Back when Quasi first postulated on this scenario..... I wrote him off as paranoid.

      Now my head is Spinning..... which isn't very far from my normal state of being anyway!

      But Damn guys..... Alot to think about.

      Great Posts Gang......Thank You All!

      • 1 Reply to lackofzzzzzz
      • As some of us expected all along. Looks like the for sale sign is out and a buyer is waiting (Citadel).

        The first time we see $7 will be the day we are sold. I do not think Etrade will see over $7.50 on a buy out. Citadel has cornered us and deftly kept the others at bay. Others have made money off Etrade while all of this was happening through shorts, etc.

        Pretty discouraged that it appears the most likely scenario. I never thought that we would ever see the full potential price-wise for Etrade but I had hoped for a better multiple.

    • deserves another look

    • pres and all,

      here's my BIGGEST FEAR regarding ETFC, and that's really the biggest risk when one, if practicing what I have been doing all these years, plays deep deep deep discounted turnaround stocks:

      before you reap your 3-5 year 10 bagger, it's got to be taken out from your hands for a mere double. A STEAL IOW.

      I have had my fair share of seeing beginning to end multi-year, multi-bagger turnarounds and needless to repeat, this one is my latest choice, but I also have had such bitter-sweet cut-outs.

      the most recent example was a little company called Easylink (former ticker EASY). it was a leader turning corporate paper communications to electronic, it had technology, it had markets, it had everything to succeed but for past management's sin, it's a free spender and also did not play well with some of its competitors. with changes and disciplines, I was betting it'd turnaround for a minimum 5-10 bagger in a couple of years. sure, it's turning around. stock started to move.


      perfect definition of bitter sweet!

      my friends, I did not say it out in any of my posts and certainly I did not flag my caution to Don in my letter, for it'd be no use if he already made up his mind, but it's night time, PEACE TIME, so let me express my FEAR to my fellow longs.

      I fear ETFC got bought out for a mere double/triple.

      I do NOT want to see that happen, for I truly, firmly believe that we have a potential 10 bagger in our hands.

      ...but that's my gut after seeing all these dates-push outs, swaps, cleaningups, try tries, you name it...

      Good nite all. Let's hope there is a divine intervention. I, for one, prefer a 3-5 year 10 bagger to an overnite 100%.

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