because analysts like at UBS are seeing a dark future for present shareholders and bondholders. They say wireline in Europe is declining. That is so 1990's. They say Alu will sell off assets. If so the company will go to .25 and Hollande and Obama, the Socialist twins, will nationalize the company to save the jobs. The bondholders will be paid dimes on the dollar. After all debt is extinguished, the company will be repackaged as a too important to fail infrastructure company and resold to private investors. French and American treasuries will then profit from it. So it is the UBS way, be forced to sell off assets and be nationalized, or hold onto assets, become profitable, and remain as a private company.
the UBS statement is a recipe for nationalization by Hollande and Obama of ALU. Then the governments could get rid of the bond holders and all debt, save all those jobs, re-package the company as a too important to fail infrastructure company, then resell the company to new shareholders and make a ton of money for their government administrations while gouging private investors. UBS?: wireline decline in Europe is so 1990's; selling off assets of course would drive down the shares to .25. Lucent started that in 2000 when the shares were at $70. Those original shares are now worth under .25. So which way will Alu go, the UBS way or remain a private company?
sorry, my absolute agreement was meant for "thethirdchimp" above. Yes, alu could very well get back to $6. It will be worth that. But under my scenario, the GM plan, it will be the unions and the federal governments who will collect that $15 Billion value from victimized private investors.
absolutely agree. However, the danger is that the USA and French governments do a GM quick bankruptcy on the company: extinguish shareholder value(steal from investors), nationalize the company, use alu cash to pay off debt, maybe 66%payoff to debt-holders leaving them with a 33% haircut, use the rest of cash to recapitalize the company then with no debt, give half the company to the unions and their programs, then finally repackage the assets of the company and future value as you describe and sell it back to investors(again stealing from investors). This would then be a great socialist government cash cow. What a country! Just like how now the SEC, FTC, and DOJ operate as great cash cow machines manipulating private enterprise and extracting income from them by Federal investigations and lawsuits. And the people say that private enterprise doesn't pay anything to the Federal government? There you have American socialism in a nutshell.
Followup to my new post topic on 1984: what will Alcatel lose if they fail to act? shareholder value(what little is left), USA will keep the $16B pension fund, American manufacturing and patents and Engineering and Bell Labs. Alcatel would then become just an adjunct of government owned France Telecom. Why shouldn't then we just complete the full circle from the MCI lawsuit and give Lucent et al back to AT&T? If the shareholder value is liquidated, why not just give it back to T? Then the American employees could benefit and American manufacturing could benefit. Otherwise why do we have to surrender to foreign competition and foreign governments like the French socialists?
Amazing now that so much of this goes back to MCI's early 80's lawsuit against AT&T. Green's decision was in favor of MCI and the most competition possible. He made T a long distance and manufacturing company. T had to then separate from Lucent and manufacturing because of pressure from competitors. Manufacturing was left at the mercy of International competition and diverse pay rates. MCI has basicly disappeared. T because of the rise of mobile has been reborn as a telephone company. Now Lucent knows what it feels like to be at the mercy of Socialist voters on both sides of the Atlantic. Going by the Socialist book, Hollande will nationalize ALU. Remaining shareholders will lose 2.5B$
Just read last night the statements coming out of France about the Hollande government and the prospects for private companies in view of what the Socialists in their legislature are doing to the country. On the other hand, they will have to give support to Alcatel/Lucent through their ownership of the French telephone companies and whatever influence they can further put on the American telecom industry. The only alternative as I have said is the Nationalization of ALU by the French and USA. I would vote on the side of the governments pre-empting the latter prospect by them putting pressure on their respective telecom industries. So hopefully Hollande's programs and recession in Europe won't kill off Alu.
The viewpts. from Motley Fool and Alpha are implying bancruptcy, just an extension of the rapid decline of American manufacturing. With Alu gone, that would just be a footnote in this current historic internationalization of manufacturing. The only hope for anybody else buying Alu would be if they could dump the Union contracts and lessen the benefits to the employees. That is not going to happen. I actually think that Alu is going to do just fine. They are going to continue to be a player in the international networking infrastructure evolution. We hear all the hollering for a renewal and buildout of the world's infrastructure, yet look on placidly at this possible bankruptcy of our own manufacturing engenuity. No, if Alu fails, it will be nationalized by the French and USA governments. And that will be a difficult task. Congress will have a say in what happens to Lucent/Bell Labs. Then Congress won't want to run what remains of Lucent. The biggest plum in the whole pie is the American Lucent Pension Fund. The USA government Pension Guaranty Fund I imagine would love to get ahold of Lucent's $16Billion pension fund. That would ruin the pension prospects for the future employees of any future American Lucent manufacturing. There go the benefits for employees. That is the picture you guys and Seeking Alpha are painting. Let's be a little bit more optimistic!
further, on acceptable distribution rate, if you had bought Kmp like I began doing in 2009 when it was below 50, you would now be getting over 10% rate of return on your investment, more with reinvested shares. That is why the analysts have been saying lately that it is the future growth rate of the rate of pay out that will make the biggest difference in your stock shares.
And to other posters about the GP taking 50% of the cash flow and then we get the other 50%: we get the declared distribution rate and that's the deal that we pay for. Love it or leave it. If Kmp was selling at half the price, we would then be getting the same rate on our investment as double that 50%. So the fault is the current purchase price....it gives a distributon rate of about 6%. But most anybody knows that the standard rate of return on most business including pipelines is above 10%. Limited partners in our case only get the declared agreed rate depending upon when we purchased the shares.
Aren't we all just loving the grief that the FTC is giving Kinder Morgan? This is causing a huge readjustment of assets and debt and making us all nervous. Reminds me of my retirement last year.... I just had to walk away from the work world and leave it up to the younger people to figure it all out now. So let all of them and the regulators do the hasseling about this and let us know in about another year or 2 how it turns out. America seems to have fallen in love with regulation, or at least they voted for it in 2008. Makes us wonder why we started this whole purchase of El Paso in the first place....adding and subtracting assets and debt all over the country. Regulation is just wonderful.
I wrote earlier on these posts about these types of companies that exist by continually rolling over debt. I wrote favorably about it:ie. think AT&T, Verizon, all the big Utilities, how my father used to run his restaurant(I told about that example). I know it is alarming right now hearing about all that Kinder is doing in this process of absorbing El Paso. But we have to trust the management on this and wait for everything to be resolved. I am going to do a new post on the Regulators involvement in all this because I want everybody to take notice.
I wouldn't want to get into the actual share price of KMR on offer in this new stock offering of KMR. However, the point you make reminds me of what happened to Cisco Systems in the 90's. They kept reporting astounding net profit increases and then somebody pointed out that all those CSCO stock options that they were giving to their employees were a real expense to the general shareholders. So the SEC required Cisco and all the other public companies to start subtracting the costs of those distributions of shares and stock options from their earnings(making them GAAP earnings). To this day, CSCO analysts get confused over GAAP earnings and non-GAAP earnings and it sometimes causes huge drops in the share price of CSCO. Not saying this is the same as KMR, but any perception that somebody is getting a better deal on their shares is seen as a cost to the present shareholders. But long term, again I say that all this is really just part of a nice growth story and will grow shareholder value.
Of course, there is no real dilution. I said it was just for the short term, and this is because of the common perception by current shareholders that the number of shares are being increased but they don't perceive the "money in the bank yet." They are just looking at all the shares being put up for sale today. And like you say, the shortsellers jump on board to make it even more of a sell off day.
You guys need a Republican to comment here to give some sort of balance. Well I am a Republican, but I do fall in the middle of the spectrum regarding taxes. My position is very unpopular because practically nobody believes we should raise taxes for everybody. The President won't compromise on this, same for the Tea Party, Democrats, and Republicans. Notice how the 98% are so sanctimonious about how their taxes must not be raised, but the rest should be. The argument originally in Congress for lowering the tax rates was because we had a temporary Budget surplus. We need to go back to all the rates of 2000...for everybody. All of our National income must be included in getting more Federal income or it won't work to balance the budget. The payroll tax rate must also be included in this. This goes back to 2000 as well when Pres. Bush was campaigning, trying to get 1/3 of SS payroll tax removed in order to let people invest it privately. Well we have done that now for 2 years. And young people say they can't afford to go back to the old 6.2% SS rate. Can they afford to decrease their future SS funding viability or "reason for being?"
Because KMR is increasing its number of shares by about 10%.That dilutes for the short term the per share value, but it brings in new money and means growth in the overall company. After all, increasing the number of shares in KMR is the way the LLC is set up for tax purposes. We have a down day but long term value will be created. Also notice the simultaneous announcement of the expansion of KMP by moving 50% of El Paso Partners into KMP. All of this is the growth story. Value will come. By the way, notice how this is the way we grow the number of shares these days. It used to be by stock splits and then investors would buy up the shares because they perceived the company's value was growing.
Well, I would say now it is very evident who the sellers were in that down spike and selling going on throughout June in KMP. They were short-term sellers/traders looking to buy the shares back at cheaper prices and traders putting on shorts. Effectively these two types of trading have the same result. Then on June 27 the traders started buying back....a classic short-covering rally. Also the overwhelming presence of traders was shown by the fact that so many days before 6/27, the opening bids would put the stock up, then limit sell/short orders would be triggered and the price would plunge from there. Only traders would put on such limit order action. This was a surprise for me because I just didn't think that traders/shorts would have such an influence upon the stock price. So much for the "stock price=efficient market theory." just not so and the same goes for mlps.
correction on those profits for the old Fairfield. It was not $50 obviously. It was about $50 million, a pe of 5. And Wyndham(previously Fairfield) runs their operations pretty much the same way that Kinder Morgan does: the old fashioned American way, with continuously rolled over debt (my father ran his business that way too and he did well. Then he sold out and retired on it. I am part of the new way: no debt unless my credit card company gives me temporary 0% interest). It is that huge rolled over debt that I think worries the analysts for Kinder Morgan. That worry was what caused the share price of Wyndham to fall to $3 in 2009. The analysts look at Kinder's financials and see that lack of cash reserves because of their heavy distribution to their shareholders and it looks negative. But AT&T runs things the same way and people just love the dividend and the stock.
to uhlerf: thanks for the kind words. I just liked the "owned" term because of the experience I had in 1999 with the shares I owned in Fairfield Communities(timeshares). Fairfield purchased a large south Florida Timeshare resort owner and included with it was a travel agency operation. Fairfield gave alot of their shares to that south Florida company to make the purchase. Then those new share owners started slowly selling their shares in order to cash out to get the proceeds for the sale. The Fairfield shareowners and the board became concerned about the lower valuation being given to the company. So the board put out feelers for the sale of the company to somebody much bigger. Fairfield was only being valued at about $250 million, yet was making consistent and growing profits of around $50. Carnival Cruise offered I remember $14 per share for Fairfield, a small premium to the price at the time. But then those "over-owned people" from south Florida kept selling their shares everyday. They still just wanted their cash. Finally Carnival Cruise, seeing all this selling, cut their buy offer in half, to about $7 per share. The board of Fairfield rejected their new offer. Then Mr. Silverman, the majority owner of Cendant, offered to buy Fairfield at the $14 price. After looking over the financial books on the company, Silverman actually decided to pay cash for it and to increase the price $2! So you see all those previous sellers did not care about the valuation. They just made the company "over-owned." Just to conclude the story, Silverman combined Fairfield with the vast array of franchises that he already owned, Wyndham hotels, Resorts Condo. Intl.(RCI), Super8, Travelodge, Days Inns, Microtel, and many other brands. He also owned the franchise rights for Avis rentacar and then Budget rentals. He also became involved in one of the top on-line travel websites. It was then so huge and growing that Cendant and Silverman decided to split the company up into 4 separate publicly traded companies. Fairfield went with the Hotel company and was renamed Wyndham Worldwide: combining the Hotels, Motels, timeshare resorts, and RCI booking system into a single company, WYN stock symbol. WYN was priced at $3 at the market low in 2009 and is now at $51, a $6 billion valuation and best upward performance by any company in the S&P 500. The really interesting thing is that the profits for Wyndham are the same today as they were in 2008 before the market selloff: $400 million per year. In other words, in 2009 Wyndham was sold clear down to a pe of one! You could have bought the company and got all your purchase price back with just one year's profits.
alright. Now about the question, what is over-owned? It is not a new term. It was used in 1999-2000 for sure when millions of new investors poured into the purchase of shares of Tech and dot-com stocks and ran the prices up to unreasonable levels. There were too many owners and many were looking for the buying to go to sky-high levels. That is "over-owned." Then when many started selling for whatever reason, a cascade effect resulted....same with our housing market. Regarding the IPO market, books could be written about it, so I won't try it myself.