You make interesting points, but madoff? When his scheme came to an end there was something like $3 in assets per $100 from investors. Anyway's this, on the other hand, still produces cash from legit operations. With that said there was a time when if KMI dropped significantly (mostily prior to the LBO) it was time to add. Now I'm not so sure. Back in the day when the KM complex was smaller it could do finance projects that would add synergistic value to existing assets, almost a $2 for $1. Due to size and diversity that intangible has eroded. Size is a big factor here. To attain 10% growth they have to pump in roughly the entire enterprise value of what this complex was 7 years ago. I agree that maybe the financial model is busted. When weighing projects IRR to cost of capital the impending growth rate looks closer to zero. So an extremely leveraged non growth equity could lose chunks of "DCF" with a moderately escalating credit cycle.
Funny that these ceo's who apply extreme leverage, use aggressive or questionable accounting,, or whatever it takes to get a quick run up often use a huge chunk of their stock as collateral. Then when shtt hits the fan their out via margin. And they almost never buy back. Not even a small portion.
I think that maybe KMI (the GP) investor feels the same as well. The roll up abolished the high split IDR which was really an infinite ROC. And it also moved billions upon billions of debt unto the book.
You're right, big picture rules this right now. What good is coming to a CC highlighting operational efficiency? These analyst cover several dozens of other companies, and they know that CHK is simply disposing it's statistical share of cost.
Look at RRC today after they announced a significant asset sale up 10% on a sector down day. Leads me to believe that if CHK can close $1b sale it could jump 50% or more on that news.
I can understand the perception that maybe he could be "playing with house money" to some extent. He and his partner seeded this company with capital that his half returns something like an annual 2800% dividend yield on initial capital. This puts him in a different universe than you and I contemplating whether at 7.4% is a good time to buy.
"MLP" was mentioned at least 15 times in this new article. Did they not roll this into to a single corporate structure last year?
Wonder if this new capital won't be some sort of secured preferred equity. For Buffet it's his type of deal. He gets a solid yield with low risk and maybe upside with warrants. Kinder gets some capital, but more importantly the backing of the Buffet name as a vote of confidence to get the stock back in motion.
Took a look at Nov .50 calls. First, because you can only bid in multiples of .05 you're paying double of what the option is presently worth. Second is commissions, $1.32 per $5 call on 100 contracts. Buying more may scale less in commission, but doesn't guarantee a transaction . Putting your cash at risk shouldn't be so expensive IMO
Sweeten the EH deal with warrants on MHR common. Imagine an A.M press release that half a billion dollar deal is final and what it would do to this stock...Looks like a win/win is sitting on a silver platter.
After the market yawned at his bullish article he opened a bottle of tequillia and took his rage to twitter. IMO
Koch actually converts his private shares into public and sells those via automatic set throughout the year. He has converted 285k and sold 277k YTD.
The firm on the other end structured this deal safely. Not easy to do a deal like this with a company that could reorganize within a year. Very little cash, and when cash is to be exchanged it's done so only when they drill, even the sunk cost portion.
Analyst are holding solid estimates but the market is uneasy. If the Benzinga article is correct that AO represents 40% of sales I'm afraid that this could get extremely wobbly.
Through an economic lens the producers look stupid. However, RRC and Co. are likely maintaining this because of the availability of cheap capital. Almost literally a day after this crash money poured in from distressed funds- flooding the sector with enough capital that by and large distress has yet to be an issue, though some shareholders might disagree. If among the crowd a "wise" CEO decided to only produce enough to cover the fixed cost until prices rebounded- he would deny his company access via EBITDAX multiple. Ultimately his company would shrink relative to others and be no better off.
I do know of 3G and DEO is the type of target they would seek. I just question the story. I mean a story of the principal of 3G is "contemplating" a takeover of DEO seems too weak to act on. The story didn't mention that they would use AB/Inbev as the vehicle but it would make sense and make it more digestible.
I don't want to rain on anyone's parade myself, but this story is sourced from an outlet in Brazil and Bloomberg ran with it. A deal of this magnitude requires a lot of capital- over $100B of it. That kind of capital isn't in Brazil. Only in London and NY is where that kind of capital is available and if that were the case the FT or Wall St Journal would have almost certainly picked up on it.
Followed this stock forever and if history repeats they'll pull something off when sentiment is mostly negative which is where we're at. Knowing how close or not they are to something that could put to rest the liquidity issue is really powerful leverage. Each passing day is bait for more shorts to pile on. Take the institutional- insider shares out the share float is 54mil that against a month prior 48mil shares shorted could lead to a big move. Placed a small bet on May and June $2.50 calls
At 3% below book Einhorns annual 2% charge is more than covered. The market is effectively discounting by 1% a pool of capital plus some float that happens to be managed by one of the worlds best money managers who's track record is 20% per year. So the question is does DE use some of the capital to buy back the cheap stock--- even if it reduces the capital base on which he charges an annual 2%? He does on the other hand own a lot of the stock.