Well, all I can say is that we will see the discussion when the proxy comes out. I have seen a few of these MLP mergers over the last couple of days and premiums have been rare, meaning that the sellers know that they don't have much of a choice, otherwise they risk going it alone. They have to match up with the best partner. They had to get an investment banker to give them cover on the valuation. The standard is not getting the highest possible value, just one that fits within the range. By taking stock of NGLS as part of the deal, they can always argue that whatever NGLS "saved" by paying less, APL unitholders get to share. Even though many investors buy MLPs primarily for deferred income, management can't choose those investors over others for which deferral is less important.
Gambler, I think there is a difference in high yield stocks. There are some like the agency mREITs in which a slowing economy will benefit (muni bond closed end funds also benefit with lower rates). But I think those high yields that depend on the risk-on trade or a stronger economy, could suffer. I put BDCs, non-agency mREITs and some equity REITs in this group.
Huff, I tried to do some math (which is always risky despite my degree). It appears that the offering price represents some 33 times EBITDA, which is on the high side by a factor of 2. Most of the midstream/pipeline MLPs are trading in the 13 times range. I could be wrong on these metrics.
Anyway, with the soon to be merged KMP and EPB, this may still find some buyers.
Possibly because they have invested in the gp, ETE instead. Higher distribution growth = higher stock price.
Thanks Huff and Turbo for your views.
Huff, I bought the 48 calls back because there wasn't much premium left in them (about 26 cents as I recall) and I thought that there was a possibility back then that the dip in Yhoo was due to synthetic shorts against BABA before BABA options became available. With the good post-IPO performance in BABA plus the expectation that yhoo would outline a strategy, I thought I might get a chance to sell the 48's again at a much higher price. Now they are back to where I sold them, but that's not enough to offset the premium in the calls.
I think I'm going to let it ride until BABA reports and then re-evaluate whether I want to play again. Thanks again.
yors, it took me working at a publicly traded company (in the mortgage REIT sector) to understand that accounting does not equal market value. All companies establish their own accounting policies and there can be differences in the way 2 companies determine the value of their tangible assets. Book value of assets does not equal earning value. Since APL has new plants in the Permian, maybe they have a higher book value on these reflecting more recent historical cost and they have not incurred as much depreciation (i.e. higher book value), but NGLS earns as much on their older, more depreciated, assets.
For example, your newer Porsche may cost more than my older one, but I may still be able to beat you in a race. We care about the race (earnings), not about how much you paid for your car (value of assets).
Closing is not until next year. If you sell prior to the close of the deal, then for sure you are going to trigger a sale and possible recapture at ordinary rates. If you hold and participate in the deal, then it depends. The last MLP to MLP merger that I participated in between CMLP and NRGY did not result in a taxable event and the boot (i.e. the cash) was treated as return of capital. And my suspended losses carried over to the combined entity. The proxy will discuss the tax ramifications.
I believe there was a reverse stock split so that's why the stock had a much higher price.
As for earnings and payout, don't be fooled by accounting. mREITs have to pay out 90% of taxable earnings. GAAP earnings are just an accounting tool. Look to see how much cash is coming in and how much is going out in dividends. NYMT benefits from liquidity and the risk-on play, as many of their investments are in the very leveraged subordinated tranches of CMBS (you know, the things that blew up last crisis).
Ultimately, a bet on NYMT is a bet on the Fed and more QE.
Gambler, here are my thoughts. The market bounced because of comments by the Fed members about QE4. The other day, the ECB leaked that they would buy corp bonds (then it was denied) and today Draghi is arguing for stimulus, this just as it was disclosed that numerous European banks will flunk their stress tests. The market bounces each time we get these verbial pumps, but the market really needs more QE (the earnings really aren't there as the misses in Coke, IBM, Amazon show, although some had good earnings like Apple). There are at least 2 more POMO days left in October, so I expect the market to continue up, but after that, no one really knows. All we have is past history and that shows plunges whenever QE ends. We keep wanting to believe in fundamentals because we can't admit that it is mostly due to the Fed.
On the oil and gas stocks, what the market is missing is that most of these are hedged and that should come out in the earnings calls. But the e&p MLPs already had nice bounces. The interesting issue is with the Saudis as they have now switched their position on supply, now cutting supply to offset the price decline. While the price of oil may still decline a bit, last week's capitulation may have taken out all of the weak hands who were forced to sell o & g stocks.
If the economy is slowing, then banks and BDCs will not bounce. They may have had their time this past year when everyone shifted out of mREITs because of a hope that the economy was reaching escape volume. They may also be tax-loss selling candidates as well as anything that is down for the year.
The intangibles are the weather and the election. The battle is between whether the Fed can talk up the market with the Yellen put, or whether the market forces the Fed's hand with some kind of plunge.
Turbo, let me re-read your post and mull it over. To recap, Yhoo is starting to move up -- partly because of the better earnings report and partly because the value of BABA and their remaining holdings are linked. I have Nov $43 calls expiring 11/22, so there is still 4 weeks left. My calls are still underwater but the whole position is near breakeven (but as you say, that confuses the analysis because I should just think of the open long call position). There is about $1.40 of premium in these calls (they are trading for $1.75 with the stock at 43.32. So as I see it, it is a race between stock price increase and premium decay (1.40 divided by 28 days left to expiration = 5 cent of decay each day; can one say that as long as the stock is increasing by 5 cents per day, I should continue to hold?).
Many think Yahoo is worth over $50, but the catalyst is the plan for returning their cash, which won't be disclosed until Jan. The other catalyst is potential gain in BABA when they report in early Nov.
Jack, thought you would at least wait for the earnings call before getting out. The good numbers should propel the stock upward. If the GAAP numbers are not that good or if the stock doesn't respond, then I could see taking your profits and waiting for a better entry point. And we still also have the potential for a special divy announcement in Dec.
I am not sure what level you expect long bonds to pull back to. Looks like we already filled the gap to 2.3%. Maybe 2.35 - 2.4% is the top of the range.
As for WMC, I think they would sell MBS if rates plunge and redeploy into cheaper CMBS or non agencies. As long as we don't go into a recession, I think they can manage the portfolio and find the best value.
Huff, I entered a Nov 43/48 call spread on Yahoo and then took a profit on the 48 calls that I sold (hoping that a deal would be announced that would propel the price over 48). My question to you is what do you do with a position that doesn't seem to be working out -- do you just take it off or do you roll it out at an added cost?
Because YHOO likely won't announce a plan to distribute its cash from the BABA sale until Jan, the stock price might peak in the mid 40's as Nov expiration approaches. My 43 calls might not increase much more and there's some 30 cents of premium that will evaporate. I could put the spread back on for February (buy the 43 and sell the 48 or even adjust these prices up, but I will have to contribute additional capital. Suggestions?
yors, not sure of the relevance of tangible book value comparisons in evaluating a merger. You might consult some posters (like Factoids on seeking alpha) who have analyzed the valuation of different MLPs or read some research from a shop like Wells. I looked at a recent Wells report and saw that APL had a higher valuation multiple on a price to DCF growth than NGLS. Translation: NGLS is a better valuation for the amount of growth it has versus APL. And again, you should wait to see the proxy to make a conclusion about the taxability of the $1.26 in cash. As with the CMLP/NRGY merger, it may be considered return of capital and be non-taxable.
BTW, NGLS just raised their distribution 9% over last year. And you forgot to mention that as part of the merger, TRGP has agreed to the same type of IDR giveback (may even be greater) that APL had with ATLS.
Forget payout ratios and current ratios when analyzing mREITs. These are not like operating companies who need to reinvest their cashflow into their operations. The price to book is important, but your comment is off. mREITs can trade up to 1.25 times book before becoming overvalued. The key to mREITs (besides price to book) is the spread that they earn and their leverage since that determines the distribution. The market is doubting WMC's ability to maintain a dividend in the 20% range (most others are paying 13%), but that dividend is not the result of excess leverage (I think they are still in the 6-7 range). Another important factor is getting the hedging right.
No doubt mREITS can be risky if everyone bails out when the first sign of an interest rate rise (on short or long rates) occurs. We saw that last year when the taper tantrum hit. But there's considerable doubt as to when rates are going to rise as the economy does not seem to have enought escape velocity to warrant a rise in interest rates (long or short).
Ed, I am still holding on to EVEP. There's a poster, rbb, who seems to have an insight into what is going on in the oil window of the Utica. Would be nice if they sold some wet gas acreage one of these days.
Kee, not sure why you think MWE is overpriced. They have no IDRs and they are still trading with a 5% yield. Comparable MLPs are trading with lower yields. Many MWE holders have been disappointed with their distribution growth, but they have had to finance several projects in the Utica/Marcellus (I think the count was 19). I think they are investment grade.
There are 2 MLPs I wished I had bought earlier -- MWE and MMP. Both got rid of their IDRs. Both had smaller yields than other MLPs, but that was before I understood the great importance of growth over absolute yield.
Jack, ACA is going to get knocked out by the Supreme Court. Congress botched the language on the subsidies for the state exchanges. After bending over backwards to view it as a tax, this time the Roberts Court (or the 5 who want to strike it down) is going to get it right.
Jack, that depends on how low rates have to go to entice refi's. Almost anybody who could refi probably did during the lows a few years back. My last mortgage was at 3.5% back in 2012. The problem if the economy gets too bad is with CMBS.