There was little news in the market today as investors waited for AA's earnings tonight as a signal of things to come as everyone knows aluminum production is what really drives the economy (and yes that was sarcasm). Without much macro news other than shit continuing to get worse with temporary census jobs ending, republicans filibustering extended unemployment benefits to further punish the people who likely had little to do with the recession (other than likely borrowing way beyond their means), and no new actresses coming out as bisexual this week, we were left with a flurry of M&A driving the market (as opposed to a flurry of T&A, which likely would have led to a strong rise).
The biggest M&A deal occured between two companies about whom no one gives a fuck, as AON is purchasing Hewitt for $4.9B in cash, stock, and old actuarial tables signed by Elizur Wright. While AON will be in flux for a bit, they should be able to immediately make use of Hewitt's human resource and outsourcing capabilities to fire the appropriate amount of people while making sure that everyone gets a smiley face cupcake. Once done, they can further get value out of Hewitt's consulting business by leveraging them for a business case to try figure out why the hell anyone would have paid a 41% premium of 7.5x forward EBITDA for Hewitt. Of course using their now fully owned Hewitt for that study would either be considered a virtuous circle, a vicious circle, or the least fun daisy chain since full bush was still in style.
In other M&A news, Hugh Hefner wants to take Playboy private (after years of taking it to his privates) at a 40% premium to current price, or about what he pays to the Shannon sisters. Playboy magazine sales were down 48% in Q1 as the business continues to struggle with the invention of a little something called the internet where people can now read the hard hitting and biting journalism Playboy offers for free. The company has gone through a major facelift over the past year by laying off staff, streamlining functions, and putting out bigger and more well-rounded (and very NSFW) articles. The fact is, Playboy still has a recognizable and aspirational (as well as ass-pirational) brand and now that Hefner is opening up his robe for the company, there appear to be multiple bidders including PE firms, top competitor Friend Finder, and the creepy guy in the airport gift shop. The company is definitely at a tipping point with the internet producing more free porn per minute than David Duchovny can view, but in the right hands, and with a stroke of luck, the brand could come strongly back.
In other M&A news, BP may be selling assets in order to pay for a new Gulf. The company is said to be in negotiations with Apache to divest $18B worth of some of the largest Alaskan assets in the world. Finally, JNJ is buying MEND, a company that makes a device for treating brain aneurysms in stroke victims just in time to catch the growing popularity of the KFC Double Down.
Internationally, the European Commission came out with a reform package to boost consumer confiidence from "holy fuck we're screwed" to "at least we're not Kazakhstan." The package includes EU-wide measures to protect bank account holders by guaranteeing savings accounts up to 100k euro and investment accounts up to 50k euro while promising to pay account holders within seven days of the almost certain to come bank failures. Lastly, China anounced exports grew by 44% as more people sink to poverty and can only afford the cheap shit made in China.
In large cap stocks, MSFT is up on news that they are going to make it rain in the cloud computing space by teaming up with Fujitsu to invest money in the growing cloud technology sector while GOOG continues to rise after having their license renewed in China. Money McBags was told that to get their license renewed, GOOG just had to follow the chinese road rules of stopping at yellow lights, driving 20 miles under the speed limit, and using their turn signal sparingly.
In small cap stocks, NLS is up 16% on no news that Money McBags could find other than people hate making money. If you remember back in December, longtime reader Matty McSacks hypothesized that NLS was worth ~$4 per share and it was trading at $1.85 at the time. Money McBags looked in to the matter and thought those estimates seemed high since the company sells expensive discretionary items during a little bit of a recession and after a hella confusing quarterly release and a jump up, NLS has settled back to where it was at the beginning of the year with today's run up. In their last Q, NLS trimmed their losses to only a loss of $.08 per share but their biggest segment, retail, shed 30% of their revenues as if revenue had spent the entire Q working out on a Mobia. The drop in direct business was driven by a 37% drop in credit approvals from their finance partner and while Money McBags is no Fair Isaacs, it doesn't take Isaac Hayes to see that credit isn't going to get better anytime soon. With the direct business lagging, gross margin dropped to 50% from 56% but thanks to restructuring, the company did away with $10MM of operating expenses which allowed them to lose only $2MM and have near breakeven EBITDA. The company hasn't made money since 2006 and with the economy sputtering again, it's not clear who the fuck is going to be out looking for a new Universal machine to build muscle since they won't be able to afford to buy supplements to help maintain that muscle. The only arguments that can be made for this company are that it is trading at ~.35 of sales, they didn't burn cash last Q, and they have ~$12MM of unrestricted cash which is ~20% of their market cap. That said, rat tails, hammer pants, and Bea Arthur will come back before this company does as gyms aren't upgrading their equipment, people continue to get lazier and fatter, and those who used to be able to afford expensive clothes holders for their bedroom (which NLS machines invariably windup being), remember they have something less expensive called a closet and a floor. So even though the stock is up big today signalling something is happening (like potentially a big short investor getting a capital call), Money McBags would not be a buyer because the consumer remains weaker than a virgin tequila shot.
And before we go, on Friday Money McBags told you about TSYS and the opportunity it presented for a short term trade. The company was up 3.5% today (though on light volume) with IWO down ~120bps so something seems to be going on there. The company is hella cheap and while their earnings releases and segment financials are more complicated to decipher than a Rube Goldberg contraption or what the fuck your lady friend is actually saying to you, they are in growing markets and seem to be winning business. Money McBags doesn't have a great longterm feel for the company since he doesn't quite get the step function revenue stream of their text messaging business and why they never seem to make that next step up, but if they can really hit their guidance of $80MM-$85MM of EBITDA this year, this stock should see solid appreciation now that it has seemingly bottomed.