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Five Things You Need to Know: Deal-Hungry Private Equity Group Bids for Self in Dramatic LBO, Dell to Focus Exclusively on Being a Stock, Again With the Coins!, Your Results May Vary, Ask an Ancient Herbal Remedy Doctor


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Deal-Hungry Private Equity Group Bids for Self in Dramatic Leveraged Buyout

Let's make a deal. More than 40% of the $1.28 trillion of announced U.S. mergers this year has come from private equity firms or foreign buyers, up from less than 24% last year, according to Thomson, the Wall Street Journal reported. The frenzy is unlikely to stop anytime soon.

  • Amid a spate of recent high-profile takeover deals, the value of leveraged buyouts -- deals by private equity firms financed by debt backed by the target's assets and repaid with its cash flow -- has nearly tripled, according to the Wall Street Journal.
  • Even some companies once considered too big to become private equity firms are now targets, the Journal says.
  • The newspaper cites Sprint (S), Hilton (HLT) and Avis Budget Group (CAR) as potential acquisition targets.
  • Also mentioned in the article are home builders such as Lennar (LEN), Ryland (RYL)and D.R. Horton (DHI).
  • Data cited by the WSJ shows the average premium over the market price being paid in this year's deals are 17.2%, compared to 25.7% in 2000.
  • But a look inside some of the deals suggests the insidious nature of what is really taking place.
  • An article in the International Herald Tribune ("Cheap Debt Takes the Fear Out of Making a Deal") takes a closer look at the Freeport McMoRan (FCX) deal for Phelps Dodge (PD) that was announced Monday.
  • "The combined companies will go from having no net debt to having a staggering $15 billion in net debt," Carol Levenson, an analyst with Gimme Credit, wrote in a research note, the IHT reported.
  • While that shift in debt would be enough to consider the debt of almost any company speculative quality in normal times, Moody's Investors Service announced that it would probably upgrade Freeport's credit rating.
  • Put another way, FCX was suddenly deemed more stable and creditworthy for borrowing $15 billion and buying PD.
  • Meanwhile, the wave of purchases by private equity groups has pushed issuance of high-risk debt to record levels.
  • However, the IHT notes, instead of worrying that defaults will increase, debt prices show that bondholders believe the companies will have few problems paying off new loans.

2. Dell to Focus Exclusively on Being a Stock

Shares of Dell (DELL) soared after the bell on Tuesday after the company reported it would cease producing products and simply exist as a stock.

  • Computer-maker Dell reported better than expected third quarter earnings on Tuesday, but cautioned the results were preliminary due to government and internal investigations into its accounting and financial reporting.
  • Dell's shares rose more than 10% in after-hours trading following the news the company would cease making computers and instead focus its operations on being a stock.
  • Given the green light from enthusiastic Wall Street investors - DELL stock was down 17.1% year-to-date prior to Q3 results, but was up 14.6% in the third quarter - the company anticipates being able to aggressively cut costs through the elimination of all operations except a stock transfer agent, the investor relations department and an accountant.
  • This isn't the first time DELL has given up making computers to focus almost exclusively on the financial side of its business.
  • In the early 1990s the company turned from making computers to trading currencies, racking up a whopping $1 million in gains from currency trading alone in 1992 and part of 1993, resulting in an SEC inquiry.
  • "Clearly, what the market is telling us is that they love DELL stock," a company spokesperson said. "The computers, not so much."

"Dude, you're getting a stock!"

3. Again With the Coins!

The US Mint is planning to reintroduce dollar coins in another attempt to get Americans to give up the paper dollar. The dollar note is the most widely used paper currency in the US and eliminating it would save the US Treasury $500 million dollars. However, previous attempts to introduce a coin replacement have flopped. Why?

  • Creating dollar coins by spot welding 3 quarters, 2 nickels, a dime and five pennies together proved too time-consuming.
  • Paper dollars easier to burn for warmth during coming hyper-inflationary spiral.
  • Introduction of Susan B. Anthony and Sacagawea models led to previous dollar coins being viewed as a "chick currency."
  • Shortly after minting millions of Sacagawea coins, US Government (by force of regrettable historical habit) rounded all dollars up and sent them to "Dollar Reservation" located somewhere in South Dakota.
  • Impossible for millionaires to light cigars with dollar coins.
  • Powerful Scores strip club lobby feared dancers would be weighed down by dollar coins.

To distinguish between other, less valuable coins, first dollar coins were the size of manhole covers, proving unwieldy.

4. Your Results May Vary

Privately-held Airborne Health, maker of clinically unproven Airborne herbal cold-fighting supplement (it was "created by a schoolteacher!"), is quietly shopping for a buyer, according to Advetising Age. There's only one little obstacle. Its product may not work.

  • Airborne Health, ranked number two in the 2006 list of top 25 companies, is the maker of Airborne, an herbal cold-fighting supplement that has managed to surpass Procter & Gamble and Johnson & Johnson brand products to become the top seller in over-the-counter cold remedies.
  • The company generated $151.6 million in revenues last year and, according to the Advertising Age article, is on pace to double that to $300 million in the fiscal year ending March 31.
  • Summit Partners, a Boston-based private-equity firm that took a controlling stake in Airborne Health last year, has been quietly shopping the business in recent weeks, the article says.
  • The hope is that Airborne Health's growth rate (three-year growth rate is 4,673%, according to and projected revenue this year could bring a price tag similar to what Chattem recently agreed to pay Johnson & Johnson for the rights to an older, more established cold brand.
  • According to Advertising Age, if Airborne Health commands a multiple similar to the Chattem deal, or to the Physicians Formula initial public offering that Summit Partners cleared last week, the price tag could approach $1 billion dollars.
  • There's just one small catch. The product, which the packaging notes was "Created by a School Teacher!," is not clinically proven to work.
  • In other words, this product fights colds, but your results may vary.

5. Minyanville Presents: Ask an Ancient Herbal Remedy Doctor

The Airborne herbal cold-fighting remedy raises interesting questions about the efficacy and safety of herbal remedies. But many herbal remedies have been around for as long as man has sought relief from various ailments that plague him. To separate the fact from the fiction, Minyanville presents: Ask an Ancient Herbal Remedy Doctor.

Ask an Ancient Herbal Remedy Doctor

Dear Ancient Herbal Remedy Doctor -

Do you remember when I wrote you last month about my sore back? Well, long story short, the remedy you gave me turned me blind. Any thoughts?

Minyan C.N. Howe

You half-hare-brained varmint, you done gone and sipped too much of the back potion, didn't you? Well, now you're gonna have to go out back of the house and cut down some of them tall plants with the funny leaves. Pull 'em up from the roots and hang 'em out in the barn fer a day or two. Go back out and cut 'em down from the rafters, put 'em all in brown paper grocery bags fer a few days 'til they're dry to the touch. Strip off'en the leaves and put 'em in some old Mason jars with a lid. Bring them jars over yonder to the house and ask Jethro what to do next.

Dear Ancient Herbal Remedy Doctor -

I have recently had trouble sleeping due to a condition I call, "The Jimmy Leg." What herbal remedy do you suggest for relief?

Minyan Gettin' a Little Too Jiggy Wit' It

First thing y'all needs to do is git you a cocoa plant with a high concentration and such of the HCl alkaloid. After you find the plant, wait until the leaves turn a dingy yellow color, like a shirt what ain't been bleached. Pick the leaves and dry 'em in the sun fer a day or two. Now, you gonna have to make a paste. Combine leaves with water and sodium carbonate so's you can extract the alkaloid into the kerosene. Don't smoke while ya do it, you durn mop-headed hippie freak. You'll blow up the whole town. Next you gonna have to stomp on 'em in the sodium water mixture. Stomp and stomp and stomp 'em. Stomp on 'em til you feet feel like you stepped in a possum trap. Add Potassium permanganate and let it all stand for 4-6 hours. Wait! You ain't done yet, ya dang hyperchondriac. Filter the paste and add ammonia. A precipitate will be formed. It don't matter what a precipitate is! Shut up and let me finish, ya varmint! This is referred to as the "Medicine Base." Let it all dry. Soak the Medicine Base in Acetone and carefully filter it. Add diluted Hydrochloric acid or Ether and a new, potent precipitate will form. These are the "healing crystals." Now you don't wear 'em on a necklace you long-haired good-fer-nothing dingbat! Take the healing crystals and dry 'em under high intensity lamps. This ain't gonna stop your jimmy leg, nosireee, but I guarandangtee ya it'll make you feel better about being all jumpy and what not.

No positions in stocks mentioned.

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