On Friday afternoon (February 11), Seahawk Drilling (HAWK) announced a ‘sale of assets to Hercules Offshore (HERO)’ according to PR Newswire and Dow Jones. At 5:43PM ET on a Friday, it was a seemingly innocuous press release…until one read the story. The first line was this: “Seahawk Drilling, Inc. ("Seahawk") (Nasdaq: HAWK) announced today that Hercules Offshore,Inc. ("Hercules") (Nasdaq: HERO) is acquiring substantially all of Seahawk's assets in a transaction valued at approximately $105 million.” Hmmm. “All” assets? I then looked and noted that HAWK had a market cap of $90 million or so at its 7.75ish price so that should have theoretically been a good thing. The next two lines were this: “Seahawk's Chief Executive Officer, Randy Stilley, stated, "After a thorough and disciplined process, an independent committee of Seahawk's directors and its full Board of Directors determined that an asset sale to Hercules provides the highest level of value to Seahawk's stakeholders" followed by “The transaction with Hercules creates a company with a larger, more diverse fleet, broader customer relationships and greater operational flexibility. In addition to increased economies of scale, combining the fleets will provide for substantial cost savings through the elimination of overhead and duplicative public company expenses." Still seems fine. But as one peruses the rest of the release, there is this: “The asset sale will be implemented through a Chapter 11 bankruptcy filing in which Seahawk will seek expedited hearings to obtain Court approval. Both
companies expect to obtain regulatory clearance under the Hart-Scott-Rodino Antitrust Act and close the transaction in the second quarter of 2011. We expect no impact on Seahawk's operations and Seahawk will continue to perform work for its customers without interruption. Seahawk expects that full payment of all funded debt and trade payables will be made. Additionally, Seahawk expects to pay all vendors for goods and services provided after the filing.” Wha’? So on a Friday afternoon, the company gets a deal for $105 million (more than the market cap) and then declares bankruptcy? Nice. So what is the proper valuation for the stock? Well, the first thought was to seek out its total liabilities and pare that off (and yes, the number is higher than $105 million). But it’s not the right thought. Think about it. They declared bankruptcy. That makes the common stock (theoretically) worthless. But the stock, after trading tremendously lower in the very early pre-hours on Monday morning promptly rallied back from 1.50 to 4.86. I am not an analyst so I cannot hazard a qualified knowledgeable guess as to why this happened. What I do know as a day trader is that I do not care too terribly much. I just look for trades. For instance, around 10AM on Monday morning, upon going to a new intra-day high, the stock rallied from 3.60 to 4.31 in less than 10 minutes on short covering from people with as much understanding of the situation as I do who had short positions in the thing and panicked out. The moral here is that one never knows what trades on will encounter or when, but keep a very open mind always.
Markets overnight were higher with Tokyo up 0.6%, Hong Kong 1.1%, Frankfurt 0.2%, and London 0.6%. Gold is flat, oil slightly higher, dollar quiet, and bonds up a tinge. Futures are up modestly. Housings starts data came in much better than expected, building permits slightly worse, and PPI indicated more inflation at the producer level than expected. Industrial Production (0.6%) and Capacity Utilization (76.4%) are due out at 9:15AM, Crude Inventories at 10:30AM, and Fed Minutes at 2PM. Overall, it looks like a near inverse of yesterday…the tone is decent today so look for the gains overall to hold but not really augment (or compress). The focus will likely be on the various earnings plays, the farm sector off of the DE numbers, the ‘dollar store’ sector off of the FDO news, and any small caps in the news.
If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified.
If something is bad, assume either a buy thru unchanged or an A-B-A2 (preferably to the downside in a downside market and the upside in an upside market) based on direction of the market unless specified-
Good- The following stocks have good news and/or a strong technical pattern
FDO- rumored to have receive a takeover bid from Carl Icahn; DG, NDN, DLTR may move with it
ADI- decent earnings
DELL- good earnings
CENX- decent earnings
TSLA- decent earnings
AAN- good earnings
ALTI- signed significant contract with an El Salvador energy company
VCLK- good earnings
GPRO- decent earnings
PRAA- decent earnings
PLAB- good earnings
CVV- closed near a high on positive January order data
GKNT- closed near a high after posting great earnings
NSIT- closed near a high after posting great earnings
ECPG- closed near a high after posting great earnings
AAWW- closed near a high for a second day after posting great earnings on Monday
WYN- closed near a high
RIMM- upgraded by Citicorp from a “Sell” to a “Buy”
ANF- decent earnings
CMCSA- decent earnings
DE_ good earnings
GENZ- accepted Sanofi takeover offer
PFCB- decent earnings
Bad-The following stocks have bad news and/or a weak technical pattern
ROVI- poor earnings
DSCO- share offering
RLOC- bad earnings
CIT- closed near a low after posting bad earnings
GFC- closed near a low
CGNX- closed near a low
UCTT- closed near a low after posting bad earnings
JDSU- closed near a low
CPLA- closed near a low after posting bad earnings
SKH- closed near a low after posting bad earnings
GMCR- closed near a low on fears it will not aggressively partner up with SBUX
AUTC- closed near a low
MON, MOS- closed near their lows
XOM- closed near a low
APC- closed near a low
FCX- closed near a low
DVN- poor earnings
OMX- poor earnings
WCG- poor earnings
Earnings:
WED FEB 16 BEFORE
ANF CMCSA CVC
DE DF DVN
GENZ OC OMX
PAG PFCB ROC
WCG XEC
WED FEB 16 AFTER
AEM CBS CLF
EHTH ENOC ESRX
HL HMA IO
ITMN ITRI JAH
NFX NTAP NVDA
OII ORLY RBCN
SKX SNPS TRN
Epiphany Trading, LLC
www.epiphanytrading.com
Erik R. Kolodny- Chief Markets Strategist
Brendan P. Byrne- President
No comments:
Post a Comment