Friday, June 01, 2007

Wellpoint Turbulence Bites Investors

Wellpoint (NYSE:WLP) forced out a respected CFO due to some undisclosed transgression relating to the code of conduct. David Colby seems to be in hot water but no one can figure out what kind of problem. Wellpoint is making the problem worse by not disclosing the issue but has made the point that it was not an illegality and does not relate to the business of Wellpoint.

All this happens at a time when the CEO ranks were changing and the street would like some comfort with established names and faces. Eventually the story will come out but in the meantime the investor is being penalized because of a corporate governance issue. Corporate governance exists for the benefit of investors. Wellpoint investors are currently confused by a backfire.

The stock dropped about 3.5% yesterday. The term dead money is being applied but yet the appropriate corporate governance standards are being applied.

What we have here is the failure to communicate. The new CEO has a background in legal and government regulation so the "We are strict with rules approach" has an identifiable DNA. Has the new CEO shot herself in the foot and forgotten about her real bosses the shareholders.

Thursday, May 31, 2007

Intuit Insider Stampede

Intuit Inc (NASDAQGS:INTU) announced record Q3 revenues and increased guidance last week. Basically they managed to pop the stock north of $30 (almost stayed north of $31) Institutions have been increasing their exposures and the market thinks it has a winner.

Insiders have been selling. The Chairman William Campbell unloaded big time. Scott Cook Founder, Director and Chair of Executive Committee has unloaded. Alex Lintner the SVP of Strategy and Corporate Development also pulled the trigger and parted with large chunks of shares.

These three guys know all the best stuff and have a feel for the business. The sales have all been proper by current SEC standards I'm sure. But the tell is huge. In cash we trust all others seem to be heading for the doors.

If you believe in moving averages, the 50 day dropped below the 200 day around the last week of Feb. Management on their conference call keeps referring to the seasonality of the business and does not provide any insights into the future because the future is too far away. Much too convenient in light of personal decisions.

Wednesday, May 30, 2007

IBM Plays a Shell Game

IBM (NYSE:IBM) has raised the share repurchase technique to a high level art form. By the way kudos on the tax aspect. If the IRS was not this foolish would IBM have done this? Now back to our main story.

IBM is using three large investment banks to create the illusion of repurchasing approximately 8% of their shares. The transaction is valued at $12.5 billion of shareholder money. 118.8 million shares have been taken off the table.

The result will be an illusion of accelerated earnings per share. What the magic trick does not do is accelerate enterprise earnings by any metric.

The new wrinkle is actually buying shares from those that do not own them, with the very important added nuance of massive scale. Because of this nuance the investment banks can send a bill to IBM if they start to lose money. There probably will be an adjustment at some point in the future. Watch for paragraph three comments at some point in the future when IBM needs to skate back on side with its publicly disclosed costs.

The disturbing aspect is this. Are the shares truly off the market? How long will it take to actually cover what I think is a modified short position? Will IBM be paying dividends on shares that do or do not exist?

Watch for an SEC investigation. I know IBM and associated parties probably have good advice or at least advice that was more expensive than good. The transaction begs the question that is fundamental in the stock market. How many shares are there. Boiler room operators used to issued tons of shares. This may skirt the issue much too closely.

Tuesday, May 29, 2007

UBS Schizophrenic Sale of Julius Baer

UBS AG (NYSE:UBS) Switzerlands largest bank announced on Friday the planned sale of its 20.7% stake in Julius Baer. The stake which was originally acquired in 2005 has been declared non strategic. This is secret code for we cannot make this work properly and want to wipe it off our shoes. UBS obviously had important expectations which did not pan out. While they are making serious money on the flip you have to wonder about their strategic thinking capabilities.

UBS stock has appreciated smartly for an international money center bank. (currently trading near its 52 week high.) Take over speculation has been very high and institutional ownership has recently increased approximately 40%.

The proceeds from Julius Baer will be used to help fund the UBS stock buy back program. UBS has also thrived as a result of increased client assets and increased branches, which sounds suspiciously close to what Julius Baer does for a living.

Investors who anticipate a takeover of UBS are deluding themselves. The Swiss will not let their largest bank be taken over by a non Swiss entity. If they do Switzerland will no longer be Switzerland. UBS is maximizing shareholder value knowing the take-over offer probably will not materialize. So you juice the stock with a buy back.

To bad they chose to cut off an arm of long term asset value to achieve a short term objective.