Teck Partners With China Investment Corporation

Teck Resources (TCK) which has been in financial trouble (too much debt) made a strategic play by selling Class B shares for the equivalent US$1.5 Billion. The Vancouver based NYSE listed company is now welcoming China Investment Corporation (CIC, which will sit at the table with 17.2% equity interest and a 6.7% voting interest in Teck. The funds will be used to repay debt so the fundamentals should improve immediately. China Investment Corporation is a sovereign wealth fund.

The deal was announced when the US market was celebrating Independence Day. The Chinese have taken strategic steps to guarantee reliable supplies of critical metals. They have bought low so you may be sure they will sell high.

The deal creates a potential for ambiguity. The Chinese are not primarily interested in the stock. They want preferred access to metals and commodities. Teck knows they have a customer and just need to control margins. Other customers may find that previously eager salesmen do not return phone calls as quickly as they used to and lunch is out of the question.

Commodities and metals trading inhabit their own secret and arcane world. The products are fungible. They trade globally and no one regulator can even attempt to impose any form of regulatory discipline. The deal makes fundamental sense and China Investment Corporation has long been interested in developing this strategy. Other participants may find this to be a complicating feature.

Scotia Capital was the advisor. Philip Smith, Global Head of Investment Banking at the Bank of Nova Scotia unit, was quoted in the Wall Street Journal as saying “the investment bank had looked at "a number of different options" for CIC's investment in Teck. Scotia Capital concluded that “the optimal structure for both parties was straight common shares.” Hmmm

Zep Commits To Be Smaller

Zep (NYSE:ZEP) a leading producer, marketer, and service provider of a wide range of cleaning and maintenance solutions has admitted defeat. Read this quote in their press release from John K. Morgan, Chairman, President and Chief Executive Officer of Zep Inc.

“As committed, Zep has adjusted to operate as a 15% smaller company due primarily to deteriorating economic conditions.”

Thanks for the heads up.

Goldman Sachs - Rolling Stone - Bonuses

Goldman Sachs (NYSE:GS) is poised to announce its next quarterly. Rolling Stone magazine, a well known source of high value financial information, has noticed that these guys seem to make a lot of money. Hmm what’s that story about stock tips; if a cabbie gives you one, its time to get out, because the cabbie is the last one in.

In any event they will be announcing bonuses and earnings. Expect the numbers to be huge. The question becomes where did all those guys rate as a percentage of their bonus pools. Did they just qualify or did they hit home runs. The firm is big, so the numbers seem large. But you need to drill down and see what was left on the table and then you can reach a properly greedy capitalist interpretation

Sealy Generates Cash - For Now

Sealy Corporation (NYSE:ZZ) reported Q1 results and was very careful to explain that they have generated cash. This is critical because their sales are dropping and they are heavily indebted. No forecast predicted the current severe downturn. But when you hear Larry Rogers, Sealy's President and Chief Executive Officer say the following you have to wonder just what do they have for the future.

"While we expect market conditions to remain challenging, we will continue to take measures to improve our profitability through increasing collaboration with our retailer and supplier partners and the introduction of new products, while aggressively right-sizing our cost structure and maximizing our cash flow.”

Magna Troubles With Opel

Magna International (MGA) seems to be running into problems with the Opel acquisition. GM (GMGMQ), now that it is feeling better, does not want to give away anymore than it needs to. They do not want to give away any more technology which is still controlled in Detroit. They want the ability to buy back in and essentially take out Magna and Sherbank. This allows the temporary optics of a sale. Essentially GM just wants to rent the asset out and pull it back in at a time of their choosing. Sp one has to wonder just what Frank Stronach is bringing to the table.

Singing Machine hits a Sour Note

The Singing Machine Company (AMEX:SMD) announced poor results and red ink. The management group sounds like they are whistling in the graveyard. Read this quote from Tony Handal, C.E.O.

"We are all disappointed over these financial results, which we believe to be largely the result of forces beyond our control. Despite this, we were generally able to maintain our net sales as compared to last year. However, due to shrinking gross margins and higher-than-expected returns, we were not able to sustain profitability.”

Mr. Handel you claim in the same sentence to maintain net sales, yet you report higher-than-expected returns. You may be splitting hairs on accounting definitions but it sounds like you are deluding yourself and therefore shareholders.
Here are a few items that also concern me that you have chosen not to mention.
1. Inventories are up
2. Accounts payable are up
3. Pre-paid expenses are up and huge in relation to the overall balance sheet
4. Due to related parties has doubled and is also huge
5. You have negative cash flow

Bernie Madoff Symbolism of 150

Bernie Madoff got the maximum which he deserved. The symbolism is clear. The largest Ponzi scheme has attracted the longest sentence. The dots have connected. The largest financial crime in all of history could not have been perpetuated by only one man. Hopefully this is the beginning.

Castle Brands Mixed Messages

Castle Brands (AMEX:ROX) which bills itself as an emerging developer and international marketer of premium branded spirits, reported Q4 and year end financial results ending March 31, 2009. There were a few mixed messages as well as red ink. The press release says

“the Company continued to focus on its more profitable brands and markets and its pricing strategy.”

“Selling expense decreased 25%....due to cost containment efforts, including a decrease in advertising and promotional expense.”

Richard J. Lampen, President and Chief Executive Officer said “....We recognize that ongoing expense discipline is an essential part of achieving our goals.”

John Glover, Chief Operating Officer, commented “...We continue to concentrate on controlling costs....”

But the fact remains that G&A costs for 2009 vs 2008 are up. Q4 G&A costs are down only marginally. This management team needs to show that it can perform.