Friday, November 14, 2014

Carter's Corrective Disclosures

After an objection made by Allergan recently, Judge Carter issued orders preventing Pershing Square and Valeant from soliciting proxies until corrective disclosures "have been filed with the SEC and have been communicated to Allergan’s shareholders". Additionally the court clarified that Pershing and Valeant may vote any proxies they gained prior to the court's preliminary injunction on November 4th without having to re-solicit those proxies. Interestingly, in Allergan's original objection to the proposed disclosure they cited various sources of case law noting that proxy solicitation rules are broad and generally that a proxy solicitation exists when a challenged communication which is measured in the totality of the circumstances, is reasonably calculated to influence the shareholders votes. Allergan even pointed out that aside from run of the mill solicitations, such as meetings, mailings, and telephone calls that even Regulatory Communications (such as the SC 13D Pershing filed on November 7th) could be counted as proxy solicitations. Allergan continued that they if Pershing and Valeant "engaged in such communications before making corrective disclosures, they do so at their own peril, and Plaintiffs reserve all available rights and remedies." Who knows if Allergan will seek any remedies or act on that threat in any way, but given all of the information that Pershing hosts on Advancing Allergan as well as the letter Ackman sent to the Allergan BoD, Allergan will probably seek to block any proxies obtained after the preliminary injunction. As of this evening, Pershing has already filed those corrective disclosures with the SEC so I have to wonder whether or not Bill is scrambling around trying to engender support for his bid in the face of an imminent offer from Actavis. Either that or he just had a date lined up with a smoking-hot Allergan shareholder. 

Judge Carter's order is a small, but important victory for the Allergan camp. After Judge Carter issued his preliminary injunction on November 4th, Pershing Square and Valeant filed their proposed corrective disclosures to Judge Carter. Six days later, Allergan filed their objections to the proposed corrective disclosures, stating that Pershing's proposal was "insufficient" and that the proposal did not come close to meeting the court's mandate because it 
"does not even attempt to disclose “that they were cognizant of potential liability under Rule 14e-3 when structuring the Relationship Agreement,” which the Court specifically found a material omission."
Although Judge Carter didn't give Allergan everything they wanted, Carter ordered Valeant and Pershing Square to beef up the disclosure to their September 24th proxy statement with three key changes. Today's order memorialized that: 
  1. both Allergan and Ms. Parshauer raised serious questions whether Valeant and Pershing violated Rule 14a-9
  2. Pershing Square and Valeant needed to provide more information about the Relationship Agreement
  3. Pershing Square and Valeant needed to provide more information about their exposure to liability under Section 14(e) and Rule 14e-3
*For the detail oriented, below is a blackline version showing the Pershing/Valeant's disclosure that will be included in the "Legal Proceedings" section of the updated proxy materials. In RED are the modification Judge Carter's order made to Pershing's proposed disclosure.

Today's order raises some interesting points. Specifically it forces Pershing and Valeant to inform the public that the District court is concerned they made false and/or misleading statements or omitted material facts in their solicitation. It also forces these entangled co-bidders to expressly admit that even if they pull off this hostile bid for Allergan, the new owners could face a huge potential liability, from potential private lawsuits, private stockholder class actions, which could result in significant damages awards or disgorgement of profits.

Disgorgement is not the kind of preamble you want when soliciting proxies around the start of the Holiday season. Its looking more like Bill may end up with more than one Turkey this Thanksgiving!

The Securities Lawsuit. As described above, on August 1, 2014, Allergan and Karah M. Parschauer, an employee of Allergan, filed a complaint in the United States District Court of the Central District of California against Valeant, Pershing Square, its principal William A. Ackman, PS Fund 1 and certain of their affiliates (collectively, the “Defendants”), captioned Allergan, Inc., et al. v. Valeant Pharmaceuticals International, Inc., et. al. (Case No. SAC 14-1214 DOC(ANx). The complaint alleges that the Defendants violated Rule 14e-3 under the Exchange Act by causing PS Fund 1 to acquire shares of Company Common Stock between February and April 2014 without publicly disclosing information about Valeant’s  plans for a tender offer. The complaint seeks, among other remedies, a declaration from the court that Pershing Square and Valeant violated insider trading and disclosure laws and an order rescinding Pershing Square’s purchase of the Allergan Shares that it acquired., and attorneys’ fees and costs. Ms. Parschauer also seeks money damages. On August 19, 2014, Valeant and Pershing Square answered the complaint and filed counterclaims against Allergan, asserting violations of Federal securities laws prohibiting false and misleading disclosures. Allergan filed its answer on September 2, 2014. Allergan and Ms. Parschauer thereafter filed a motion for a preliminary injunction seeking to enjoin PS Fund 1 from exercising any of the privileges of ownership attaching to its 9.7% stake in Allergan, including voting or acting at the
Special Meeting and voting any proxies solicited by Defendants. On November 4, 2014, the Court issued an order granting in part and denying in part Plaintiffs’ motion. The Court declined to enjoin Defendants from voting their Company Common Stock. The Court found that Ms. Parschauer raised serious questions as to whether the Defendants’ conduct between February and April 2014 violated Rule 14e-3 under the Exchange Act., and that both Allergan and Ms. Parschauer had raised serious questions as to whether Defendants’ conduct violated Rule 14a-9, which prohibits the use of false or misleading statements or omissions in soliciting proxies. The Court ordered Defendants to make certain additional disclosures about the LetterRelationship Agreement, the facts underlying Defendants’ exposure to potential liability under Section 14(e) and Rule 14e-3 thereunder, and the claims brought by Plaintiffs. Risk Factors. Should Valeant and Pershing Square ultimately be found to have violated Section 14(e) and Rule 14e-3, they will face additional risks and exposures, including but not limited to potential private lawsuits, including private stockholder class actions, which could result in significant damages awards or disgorgement of profits.

Friday, October 31, 2014

Belief in Our Own Guidance

Let's *temporarily* put Bill Ackman's and the NY Post's personal vendettas against me aside and focus on the recent settlement reached between class action plaintiff's Bostick et al and Herbalife.

As much as I will editorialize how I think this is a tremendous win for Herbalife and dissatisfied former consumers alike in the near future, I thought it better to refrain from that for now and simply present for your own reading pleasure the PLAINTIFF's memorandum in support of the joint settlement motion reached today.

The one thing I will say is the same thing I said at the end of last year:
“No man is great enough or wise enough for any of us to surrender our destiny to. The only way in which anyone can lead us is to restore to us the belief in our own guidance.”-Henry Miller

Thursday, October 30, 2014

Key Questions for the Half Too Clever

After both Allergan and Valeant had their opportunity to present their oral arguments to Judge Carter, Judge Carter presented both sides with some key questions. After warning both legal teams that he wanted succinct answers, Judge Carter asked:
"Why shouldn't this court just adopt the definition of "co-bidder" from regulation 14D? ....The SEC hasn't seen fit to define who a co-offering person might be. Won't it create a lot of confusion to say that someone who is a co-bidder, for disclosure purposes, might not be a co-offering person for rule 14e-3 purposes? And how would you distinguish between a co-bidder for regulation 14D purposes and a co-offering person for rule 14e-3 purposes? For the collective defendants, let's hypothetically --or let's assume that plaintiffs are right, that generally "co-bidders" should be defined broadly while "co-offering persons" should be defined narrowly. How would you distinguish between a co-bidder for regulation 14D purposes and a co-offering person for rule 14e-3 purposes?The longer you take with that answer, the less credibility you are going to have for me. In other words, you are unlimited in terms of rebuttal, but conciseness now and precision is what I'm looking for. And if you junk up your answer, well, I'll leave that to your wisdom. You have been warned."
  1. "If this court finds that you have not raised serious questions as to rule 14e-3 claim, should the defendants be required to make any corrective disclosures pursuant to rule 14a-9"*
  1. "How does either Allergan or Ms. Praschauer have standing to seek an injunction against PS Fund 1 voting altogether even if PS Fund 1 makes disclosures? The case law holding that an issuer like Allergan has standing under the Williams Act all seem to involve issuers protecting their shareholders from misleading statements. Here, you are asking the court to enjoin PS Fund 1 from voting altogether in December even if PS Fund 1 makes corrective disclosures. And I'm going to ask you to once again specifically and concisely address why Allergan has standing to do that."
  1. "The next question I have concerns shareholders, and that is, does a current shareholder have standing to ask for a fellow shareholder to be enjoined from voting altogether even if that fellow shareholder allegedly violated securities laws?"
  1. "Next question for Allergan. What legal authority is there that having directors removed, even six of them, is an irreparable harm to a corporation or to a current shareholder?"
(*reader note, SEC Rule 14a-9(a) - applies to omission or misleading statements "in connection with any tender offer or request or invitation for tendres, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation." )
Specifically for Pershing Square, Valeant, and PS Fund 1, Judge Carter asked 
  1. "Why did defendants use the term "co-bidder entity" in their February 25, relationship agreement if they weren't planning a tender offer at that time? And why didn't...the defendants disclose in their proxy solicitation that under the February 25 relationship agreement, Valeant and Pershing Square agreed to be called co-bidders?"
  1. "Assuming that plaintiffs have standing to seek injunctive relief, if the court finds that Allergan's raised serious questions as to the merits of the rule 14e-3 claim, why shouldn't this court enjoin PS Fund 1 from voting its ill-gotten shares?"
  1. "I want to turn back to the holistic view of what I think that the Williams Act was designed to do, and that was it was designed to protect shareholders. When we get into the equitable mudslinging that's going on between the parties before this court, you are going to have to explain to me why, under the Williams Act, it matters concerning equitable or inequitable conduct, especially as it applies to mergers. You have to tie that to shareholders under the Williams Act." 
Carter then encouraged the group to "keep the Williams Act in mind because my tentative view is that
my focus is to be on the innocent shareholder, if you will. If I'm wrong, I want you to correct me and cite law why I'm supposed to be involved and why the Williams Act involves mergers, which is
where this seems to be going, the last part of the arguments."
LOGOThe entire case is fascinating, but part of Judge Carter's interaction with Valeant/Pershing caught my attention because part of their defense in support of the use of the word "co-bidder" cites a July 5th letter Valeant's Robert Chai-Onn received from the SEC. In that letter the SEC requests that Valeant revise the cover page of the June 18 SC TO-T to identify Pershing Square as a co-bidder in the tender offer. What Judge Carter observed and what his question was driving at was how this July document could have retrospectively guided Valeant & Pershing's earlier behavior. Judge Carter added
"Because the import of your argument is that we had no choice but to follow the SEC's guidelines and their co-bidder statement"
Specifically for Allergan, Judge Carter asked:

What Judge Carter is getting at here is that the defense was using SEC guidance that arrived five months after an email exchange between Pershing and Valeant counsel. This may turn out to be the half too clever move by the duo because Pershing and Valeant counsel specifically noted in their February 17th email that  "If a transaction proceeds by way of a tender offer, P [Pershing] will be identified as a co-bidder, and, if b way of merger, P will be identified as a soliciting person."

For their defense to hold on those grounds, they must have a tremendous amount of insight/foresight into the SEC. I have no such insight, so like you, I'll patiently wait for Judge Carter and the SEC's formal opinions.

Wednesday, October 29, 2014

On the Hardship of Co-Bidders

Slide 66 from Latham Watkins
There are a lot of good reasons why I think Judge Carter will enjoin Pershing Square's 9.7% stake in Allergan. The cleanest and easiest reason is captured in a single Latham Watkins slide from the PowerPoint deck they presented in yesterday's hearing. The argument is so simple that even I can understand it. The slide speaks to hardships. Hardships weigh heavily on a Judge's heart because the last thing they want to do is create case law for frivolous reasons. Even in the ABC vs. Aereo case, in which Aereo argued that a preliminary injunction would shut them down due to the financial hardships, Judge Nathan issued a PI against Aereo because it was outweighed by the irreparable harm caused to ABC with respect to loss of subscribers, loss of copyright control and damage to relationships.

When judging the hardships that would be incurred in the Allergan/Valeant proceedings, a preliminary injunction against Pershing Square would not cause irreparable harm to Pershing Square or its members; the special meeting would still take place, all other stockholders would still be able to vote at that special meeting, and Pershing could still solicit proxies in support of their control contest. 

It is not at all apparent what hardships would be incurred upon Pershing Square and Valeant if the injunction is ordered. At worst, it would give alternate bidders more time to consider a competing offer for Allergan and Pearson would be forced to look for an alternate company to stall his company's imminent demise, or offer a more competitive counter-bid. 

Hey, we're co-bidders!!!
Provided that the SEC concludes it's review of Pershing's actions and blesses the questionable new type of acquisition structure being pursued by these friendly "co-bidders" Valeant, the worst harm that could come to the two is that they make more money!!! #FWP, amiright? If, for instance, Shire swoops in, successfully engages the Allergan BoD and reaches an agreement for $250/share, Pershing would be free to vote in favor of that transaction and make a ton of money, and as a member of PS Fund 1, Valeant would receive  a minimum of 10% of  Pershing Square's profit. It's sin-win for everyone!

Thus if shareholders really want Allergan to accept Valeant's overtures of date rape, enjoining Pershing's shares wouldn't prevent Pershing from dumping a bunch of roofies into Allergan's Old Fashioned, it would however prevent Pershing from dragging Allergan back to the ₯₯₯ Frat house against it's will. But hey, I hear the NY Post likes to par-tay,so there's always *that*.

I'm on tenterhooks waiting for Judge Carter's decision. There is a lot riding on his decision and I'm sure he fully recognizes that, which is why there was no immediate decision yesterday. Normally, I'd expect a week to pass after oral arguments before an opinion and order is issued in such a case, but we may get really lucky and get an opinion as early as tonight or tomorrow, because of Judge Carter's impending scheduling conflicts.

I know how much Bill Ackman likes contests, so in the meantime, I propose a little contest between the two of us to keep him engaged: let's see who can use the least oxygen while we wait for Judge Carter's decision. This is one time I REALLY hope Bill wins.

Thursday, October 2, 2014

The Pivot

"Don't worry Sugar Bear,
I'll still be around."
Poor Sugar Bear. He'll be very disappointed when he learns that he can't get enough Tim Ramey. That is because Mr. Ramey will join Pivotal Research Group, where he'll again function as an analyst covering Food, Beverage & Personal Products. This comes on the heels of Mr. Ramey joining Post Holdings in January of this year as the Director of Strategic Ventures. 

Prior to joining Post, Mr. Ramey was a controversial analyst at D.A. Davidson & Co. He was controversial insomuch as he gained notoriety for repeatedly challenging Ackman on his Herbalife short and for making those that followed his advice a shit-ton of money. In fact, Bill Ackman was so frustrated with the legacy of Mr. Ramey's outlook on the company that he lashed out at him during his "smoking gun", "Enron-like" fraud presentation on Herbalife in July(a full six months after Mr. Ramey was no longer working as an analyst at DADCO). Ackman claimed that Mr. Ramey had been fired from DADCO for being too bullish on Herbalife, a statement which Mr. Ramey ultimately forced Mr. Ackman to publicly retract. In fact, when DADCO was contacted asking if Mr. Ramey had been terminated, they categorically denied that claim and stated that he "was absolutely not terminated" from their firm. 

The shorts will inevitably argue that Mr. Ramey's switch to Pivotal is a sign he was fired from Post and that he reached the zenith of his career when he hit #2 on StarMine's 2014 Top Stock Picker in their Overall Analyst Awards for his 2013 work at DADCO. Among those 2013 picks, the street watched as names such as Herbalife shook it's way to 138% returns, Omega Protein bulked up 101%, NuSkin ageloc'ed 273%, Tyson Foods pecked out 72% and Constellation Brands saw a starry eyed return of 99%. Surely, that kind of performance gets you fired from your analyst position (#FWP).

In light of Bill Ackman's former claims about Mr. Ramey's reasons for switching jobs, I pre-emptively reached out (just to spare Pershing Square the trouble of another retraction) and confirmed that Tim Ramey was NOT fired from his position at Post where he was an integral component of the company's recent M&A activities; particularly his very active role in the Post acquisition of Michael Foods. In reality, Mr. Ramey is reportedly remaining employed at Post Holdings as a consultant, built on a 25+ year friendship with Bill Stiritz.

I doubt that Mr. Ramey could comment on his plans to initiate coverage for specific companies like Herbalife, but in a letter he sent to friends, colleagues and clients, he noted that his coverage at Pivotal will focus on his formerly covered industries. It is probably very safe to say though that he will not be launching coverage on Post Holdings, but I do suspect that he'll launch coverage on many of his former names given his in depth coverage of the names in the past.

And looking back at the tape bomb shortsellers threw at Herbalife with last week's false rumor that Carl Icahn was selling his stake in the company, I won't be surprised at all if they try to re-engineer Mr. Ramey's new gig at Pivotal into another lie about Bill Stiritz's position in Herbalife. 

A sage adviser once said that "one lie equals 1,000 lies". Remember that when the shorts tell you that Tim Ramey's pivot was actually his firing from Post  Holdings and that Bill Stiritz is selling his stake in Herbalife. You'd also do well to remember that as a 13D holder in Herbalife, if Stiritz was selling his stake, EDGAR would have told you about it already, which it hasn't.

Tuesday, September 30, 2014

Scratch and Win with Scientific Games

We've all been there. Due to the conspicuous absence of timekeeping devices on the casino floor, you aren't really sure what time it is, but your judging by the cramps in your ass and the tingling in your sleeping leg, you've been sitting far too long. What, it's 3 or 4 am most likely? Not really sure.

You're break even for the night, which is great, but disappointingly there have been no moments of ecstasy or terror. Just rote, repetitive play, chipping up and chipping down. Then finally, an interesting hand. Not a guaranteed winner and not a guaranteed loser, but substantive. If you play it right, you'll end your night walking away with a huge pot, without having risked a ton of money.

I feel the same way about Scientific Games $5.1B takeout of Bally Technologies. Its a deal that some holders seem to be particularly concerned about because post close, their debt/EBITDA will jump up to 8X. Debt levels, circa 2008's binge mentality is not something I'd typically consider, although I feel like this is a smart move for $SGMS. Understandably the perceived risk of renewed pressure on the balance sheet has some people worried, although I am not one of those people. Ron Perelman doesn't seem to be too concerned either.

From my perspective it's fundamentally a very simple story about cost savings, FCF and management. No fancy chart wizardry, short-sale hit pieces, 10MB excel spreadsheets or 3 hour investor presentations necessary. Within two years the combined companies will enjoy $250M in annual savings via capex and cost synergies. Within the same time frame the company will improve FCF to ~$400M, which they'll use to pay down debt their debt load.

Really, when you think about it, even though the chatter around the deal seems to be either on the future of gambling or on the financing, the story is about neither of those so much as it is a story about management. It's easy to just assume in a powerpoint deck you'll be able to hit all these targets, but you don't have to look far back in the company's histories to see for yourself they can execute on integration. Applying management's plan to the last 12 months would have seen EBITDA margin improve 10% and the FCF margin increase to over 30% on EBITDA of $1.335B generated from over $3B in revenues.

Ultimately the company plans to use the improved FCF to quickly pay down their slated debt to ~4X within a few years, but again that all depends on management's pro formas and whether or not you believe them.  Sure there has been some softness in some of the areas they operate in, but the combined entity will be very diversified, sourcing revenue from ten major areas (instant tickets, lottery systems, slots, WAP, gaming systems, utility products, prop games, electronic table games, online gaming and social gaming). As easy as it is to hate on the casino space 60% of SGMS/BYI combined revenues are stable and recurring in nature; 24% of their revenues are from instant products and lottery systems. The biggest risk to the combined company is that about 31% of their revenues (~$900M) is attributable to non-recurring gaming machine sales and gaming systems, although their combined sales in this segment doesn't appear to pose a grave risk to their health. This entire segment of their business would have to completely implode in the coming months to pose a serious risk to their operational plan and based on SGMS & BYI's recently filings, this shouldn't be a concern. In fact combined WMS/SGMS gaming segment sales for 2013 were just shy of $1B at $997.8M and in SGMS's latest 10Q the segment is showing revenue of $403M for the last six months and on track to achieve roughly $850-900M for the year. Also, BYI's EGM segment has grown ~13% to $382M. The combined company will be well positioned in the general space, ranking number 2 in revenue and EBITDA(behind GTECH/IGT) with EBITDA margin at roughly 45%. Their consolidated operations and resulting synergies will also help them manage any continued downturn in gaming sales, as seen in the WMS/SGMS merger.

Moody's seems to think that the debt is riskier than I do but they've made some key assumptions I disagree with:

  1. the expectation of continued softness in the gaming sector and only a modest level of consolidated EBITDA growth
  2. 75% of the company's proposed $220 million of estimated cost synergies are achieved
  3. and between $400 million to $450 million of absolute debt repayment.

Looking back at management's long list of acquisitions, BYI recently confirmed they'll hit $42M in savings as a result of their SHFL acquisition, although they originally estimated $30M. Likewise SGMS confirmed $100M in cost synergies by end of 2015 for their WMS acquisition. SGMS estimated $50M in savings for 2014, and they've revised that to $80M with $65M already realized. If you want to penalize management for anything it would be underestimating how efficiently they'd integrate their acquisitions, not falling 25% short of their informed synergy estimates. 

The SGMS/BYI debt-financed merger represents an excellent opportunity presented by a very seasoned management team that has already demonstrated their ability to acquire, integrate and execute, without overpromising. They went to the debt market because they are confident they'll be able to deliver on their promised acquisition plan. And how do I know their pro-formas are up to snuff? I don't. No forensic accounting, no investigative journalism, just good old fashioned reading. I read management's old plans, their updates on those plans and compared that to where they're at now and then read some more. Management has done pretty good by that measure, so when they say they'll be able to execute these plans, I believe they will. This isn't a sexy momo name or activist target yet; it's a fundamentally solid long term investment that is significantly undervalued at $10.91/share(time of publishing). I don't even have anything snarky to say. I've been desnarked by the straightforwardness of it all. You either believe management can do this or you don't. You can buy or sell accordingly. To me its a gaming stock that seems more like an investment in management than it does a gamble on estimates.

Wednesday, September 10, 2014

The Importance of Being Furtive: Why 34.72% is the Most Importantly Unimportant Number that is Important to Valeant, Pershing Square and Allergan

An engrossing strategy is playing out in the Southern Central District Courtroom of Judge David Carter.

First off, let's agree to set aside the Delaware Chancery proceedings and do our best to completely ignore them for now. The Delaware proceedings are basically attempting to determine if the special meeting Allergan has set for December 18th is being held early enough. Suffice it to say that a special meeting has been called and Delaware will determine if it needs to take place earlier than December 18th. Delaware isn't considering how the special meeting requests were obtained and that is where the California Federal proceedings play in.

Getting back to the California courtroom and the often hilarious one-liners (Exhibit A below) that

Judge Carter has injected into his admitted fascination with the Allergan case, Allergan has called that special meeting because Pershing Square and Valeant have delivered at least the 25% of shareholder requests necessary to call the meeting. I say at least because there are conflicting reports surrounding just how many requests have been delivered. David Faber at CNBC reported back in August that Pershing/Valeant will hit Allergan with more than 30% of shareholder votes and The Street reported just last week that they've delivered 34% of shareholder votes, although Allergan's press release seems to indicate a number closer to 28%. It is interesting to note that yesterday (September 9th) during proceedings in Judge Carter's court, counsel for Pershing/Valeant stated they were about to cross 30%, not that they have. Mark Holscher of Kirkland & Ellis stated
"We're about to climb the 30 percent amount."

I don't know if it is PR shenanigans attempting to make the takeover appear imminent that the inflated numbers got put out there, but we know from Pershing's own lawyers that they haven't hit the 30% mark yet, so there is still a considerable way to go before Pershing & Valeant hit the 34.72% mark. Just looking at page 1 holders of Allergan, 48.7% of shares out are held by twenty large, sophisticated institutions, and another 12.5% are held by another 20 funds. Despite what Pershing and Pearson would like to portray, 28% of the vote isn't the unanimous backing of their offer when over 90% of the shares are held by institutions and funds, of which the top 40 holders represent 2/3 of the shares out. Who knows if Pershing and Valeant will be able to deliver 34.72% of the vote. I'm of the opinion that if they could hit the 34.72% mark, that the large sophisticated holders would have all the back office support to have complied with the necessary disclosures by now if they wanted too, and that without significant churn in the current holders, Pershing and Valeant will fall short of 34.72%, which seems like an odd mark to hit. Although it's an odd mark to hit, its an important one, that as it turns out actually isn't that important, but is still kind of important, which we'll get to.

Allergan has indicated that they found that the requests that had been delivered complied "as to form with Allergan's bylaws from stockholders owning more than 25% of Allergan's shares" and as a result of that opinion, it seems Allergan has no intention of derailing the December 18th by invalidating the requests received so far.

Well, not exactly. Allergan certainly wants to invalidate the 9.72% of the voting shares held by Pershing and Valeant (via PS Fund 1) which they are attempting to do by seeking an preliminary injunction that would block the exercise of the beneficial rights associated with those shares based on the grounds the shares were purchased as a result of violating insider trading laws (Rule 14e-3). Judge Carter is currently setting the schedule that will culminate in the preliminary injunction hearing that will be held on October 28th. What constitutes "a substantial step or steps to commence" a tender offer is not yet being argued before Judge Carter. Keep in mind what is going to happen on October 28th is Judge Carter will determine whether or not to enjoin the rights associated with PS Fund 1's 9.72% stake while the trial moves forward to determine if Pershing and Valeant violated Rule 14e-3. The 34.72% mark is important because theoretically if Pershing fails to deliver more than 34.72% AND Judge Carter enjoins the PS Fund 1's vote, Allergan could call off the special meeting altogether because the number of requests delivered would fall below the 25% threshold set by Allergan's bylaws.

Judge Carter noted that such an injunction could be rendered irrelevant by the marketplace if Pershing and Valeant were able to deliver more than 34.72% because 25% would be delivered in lieu of PS Fund 1's shares. Courts aren't big fans of issuing orders they view as potentially irrelevant (much less potentially irrelevant in less than 2 months) and I can understand Judge Carter's initial reticence to consider such an injunction knowing that once that 34.72% threshold is crossed, the injunction would be useless. Where it gets particularly intriguing is with regards to Allergan's next move. If Allergan is successful on their 14e-3 claim they would then seek a determination that the request forms and proxies to be voted at the special meeting were obtained illegally and that Pershing Square/Valeant violated Rule 14a-9 through material omissions and misrepresentations by failing to disclose that they had violated insider trading laws.

So although the marketplace could certainly decide that >25% of Allergan shareholders (that aren't Pershing Square or Valeant) want the special meeting to proceed and thus cross the threshold of that important mark, the mark itself is not actually important because all of the meeting requests that have been delivered so far would have been obtained through Pershing and Valeant's invalid solicitation.

So even though 34.72% is importantly not important, it still turns out to be important because if Pershing and Valeant fail to deliver 34.72% prior to the October 28th hearing and Judge Carter enjoins the PS Fund 1 shares, the meeting request could be rendered invalid because the 25% threshold has not been reached and Allergan could cancel the December 18th meeting.

I have much greater faith in Allergan's current management's ability to execute, particularly if they queue up $JAZZ$ALKS or another right-sized specialty biopharm acquisition. If you're a Pershing investor, you have to wonder what will happen to Pershing's marks if they are forced to disgorge their Allergan holdings. More immediately though, if you're a Valeant shareholder functioning under the assumption the Allergan acquisition will take place, ignoring the possibility that the FTC would take issue with the proposed merger (as evidenced by their second request), and the special Allergan meeting gets canned, you have to ask yourself just how far forward its rolling solvency and its hotly debated measures of financial health can carry the company in the absence of Allergan's robust cash flows. Valeant may prove to be the house of cards its own bankers alleged it to be.

And in light of yesterday's hearing before Judge Carter, the letter Ackman sent to the Allergan BoD later that same day seems to be a direct response to his own frustration with how he now expects this is going to play out in Judge Carter's courtroom. Ackman seems to be displeased that expedited discovery (including third party depositions) will lead to a preliminary injunction hearing on October 28th. I do agree with Bill that there is a strong smell in his letter, but I think we disagree on its source.

Allergan Sept. 9, 2014 Trascript

Friday, July 25, 2014

Protection against floss

Earlier this week Maureen Farrell reported that William Kelly Jr., a VP at Hartford Financial Services Group had some choice words for Herbalife following Bill Ackman's death by 1,000 yawns presentation (excerpt below):

Speaking at the sidelines of Mr. Ackman’s latest presentation about Herbalife, Mr. Kelly said he had been wary about providing the coverage because of his skepticism about how Herbalife generated its revenue.

What I found particularly interesting about the brief report was the following comment posted the next morning:

In the above article, Mr. Kelly was speaking on his own behalf, not on behalf of The Hartford. 

As of today, Mr. Kelly has reportedly been released from his position at the Hartford for his comments about Herbalife. This report has not yet been confirmed by The Hartford or by Mr. Kelly although I attempted to reach both for comment.

If this report is in fact true it would lead me to believe that The Hartford not only views Herbalife as insurable, but probably as insured.

Thursday, July 24, 2014

I almost wrote a blog on Tuesday

I almost wrote a blog on Tuesday, but then I read this instead:

The full release from Herbalife is HERE.

I thought it was an extremely interesting statement by the company and it immediately made me curious about Dr. Vandaele, so then I read this profile of him:
Walter Vandaele, Ph.D. Managing Director, Navigant

By the time I finished reading about Dr. Vandaele's impressive history at the FTC, Harvard and elsewhere (excluding his short fictitious stint under the aegis of George Costanza) I then turned my attention to the least interesting presentation I think I've ever seen. So uninteresting in fact, it de-snarked me. I can't even bring myself to describe how bad it was, much less how slanderous it was, particularly when so many others have already done so.

Exhibit A

Exhibit B

Exhibit C

It would be like beating a dead horse with a live one. What's the point? Luckily for Bill he had to fly to Canada as he's wont to do in times of embarrassed crisis. And while Bill was North of the border with his new besty Mike Pearson, apparently trying to be more helpful, I re-read Herbalife's study results.

Bears, Bulls and public servants alike should carefully read this report. Buried within some of the details of what should be a "deathblow" to Ackman's short thesis was a description of how how Dr. Vandaele performed his analysis:

in addition to survey results, Dr. Vandaele also obtained from Herbalife an extract of profile and financial data for all individuals enrolled as U.S. Herbalife Members at any time during calendar year 2012.

That's a pretty staggering figure. Herbalife doesn't just demonstrate that it isn't an illegal pyramid, it did this by providing information on EVERY SINGLE U.S. Herbalife member for all of 2012 for this study. For all the bears that decry the fact Herbalife has not publicly released this data, you have to wonder if they released this data to any agency other than the private consulting firm they engaged to analyze the data? The report came out of Herbalife IR, but I doubt that report and its underlying data was only prepared for investors. Herbalife IR isn't just IR after all; it is also Corporate Relations and Government Relations.

So why would Herbalife go through the trouble of opening up everything to Navigant & Vandaele if they weren't also going to provide that same data and the report to every single agency that would care about it? The short answer is they wouldn't. Say what you will about the twittersphere/blogosphere, but Vandaele is not some maligned hack cancer researcher or some fired Wall St. analyst and he didn't arrive at his conclusions by some back of the envelope exercise or some pre-packaged research report from Indago. That being said it is unclear how many state or federal agencies received this data and the report based on it prior to Herbalife's public disclosure on July 22nd, or just how many agencies have received it to date.

By Ackman's own admission Herbalife is pretty efficient at disseminating information, so at this point it is pretty safe to say that Vandaele's report, and the data supporting it, are at least in the hands of the FTC, the SEC and the NY & IL AG's offices.

Although I planned to write a blog I was so depressed by Ackman's presentation that I've moped around for a couple days. So, instead of writing a blog, I just wrote a really bad poem instead.

"Walking Across Russia 140 Years Ago"-by TheSkeptic21
On stage for three hours he loiters
While Mafia-Nazis reconnoitered
Fifty mil his investors supplied
Then Bill wiped a tear from his eye
And NY Post's coverage byline was from Reuters

Thursday, June 12, 2014

Choose Your Own Adventure: Prince Valeant

The Valeant response PowerPoint deck reads like a choose your own adventure book depending on what slide you start on. They somehow seem to be conveying that they take R&D seriously, but also that you shouldn't take R&D too seriously.

In the same deck that Valeant discusses its core research/innovation strengths, they also inform us that their quality staff is part of R&D and that real innovation comes from outside big pharma. Part of Valeant's argument is that the average economic returns from R&D spending is below the cost of capital for ten select big pharma companies(slide 10). I'm sure it's just coincidence that Valeant's response utterly fails to consider what the return on Allergan's R&D activities were. Myles Udland astutely points out that the $7 billion Allergan spent over the last 11 years has resulted in $50 billion in sales.
Valeant also points out(slide 27) that they have invested in, or partnered over 70% of acquired projects, like that is supposed to smooth out the worry lines in Allergan's frozen brow. Glancing at Valeant's Q's and K's, "investing in projects" for Valeant appears to be the equivalent of Beatrix Kiddo sparing the life of Sophie Fatale.

  1. Valeant wants information
  1. Pharma as an industry, through B&L's deformed body, will witness the extent of Valeant's mercy. 
Valeant appears to be less of a pharma company than it is a Human Resources company in the sense that humans appear to be a resource they are willing to exploit.

After quickly dispatching the Crazy 88 (played by all the companies Valeant has swallowed), I picture Mike Pearson's hulking frame peering into the open trunk of his car containing the barely living carcasses of two of his former prey: Keep your wicked lives John Jacob Bausch & Henry Lomb, just tell Dave Pyott in I'm coming for his arms.

You'll remember that Valeant acquired Bausch & Lomb. You may even remember that B&L was going to go public again last year before they were acquired. According to Bausch & Lomb's S-1 they were spending about $220 million on R&D annually. B&L also proudly touted their R&D effort as being supported by over 850 engineers, scientists and other specialized personnel sprinkled across 25 sites (21 plants) on four continents. They went on to add within the Employee Relations section of their S-1 that they employed 762 full time R&D employees. Before B&L, Valeant acquired 43 different portfolios and kept 17, while partnering off 15.  Just a couple of months before B&L filed their S-1, Valeant's 10-K reported having ~400 employees in R&D with $162 million in in-process R&D write offs. They followed 2012 with an additional $153 million in write-offs in in-process R&D in 2013. Valeant writes off more IPR&D than they spend on R&D while simultaneously cutting R&D staff that was supporting B&L's R&D. I'm sure there's a strategy buried in there.


What really brings it home for me is slide 21 of 's response presentation to  shareholders. Valeant notes that they count quality as part of their 748 member R&D organization staff. Typically when looking at operating expenses, quality falls under COGS. According the Valeant's 10-K: 

Cost of goods sold includes: manufacturing and packaging; the cost of products we purchase from third parties; royalty payments we make to third parties; depreciation of manufacturing facilities and equipment; and lower of cost or market adjustments to inventories. 
Expenses related to research and development programs include: employee compensation costs; overhead and occupancy costs; depreciation of research and development facilities and equipment; clinical trial costs; clinical manufacturing and scale-up costs; and other third-party development costs.
For a company that has ~100 marketed products, this seems like an incredibly small number of R&D staff, especially if they have to support quality efforts as well. In fact when you look at Valeant's R&D expenses proportionally to the number of "R&D" staff they have it is a shockingly anemic $157K/head, which includes compensation, overhead, depreciation, clinical trials etc. Even using their new number of 748 R&D, it's still only $209K/head. It is difficult for me to understand exactly how much money is going to research and really makes me wonder what the *real* R&D staff number is. I also can't help but wonder how they are accounting for their quality assurance costs and what their R&D spend would look like if quality assurance was a component of COGS and not R&D. If quality assurance is a major piece of Valeant's "R&D spending" of 3% of revenues, which is pittance in comparison to the rest of the industry, what would R&D look like without it?

It is not such a subtle point when you consider that R&D isn't just what you probably think. You could spend $100 on a killer beaker and it would count towards R&D. R&D costs aren't just direct research costs though: don't forget that you can tuck license agreements, milestones & upfronts in there too. That is kind of where Valeant's deck really falls apart. They can make the claim that most innovation is obtained outside of big pharma, but when Valeant commits to spending $200 million on R&D activities a year it is also a commitment to do almost zero in-licensing from the very source Valeant claims most innovation comes from. By way of egregious example, Philip Morris, spent $449 million on R&D in 2013 and they pretty much just roll tobacco.

All of this begs the question whether it is really prudent for Allergan shareholders to accept Valeant's offer and forgo the $120 billion in sales over the next ten years attributable to Allergan R&D for the sake of $10-15 billion is R&D cost savings(aka pink slips) and non-existent licensing deals? 

This of course doesn't take into account the hundreds of millions in "one time" write-offs that Valeant would certainly take in connection with the deal, but then again, "one time" write-offs appear to be a quarterly component of Valeant's ongoing business activities, so who am I to judge?

(Side note: unlike Valeant, I didn't see any one time write-offs of R&D assets in Allergan's recent quarterly or annual filings)

Being that Allergan spent $349 million for the first quarter of 2014 (or 21% of total revenues) compared to Valeant's $200 million annual projection, I see how there is an R&D disconnect between the companies.

Monday, June 2, 2014

The Cosmetics of Substance

I'm convinced that Ackman's investment in Allergan is somehow an allegory warning us about cosmetic beauty as an aspirational goal. Should we be aspiring to achieve cosmetic perfection or ground ourselves in substance? As is the case with much of what I say, it always sounds more poetic in my head, although I'm convinced Ackman's Herbalife thesis is the plastic, duck-lipped, attention-loving blonde Hedge Fund equivalent of Heidi Montag.

A landmark opinion written by George H. Wu was filed today in California's Ninth District Court of Appeals and left little room for cosmetics. The substance of the opinion was decidedly bad for BurnLounge and decidedly monumental for Herbalife and other established MLM companies. It was monumental because the Court was very careful to review all relevant case law, as well as Kohm's FTC advisory letter from 2004, and the opinion should establish clear guidelines for MLM companies as well as regulatory agencies assessing the legality of such companies.

In the opinion the Court noted that

  • the rewards BurnLounge paid to Moguls were primarily in return for selling the right to participate in the money-making venture—the Mogul program. The merchandise in the packages was simply incidental.

  • We agree with the district court that BurnLounge was an illegal pyramid scheme in violation of the FTCA because BurnLounge’s focus was recruitment, and because the rewards it paid in the form of cash bonuses were tied to recruitment rather than the sale of merchandise. (I added emphasis)

Interestingly the court also put the kibosh on both the FTC's and BurnLounge's arguments regarding internal consumption. The Court said that:

  • BurnLounge is correct that when participants bought packages in part for internal consumption (to obtain the ability to sell music through BurnPages and to use the package merchandise), the participants were the “ultimate users” of the merchandise and that this internal sale alone does not make BurnLounge a pyramid scheme. But it is incorrect to conclude that all rewards paid on these sales were related to the sale of products to ultimate users. 
  • Whether the rewards are related to the sale of products depends on how BurnLounge’s bonus structure operated in practice. See Omnitrition, 79 F.3d at 781. In practice, the rewards BurnLounge paid for package sales were not tied to the consumer demand for the merchandise in the packages; they were paid to Moguls for recruiting new participants. (I added emphasis)

In the Court's opinion they also cited the FTC's test for determining whether a MLM is an illegal pyramid
“a pyramid scheme is characterized by the payment by participants of money to the company in return for which they receive (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to sale of the product to ultimate users.”
When I read the opinion a couple of very important distinctions came to mind with respect to Herbalife:

  • Purchases bought in part for internal consumption defined "ultimate users" and internal sales did not constitute a pyramid.
  • the rewards BurnLounge paid for package sales were not tied to the consumer demand for the merchandise in the packages;

Effectively, purchasing an IBP and signing up as an Herbalife distributor does grant the right to sell a product, however distributors are rewarded for the sale of products to ultimate users, not for recruiting. When an Herbalife distributor sells an IBP to a new distributor member there are ZERO volume points associated with the sale of this fully refundable starter pack. Volume points (which sets up the compensation structure for Herbalife distributors) are based on sales of consumed products, NOT on starter packs. This is an extremely important distinction because BurnLounge moguls were compensated based on the sale of starter packages, whereas Herbalife distributors are paid on the sale of products but not the IBP. When an Herbalife distributor signs up a new member to their downline they are required to sell the IBP to the new member without markup. In addition to earning no volume points a distributor has to sell the IBP at cost. Distributors make no money on the sale of IBP's at all. Furthermore, unlike BurnLounge, there is also no requirement for Herbalife distributors to sell a minimum number of IBP's. In fact many Herbalife distributors will NEVER sell an IBP. You only need look at Herbalife's 10K's and 10Q's to quickly determine that the overwhelming majority of revenues flowing into Herbalife are based on sales of products and not starter packages.

Interestingly the Court also seems to agree with the Vander Nat intent in that internal sales for the purpose of use are full fledged legitimate sales to end users. The Court also noted with respect to BurnLounge,
Rewards for recruiting were “unrelated” to sales to ultimate users because BurnLounge incentivized recruiting participants, not product sales
The short side could have saved themselves a lot of pain and suffering had they simply heeded Northwestern University's Professor of Marketing Anne Coughlan when she astutely outlined in July 2012 why Herbalife is a legitimate MLM.

One has to wonder how an organization like Herbalife that...

  1. pays absolutely nothing for the recruitment of a distributor/member, 
  2. that has robust internal consumption, robust external sales(evidenced by at least 30% of sales are directly drop-shipped to customers that are not distributor/members) and 
  3. that compensates distributors solely on the basis of product sales 
...could ever fulfill the FTC's own guidelines for what constitutes an illegal pyramid scheme?

After today's written opinion, Bill may need more than botox to smooth out those frown lines. If he's not careful, he may subject himself to yet another Loeb colonic, followed by a tummy tuck, liposuction and chemical peel courtesy of Herbalife, Bill Stiritz and Carl Icahn.

So again..."I have to ask how the Shorts sleep at night?"

Saturday, May 31, 2014

Sleepless nights

I recently had coffee with a friend and I didn't have much to say. In fact a bunch of people have been wondering why I haven't had much to say recently. Why say anything at all when someone has already said so much for you?
"I have to ask how the Shorts sleep at night? As a percentage of shares outstanding, I believe that the company is one of the most heavily shorted of all companies listed on a U.S. exchange. The shorts are playing a dangerous game of musical chairs. When the music stops, I believe that there will be a furious rush to match players with chairs and the price at which the market clears will be materially higher than it is today. If that were not enough, the game of musical chairs gets more dangerous with each passing week. I estimate that the company currently generates millions of free cash flow a week and uses that cash to retire shares. At the current share price, the company is able to remove millions of shares annually."

Wednesday, May 7, 2014

MY MOST IMPORTANT BLOG EVER: I Am Bill Ackman's Identity Crisis

It's hard to keep up with Bill Ackman sometimes. I can't tell if he wants to be a portfolio manager, a journalist, a website producer, a movie director or a geologist (he's digging under rocks).

There have been some interesting developments in Herbalife today. I saw today that Gasparino confirmed that the NY Attorney General has not subpoenaed Herbalife. It's kind of hard to have an investigation without a subpoena no? On the Gasparino's report I contacted the company separately and confirmed his claim; Herbalife has not been subpoenaed by the NY AG. That news comes on the heels of Herbalife announcing their ASR with BofA.

And last week Ackman debuted his documentary and hosted a discussion panel afterward that both clearly demonstrated a serious disconnect between Ackman's claims and the reality of the situation. The stock is not at an all time high, but Ackman is still underwater on his trade (if he's still in it) and it seems that no matter what he does, it just isn't enough. Theta decay is a bitch.

Back to geology. Let's lift up a few rocks:

  • I, TheSkeptic21 (@theskeptic21) am one single person that writes blogs and tweets that are entirely my own opinion and my own thoughts.
  • My girlfriend is in finance. I asked her and she has never tweeted or blogged about Herbalife or any other company.
  • I have reason to believe that Michelle Celarier of the NYPost is about to profile me in an article.
  • I think that Michelle Celarier is blatantly attempting to support Bill Ackman's failed short trade on Herbalife.
  • I believe Michelle Celarier may have used nefarious means to obtain information about me (or that someone used nefarious means to obtain that information and then gave it to her).
  • Michelle Celarier and the NY Post (and anyone they may be writing such an article at the behest of) are baiting the hook with someone I love (my girlfriend); I believe this is the short side's desperate attempt to silence me.
  • Anything anyone may write about my girlfriend, aside from basic facts like age, employment history etc., will likely be fabricated. She has nothing to do with TheSkeptic21 and the opinions expressed by me have been entirely my own.
  • What is particularly unfortunate and unacceptable is that my pregnant girlfriend (we don't know boy or girl yet, but I will tell you in a few months) is likely to face difficulties and aggravation in the industry she loves because a conjuring, conniving billionaire has made a reckless bet that has moved against him. You only need look back on my previous posts and some excellent articles by the NY Times and others to observe his tactics.
  • Based on his previous tactics and Michelle Celarier's previous articles, I have little doubt that they'll still write a story about me anyway and they'll probably include names and facts about people I love, although I hope they don't.
  • All that being said, it would appear that Ackman is finally desperate enough in his trade to go after a lone blogger that speaks truth.
In light of all that, I have to ask what type of world we live in where behavior such as this is acceptable?  My identity and the identity of my girlfriend has absolutely nothing to do with any of this. My girlfriend has done nothing wrong, and I have done nothing wrong, yet our identities and privacy are being used as a threat. Say what you will about blogging, but I thought confidentiality and privacy were inviolable within the hallowed halls of journalism, yet a journalist is using that very privacy as a threat. And to what end?

If my identity comes out, it will not stop me from writing the truth, and writing about my observations, nor should I be threatened into submission by the threat of my identity being revealed (or the identities of people I know) by a powerful billionaire and his journalistic cronies. Keep in mind, I've never blogged or tweeted anything that was material non-public information, nor have I received, traded on or disseminated anything of the sort for that matter. I have merely pointed out the shortcomings in Bill Ackman's Herbalife short thesis and the whole while I have maintained that everyone should form their own opinion entirely separate from my own. I fully intend to protect myself if they print lies.

It's time for Ackman, Pershing Square, the NY Post and Michelle Celarier to stop pretending that they're doing the right thing and to actually start doing it.

(*disclosure: considering the intimate threat of her identity being revealed, I have allowed my girlfriend to read this before publishing.)

Monday, May 5, 2014

Harvey Pitt is an Asshole

Assholes get little credit. They're always there in the darkness and heat, constantly, yet tirelessly flexing for all they're worth; one transient, relaxed moment away from total disaster. We take our anuses for granted, we even refer to unsavory folks we don't like as assholes. When I think about working at the SEC, FBI, DOJ or AG's office, I imagine it's probably a lot like being our asshole.

They work long hours filled with shit and hot air. The equipment only gets upgraded in case of emergencies. They have limited resources, but potentially unlimited demand. Although they have little input into what goes into the system, regardless of how much gets crammed in there we expect them to make ZERO mistakes. If they let down their guard for one minute the filth and muck could spill out anywhere.

It is in a spirit of respect and admiration that I make the analogy, particularly because they have to deal with shitstains like me. My sincere thanks to all of the assholes in the world (both figurative and literal) because my life would be a huge mess without you.

And as the bowels of Wall Street gurgle and churn, binging on information, acidifying and then extracting the nutrients out of every morsel of news and rumor, ever so tightly the sphincters hold the line. As the masticated compendium snakes its way through our system, those sphincters act as gatekeepers, ultimately responsible for the timing of that information's release. It is tiring, thankless work.

Like college frat boys clumsily attempting to explore the system in reverse order, we often attempt to probe those regulators in an effort to take their temperature, judging the digestive health of the systems they regulate. Anyone that has ever attempted to extract information out of a government regulator knows that 'tight' does not even begin to describe the inflexibility of their sphincteral fortitude. It's like trying to open a clam that's caught in a bear trap. So when the former head of the SEC ascends the throne and voluntarily puckers up I'm not so quick to flush.

Last week, when Chairman Pitt was asked by Trish Regan (embedded below) about the recently confirmed news that the SEC was investigating trading in Herbalife he said,

"They've been looking at HLF, I suppose in part, based on Ackman's allegations. These allegations actually redound to Ackman's disadvantage because they are about lack of trading principles at Ackman's hedge fund and that I think will have a serious consequence.

he continued...

Every hedge fund like Ackman's is required to have effective policies to prevent the disclosure of material nonpublic information. And so, if Ackman's employees are divulging information, that would be a violation, both of it's policies and of insider trading requirements.
Later on Chairman Pitt added:
It is very clear that Ackman's whole strategy has not been about imparting news to the public its been about creating trading opportunities for his short position. 

When asked by Ms. Regan if it would be in Ackman's interest in terms of making money to leak information about his short position Chairman Pitt responded:

Exactly, and one other thing is to encourage other funds to sell stock as well, even if not before the event, to try and put more pressure on Herbalife's stock price.

To put Chairman Pitt's comments into context, it was previously reported that Mr. Ackman was personally peddling material non-public information to others at an idea dinner in an effort to encourage them to short Herbalife. Forget Pershing Square employees, Ackman himself appears to have wiped his ass with any policies governing insider trading requirements and confidential information.

As much as Mr. Ackman has positioned his short interest by swaddling it in the false aura of a bleeding heart, it is increasingly clear his investment style is to become a bleeding, inflamed hemorrhoid attempting to throb forth with misinformation, pain and discomfort into the bowels of American investing. Harvey Pitt is no regular asshole either. He was THE asshole at the SEC and prior to that he worked directly with Congress to draft a plain language restructuring of insider trading rules. I wouldn't be surprised if we begin to see more assholes decide to drop off a couple friends in Bill's pool.