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The eBearing News
March 30, 2000
Federal-Mogul News Roundup:
From Bad to Worse
copyright © 2000 eBearing Inc.
Just when it seemed that things couldn't get much worse for Federal-Mogul Corporation
(Southfield, Michigan), things did indeed get worse.
For some time, the company's stock price has languished due to earnings disappointments
and softness in its most profitable businesses. Management has been under fire for failing
to take decisive steps to deal with the problems, and analysts have been unimpressed
with the company's outlook. Earnings estimates have been cut, and the stock just set a new
52-week low of $12, from the high of $55.625 set this past July.
Not long ago, the company ranked 6th worst on the Wall Street Journal Shareholder
Scorecard for 1999...
[ read the article ]
...the CFO abruptly resigned...
[ read the article ]
...then, the company announced an expensive, multiyear, major restructuring, major layoffs
and was forced to restate 1999's earnings downward.
[ read the article ]
This week brought three more pieces of unexpected bad news from three directions.
Icahn Reveals Stake In Federal-Mogul
On Tuesday, March 28 (coincidentally, the same day Federal-Mogul's stock hit a new 52-week
low), billionaire financier Carl Icahn revealed ownership of 5.2% of Federal-Mogul's
stock through High River LP and Riverdale LLP. The SEC filings indicate that his
investment companies spent more than $63.6 million for 3,668,500 shares
of Federal-Mogul.
Icahn is never a passive investor, even though the SEC documents stated
only that the stock was acquired for "investment purposes". The documents also
stated that the group, "may at any time and from time to time determine to seek
contact...regarding means of increasing stockholder value."
News of Icahn's ownership provoked waves of rumors, primarily talk that Icahn would force
a management purge, then put Federal-Mogul in play as a breakup. Icahn has a long
history of buying distressed companies, then selling them off at a profit.
Icahn's spokesman had no comment. Federal-Mogul's spokesman said, "We've had no contact
with the Icahn group at all."
Federal-Mogul has a poison-pill shareholder rights plan which is triggered when one
group or investor acquires 10% of the company's stock.
Analyst David Garrity at Dresdner Kleinwort Benson said, "Icahn's filing indicates that
the shareholder suffering may be near an end, but for management it is likely just
beginning."
Lehman Brothers Lowers Federal-Mogul Rating
On March 17, Lehman Brothers analyst Darren Kimball cut his Federal-Mogul earnings
estimates and dropped his price target from $36 to $18. A "deteriorating cash
flow and earnings picture" had emerged. "We estimate that first quarter free cash flow
could be a whopping negative $250 million. The change in the cash flow story is
significant, because it has been central to the investment thesis. Street estimates of
free cash flow have varied widely, to a high of $400 million. We have been on the low
end of the Street with a $200 million expectation for 2000."
On March 30, two days after the Icahn group holdings became known, Lehman Brothers lowered
its recommendation for Federal-Mogul to neutral from outperform.
Tiger's Jaguar Fund Liquidation Involves Huge Federal-Mogul Stake
Tiger Management LLC will liquidate all six of its investment funds after long bouts of
poor performance in its portfolios. However, the liquidation of one fund has
Federal-Mogul and its shareholders nervous.
Tiger's flagship Jaguar Fund holds approximately 8.8 million shares, or almost 12.5% of
all Federal-Mogul shares outstanding.
It is not clear how or when those shares will be liquidated. Federal-Mogul spokesman Steve
Feeney said he understood that when funds such as Jaguar close, they place the shares
through investment banks rather than dump them on the open market.
Feeney went on to say, "They own enough shares so that it's kind of
an overhang. It doesn't help any, let's put it that way."
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- by Bruce A. Carr
from individual research,
tips and commercial sources.
Unauthorized reproduction is prohibited.
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eBearing.com ... for everything that moves™
Entire contents Copyright 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered
trademarks of eBearing Inc.
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eBearing.com ... for everything that moves™
Entire contents Copyright © 1999-2008, eBearing Inc. All rights reserved.
eBearing.com and "... for everything that moves" are registered trademarks of eBearing Inc.
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