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A blog wherein a literary agent will sometimes discuss his business, sometimes discuss the movies he sees, the tennis he watches, or the world around him. In which he will often wish he could say more, but will be obliged by business necessity and basic politeness and simple civility to hold his tongue. Rankings are done on a scale of one to five Slithy Toads, where a 0 is a complete waste of time, a 2 is a completely innocuous way to spend your time, and a 4 is intended as a geas compelling you to make the time.

Friday, March 21, 2008

When Pershing Square Knocks, Hide in the Cellar

Somewhat related to my last post, Pershing Square Capital is one of these big money firms that likes to come in with its wonderful ideas to enhance shareholder value. Sadly for me, they've decided to help ruin two companies where I've had a tiny bit of stock, Borders being one of them. If you own stock in a Pershing target, sell while you still have the chance.

I'm generally suspicious of these "enhance shareholder value" ideas, which too often can be short-term fixes to boost the stock price with little regard for real long-term prospects.

Certainly, loaning money to Borders at 12.5% interest is very helpful to Pershing Capital, but not to the rest of us. Where have they been while this cash crunch developed?

At Wendy's, one of their great ideas to enhance shareholder value was for the company to spin off Tim Hortons to concentrate on the core business. Many of you in the US may not have heard of Tim's, but it is to Canada what McDonald's is to the US. It is everywhere. It sells coffee and baked goods and soups and sandwiches, most of it of high quality (I love timbits). It's heavily saturated in the Canadian market which limits growth, but they have the ability to conquer the entire United States, an endeavor which may not be easy because of entrenched competitors like Starbucks and Dunkin Donuts and Krispy Kreme, and in fact Tim's acquisition of the bankrupt Bess Eaton donut chain in New England has led to a difficult uphill struggle against Dunkin Donuts.

But that being said, Wendy's is the #3 fast food burger chain in the US. It was able to gain a little momentum when McDonalds had a bad spell a few years ago, but when McDonalds is run better as it is now, it's as difficult for the #3 burger chain to gain momentum as it would be for Borders as the #3 on-line book retailer.

But Pershing comes in and says it would be better for Wendy's to concentrate on its core business -- i.e., the burger chain that is #3 in the market going up against two strong competitors -- and spin off Tim Hortons -- i.e., the company that is #1 in its space with some potential to grow. I sold off 18 shares of Wendy's to buy more Tim's than I would have gotten in the spin-off and am glad I did. My remaining few Wendy's shares I've decided to give up on as well. And my few dozen Borders shares, it's not even worth selling right now. There's honestly no significant difference at this point to having $300 or having $0 if the company goes bankrupt tomorrow. I may as well retain the right to go to the annual meeting and make a fuss.

Thanks, Pershing Capital! Thanks, Bill Ackman! The best day to sell is the day they buy.

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