MANDA Portfolio Updates: PSD, ROH, FOR

Addition: Puget Energy (PSD)
Though I was incommunicado last week doesn’t mean I wasn’t active in the market. Last Thursday (Jan. 22) I picked up some Puget Energy (PSD), a Washington state based utility, for $28.90. On December 31, Washington state regulators cleared the way for the company’s acquisition by an Australian private equity group. The acquisition is an all-cash deal of $30 per PSD share plus dividends and is expected to close on February 6.

The company will by paying a quarterly dividend on February 15 to shareholders on record as of January 21. I don’t qualify for that one but I will be receiving an extra dividend of $0.04448/share assuming the deal closes on Feb. 6. This represents a 4% return on investment giving a 97% annualized return. Not bad!

Update on Rohm-Haas (ROH)
If you keep up with the financial news, you’re probably aware that Dow Chemical has defaulted on its promise to acquire Rohm-Haas (ROH) by the end of business today. The company lobbied the FTC to delay the closing date, a move that violated the terms of the agreement. Irked Rohm-Haas officials promptly countered with a lawsuit “in the interests of its shareholders.”

This raises some interesting questions: Will the deal get done? Will it be delayed but still go through on the same terms ($78/share in cash) or will the offering price be lowered? At this point, I don’t think anybody can accurately predict the outcome but I do think something will happen soon as Dow is paying through the nose for each day of delay.

I’m still holding the position in MANDA because frankly I’m not sure what to do. I’m glad, though, that writing the ROH Jan 50 Put @$3.00 panned out as it eased the pain of the loss, at least in my own portfolio. (I didn’t write the put in MANDA since options are not part of the strategy, but that might change.) Too bad I didn’t write the February 50 put yesterday as I could have gotten $2-$3 for it, but now might not be a good time for further speculation, anyway.

Note: Updated MANDA holdings will be shown after this article.

A MANDA consideration: Forestar Group (FOR)
An unsolicited bid for Forestar Group (FOR), a company principally involved in residential real-estate with minor interests in gas and oil royalties as well as the sale of wood fiber from its undeveloped land, was made by timber baron Holland M. Ware last Thursday, Jan. 22, for $15/share in cash. Based on the company’s outstanding shares as of Oct. 31, 2008, the deal is worth around $535.5 million. The board of Forestar said they would consider the offer.

I was ready to pounce on this but took a step back when I saw that the stock of Forestar hadn’t risen much after the announcement—at least, not as much as one might have expected. On the first trading day post-announcement, the stock closed at $12.09, up 30% from the previous close but still 24% from its offering price. That’s alot. So, I did some quick research and came up with some reasons as to why investors may not be so thrilled with it.

I’m Ware-y of this deal for a couple reasons. One is because of Mr. Ware’s reputation. In 2007, he tried to take advantage of a loophole in Georgia state law whereby a charitable institution is exempt from paying property taxes. What he did was to donate 67,000 acres of Georgia timber land (worth around $100 million) to his animal charity which up until then had only $300,000 in assets. (Click here for the full story.) Not terribly ethical but clever nonetheless. (FYI, the Georgia legislature didn’t let him get away with it.) This leaves me to wonder what Ware is up to now…

The other reason is because of his stock position in the company. As of 12/18/08, Ware is reported to own 2.35 million shares of Forestar stock representing 6.6% of the outstanding shares. Guess who owns nearly 10% of the company? Mega-investor Carl Icahn that’s who (3.5 million shares as of 9/30/08). What I’m wondering is if Icahn along with other stockholders and company officers and directors will be willing to tender their shares at a loss. Would you?

Before the end of last September, Forestar stock had never traded below $15 as you can see from the weekly chart below. Of course, the real-estate market may not recover for a while so in that respect this deal may offer some luke-warm appeal. As for me, I’m staying away from it.

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