Captain's Blog, stardate 1/31/07
Frank Blake, Michael Dell, the crazy world of private equity, and Andy's Super Bowl prediction.
NEW YORK (Fortune) -- OF OIL, STOCKS AND HOME DEPOT: So now the big news is that the Saudis are trying to pressure the price of a barrel of oil UP! How the worm has turned. Notice how the equity markets are yawning, even though the price did bump up! That's because when OPEC has to work to make prices climb - as in cutting supply - well, that's a tough row to hoe. Why? Because everyone and their mother cheats!...Luv the buy on the rumor sell on the news on Google (Charts). Dang stock up $7 to $501. Then earnings come out...nearly triple! And the stock's off $9 in the aftermarket. Newsflash: It's not over....Frank Blake, the CEO of Home Depot (Charts) came by. A VERY different cat than Nardelli. Quiet, likeable I would imagine, humble, almost diffident. And a singular background. A lawyer who worked for George Bush (the elder) when he was VP, the EPA, and the Energy Dept. Blake wants HD to keep it simple.
DELL: Well Steve Jobs came back. Bill Gates hasn't. Guess it depends. Was Kevin Rollins responsible for Dell hitting the wall? Or was it the law of large numbers? You know what. This is one time where we can really tell. In five years, we will know. (Look what happened - eventually - when Steve came back to Apple (Charts).) I think the market will respond positively to this, how could it not. Guy's barely 40! Rollins told me one time that the iPod was a one-trick pony. Um, that's a stallion, son!
CRAZY P/E: This from Katie Benner at a rockin' private equity conference: Some predictions thrown out: Larry Schloss of Diamond Castle Holdings says there will be $187 billion in M&A, and that a megafund will go public as an asset manager....Jeff Walker, Chairman and CEO of CCMP says there will be a mega LP co leading on a deal with a mega GP. Brent Nicklas, managing partner at Lexington Partners, says a pension fund will outsource its private equity arm....Sheryl Schwartz, managing director of alternative investments at TIAA-CREF says the strategic buyer will return to the M&A landscape and that there will be a consortium that includes a Fortune 100 company and a buyout firm. (Check out all the "mega" references)...Also, "until something goes really bad, you'll be surprised at how 'big' big really is in the short term" from Larry Schloss. Sound like a bubble to anyone else?......Also some old chestnuts being hit hard here..."masters of the universe"... "new corporate rock stars"... "bigger and better and more"....But there were a couple of reality checks amid all the internal "boo-yahs" (shout out to JCramer): 1) It's going to be a tough road for the firms in the mid cap world, since they're paying the same multiples and leveraging the same debt as the big guys, but without the money to pay the big wig exec bench that some believe it will take to turn companies around. A lot of nervous shifting at this pronouncement as, of course, not all in the room work for Bain or Cerberus or KKR or Blackstone or Carlyle; 2) Even though it's a room full of congenial friends, the club deals could show some cracks when it comes down to who is really in the lead on these club deals. Especially if the going gets tough... maybe going in on a deal with five of your best frenemies [love that!] is not always a good idea?...and there's this from William Conway, managing director at Carlyle. He says the second biggest mistake he's made in the past few years is not replacing certain management teams soon enough. "I have this very human heart," he said, referring to the fact that he likes to give guys a second chance. "It's been in my experience though that I should have shot them right away." Oh Mr. Conway, you old softie you! Wonder what mistake number one was?
THE (BEST DAMN) LOOSE CHANGE (EVER!): Who GOES to Hugh Grant movies? I almost feel sorry for Drew Barrymore. Almost.....Are the Police getting back together?....Dear ML at Netsuite, LUV that apple juice. Thank you!.....Listening to "Warren Haynes Presents: The Benefit Concert Volume 2." Out soon. Allman Brothers playing "Ain't Wasting Time No More," is AWESOME......This from Adam Lashinsky: "A couple years ago I observed, in Streetlife, that we all suddenly could cite the price of oil and knew its daily changes. Something we never would have done five years ago. I predict the same will be true for corn soon. ($4.20/bushel recently, I think)...Also Comcast (Charts) and Google trade for almost identical forward-earnings multiples: about 47-48 times 2006 earnings. The Street probably values Comcast on a price-ebitda multiple, not p-e, but still. That's pretty interesting and shows you how far Comcast has come in the past two years." Thanks Adam! Oh and Sorry Adam and Lovie, but Colts by 10!