Can Turtles Fly?

With markets rallying strongly and the merger spread narrowing considerably, I decided to exit my Lexmark (LXK) risk arbitrage position. If I had waited for full closure, I could have earned 1% more with little risk. This was my first purchase in 6 years :( and am very satisfied with the return. The key reason for the merger gap was due to uncertainty over CFIUS approval, which eventually happened. Most of the gap closed after the approval was announced. Purchase Price: US$36.03 Sale Price: US$40.12 Total Return: 11.3% (annualized: 134% -- meaningless, short holding period) Once the merger is consummated, this will end Lexmark as an independent entity. Interestingly, in a similar path to Lenovo, a former subsidiary of IBM ends up in Chinese hands. It is a sign of the growth of the Chinese economy and the rise in prominence of Chinese companies on the world stage. (Having said that, I still maintain my bearish view of China and think it is in a major bubble which is only ...

After a very long absence... I decided to invest in the Lexmark (LXK) takeover by Chinese parties. The deal is expected to close this year and has an expected return (based on my assumptions) of around 8%. Although the company is somewhat different now, I did a lot of research about 5 years ago on Lexmark so I am somewhat familiar with it (it isn't a terrible business but it is definitely in a declining industry). The main risk with this deal is the uncertainty over the CFIUS government agency approval. Takeover price: $40.50 Deal closing: 2nd half 2016 Purchase price: $36.03 Prob (success) = 90% Return  (success) = 12% (@ $36.03) Prob (failure) = 10% Return  (failure) = -31% <<< assume it drops to $25 Expected Return = 8% Overall expected return isn't that high--I like to aim for at least 12% return--but given that the deal is likely to close within an year, the 8% return is good enough for me. The stock may decline 1-2%...

UPDATE: Fixed a tiny grammar mistake as suggested by reader Guest . A little less than a month ago, I e-mailed Geoff Gannon and inquired about Lexmark (LXK). I don't usually do that but decided to ask him about his opinion of Lexmark because he was wrong with his initial view a few years back. I was curious about his views of how the company has changed (apparently for the worse if the stock price was an indicator) in the last few years. Geoff Gannon was kind enough to post a lengthy response detailing his thoughts and I thought readers would benefit from his comments (used with permission.) Even if you could not care less about Lexmark, read this post because it illustrates the thinking and approach of a value investor. He also responded to a follow-on questoin and another unrelated question pertaining to Coca-Cola which I will quote in future blog entries. The topics of the other e-mail were slightly different and it is useful to read them as a stand-alone piece. This first ent...

Now that Lexmark is on my list of companies to research, I have been paying more attention to the printer market. I think it is essential for investors to figure out the business environment before investing in something. Reading some news stories on the competitors is one quick way to get up to speed. HP is probably the market leader in the printer business. There are many different segments—home, business, commercial; inkjet, laser; etc—and HP doesn't always lead every single market segment but it is dominant in most segments. So, it's always good to see how the market leader is doing. Let me excerpt some points from a New York Times article covering HP's recent earnings results (as usual, bolds are by me): In the last year, H.P.’s sales of printers and related supplies like ink have tumbled. The major cause for the decline remains the weak global economy. Businesses have spent less on printing products, and with unemployment high, fewer workers are around to hit the ink...

This might be a landmine but whatever it is, I'm really attracted to Lexmark (LXK). I have been researching it and thinking about it a lot in the last few weeks. I thought I would write up my preliminary thoughts on its 10 year financials. I'm just a newbie when it comes to financial statment analysis so if someone has ideas, tips, or corrections, let me know. The more ideas I get, the better off I'll be so even if it's a criticism, go ahead. The following image summarizes the 10 year financial history of Lexmark. I extracted it from a Morningstar analyst report. I deleted items I either don't look at or felt didn't matter much for Lexmark. A lot of the stocks I look at don't have reports and I usually get the information from the sources I mentioned before . I highlighted some preliminary thoughts I have from simply looking at the 10 year history. Although I don't think in this order, let me go down the highlighted items from top to bottom. Revenue The ...

I started researching Lexmark and, unlike many companies I have looked at recently, there is nothing that makes me cross it off my list. It's certainly a secondary company with no moat and declining business but I Googled some reviews of their printers and they seem popular. Although the review ratings tend to be lower than HP, one wouldn't invest in this business with the expectation of buying something with the top product. Anyway, this might sound like shoddy analysis to some but, I took a look at Google Insights to discern Lexmark's popularity. I didn't spend much time thinking about a proper comparison; I just went with a simple comparison of a search for "lexmark" versus "printer". I tried looking at competitors like "hp" and "canon" but the problem is that these are diversified companies offering many different products. One can't really compare their popularity to a printer-only company like Lexmark. This problem is a...

I started researching printer companies after getting interested in Lexmark. I ran across a freely-accessible story from Barrons on Ricoh , a Japanese printer company. Those interesting in printing company may want to see how Ricoh is doing and its plans for overcoming the tough business environment. Although the product mix is somewhat different, you can see the initiatives Ricoh is undertakig compared to Lexmark. On another note, I ran across a good blog entry chronicling Lexmark's fall at Lowell's: Under the Hood . Lexmark is supposedly headquartered in Lexington, Kentucky (never knew that) and the blog is written by a local who seems to have worked at the company many years ago. It seems like a rant and is a very bearish piece that suggests that Lexmark may not have many years left before it collapses completely. It's still good to get the opinion of the bears. However, investors should always keep in mind that there is a huge difference between a good stock and a good...

I came across an interesting contrarian stock, Lexmark (LXK). Thanks to commentator BatBeer2 at GuruFocus for bringing it to my attention (BatBeer suggests levering up the firm, by issuing debt and buying back shares, but I don't think that's a good idea right now.) Lexmark, once upon a time a division of IBM, is a printer company that has fallen off a cliff. But like most stocks in such situations, it hasn't hit the ground so one can never be sure if you are attempting to catch a falling knife. I would peg this as a very high risk opportunity. Here are some quick numbers from Yahoo! Finance: Lexmark International (LXK) Market cap: $1.13 billion Enterprise value: $976m Debt: $648m (but has cash greater than this) (has under-funded pension obligations ) ROE: 11.6% (depressed; historically 25%+ but not sure if it can regain it) Operating margin: 6.7% (10-yr avg close to 10% but may not hit those numbers again) Profit margin: 3.2% (10-yr avg over 6% but may not hit those num...