Is Stock Issuance Marvelous?
Whirlpool and David Tepper math is a good start
First impressions count
When I read the annual report on Whirlpool, the head of the company struck me as a live version of Billy Crystal’s character Fernando
whose catch phrase is “You Look Marvelous.”
Well, like the comedy skit, Whirlpool is anything but…
Have a look at the annual report to see what I am talking about
I am interested because of tariffs and cheap valuation, and of cours,e when I see David Tepper interested AFTER my research, I get more convinced
Who is David Tepper?
He previously ran a successful distressed-debt strategy, bought the NFL’s Carolina Panthers in 2018, and has built a reputation as one of Wall Street’s most influential hedge fund managers.
Then…
BREAKING NEWS
(At least that’s what Sorkin says with a lack of enthusiasm, but I digress.)
Tepper is upset with shareholder dilution from Whirlpool
“We encourage the Board to (i) remember their fiduciary responsibilities and not accept management acting purely in its own self-interest, and (ii) invite domestic entities or foreign corporations who want to create American jobs and increase shareholder value to take an interest in Whirlpool,” the letter said.
Tepper said he watched with “a certain astonishment” as Whirlpool moved ahead with what he described as a sizable and avoidable equity issuance that diluted investors. He argued the capital raise carried a cost of more than 10% — far above the company’s tax-adjusted borrowing costs of under 5% in public markets — despite management’s stated aim of cutting leverage.”
This is a great learning exercise for investors.
Does a company issue shares or debt to finance growth?
Bonds offer a fixed return plus a claim on the asset if the return is not paid, 5%
Issuing Shares offer a claim on future earnings power and potential growth, so purchasers and current owners need about 10%
So his thinking is that share ownership for a “boring” company is 2x the fixed return
This is a key takeaway I got and keep in the back of your mind.
Regardless, the share issuance is going through, and Whirlpool has more money to use at its disposal, so it’s not good or bad, but how they use it.
There are a few more things to discuss, so buy me some hooch, so I will unload.
