Last week, we reported on the mega oil-company deal that'll make Rosneft Russia's No. 1 oil producer. Excluding state-owned companies, it'll be the biggest oil company in the world, surpassing ExxonMobil.
Rosneft is buying Russia's No. 3 oil producer, TNK-BP, for $55 billion in cash and stock. Extreme Value holding BP will get $16.7 billion in cash and about 12.8% of Rosneft's shares for its share of TNK-BP.
Last week, BP said it will use $8 billion in cash from the deal to repurchase its own shares. At its recent price, $8 billion would buy about 6% of BP's outstanding shares.
Since the April 2010 Gulf of Mexico oil well explosion that killed 11 workers, BP has gone through a massive transition.
The company set aside a $20 billion reserve for damages. It booked a $3.3 billion loss in 2010 and finished that year with a huge debt load of $63.5 billion. But the company has since paid off $10 billion in debt. Net profit was $26 billion in 2011 and $11.8 billion last year. The company is back to being profitable.
Following the 2010 disaster, BP wisely eliminated its dividend to preserve capital and reinstated it the next year at 50% of its previous level.
Today, it sports a 5.1% dividend yield. It has resumed its annual dividend raises, which it did for 13 consecutive years prior to the Gulf disaster. It's raised its dividend about 13% a year since 2011. And its big share repurchase plan will help the company continue to raise its dividend. (Fewer shares means BP can afford to pay more per share.)
Extreme Value subscribers are up 12% since I (Dan Ferris) recommended the stock. They've collected $4.20 per share in dividends.
Warren Buffett conglomerate Berkshire Hathaway will soon own 2% of Wall Street megabank Goldman Sachs.
Berkshire bought $5 billion of Goldman preferred stock in the depths of the financial crisis in October 2008. Berkshire made $1.25 billion in dividends until April 2011, when Goldman redeemed the preferred stock for $5.65 billion.
The deal also came with a sweet kicker: 43.5 million warrants to buy Goldman's stock at $115 a share. (Warrants act like call options issued by the company... They give the owner the right to buy a share of stock for a set price at any time before the expiration date. Warrants last for years.)
Today, Goldman shares are trading for around $146. Exercising the warrants today would net Berkshire an instant $1.4 billion profit... But the deal has changed.
Instead of Berkshire buying the Goldman shares, Berkshire will simply receive its profit in Goldman shares. So Berkshire will get $1.4 billion in Goldman shares without spending another penny. That's about 2% of the company and puts Berkshire among Goldman's top 10 shareholders.
If you or I had bought Goldman Sachs on the same day, we would have made about 20%. But Buffett essentially tripled those returns. And the only way for you or me to get in on this action is to own Berkshire shares and profit when softballs are lobbed in Buffett's direction.
In the February 26 Digest Premium, Porter explained how Michael Dell, the founder of Dell computers, was ripping off his shareholders with his offer to take the company private...
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So why would you want to [take Dell private] if you're Michael Dell?
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The answer is simple... Dell's cash flows will remain steady after the takeover. And since the company will be higher-leveraged, Michael Dell will personally make more cash on his equity.
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The computer market is a tough business, but Dell is still gushing cash – more than $5 billion a year. And the company's enterprise value (market cap plus debt minus cash) is around $20 billion.
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So Michael Dell wants to buy this company at four times cash earnings. He's no dummy. That's going to make him a fortune. But it would be much better for the long-term interest of shareholders if they kept their stock at this very low price. It'd be even better for them if Michael Dell borrowed that money and used it to buy back as many shares as he can in the open market. In essence, he should do for the public investors who want to hold shares what he wants to do for himself.
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I have seen Michael Dell's strategy pay out again and again and again and again and again... and it makes me furious.
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Clearly, we weren't the only financial folks to notice the deal Michael Dell was getting with his $13.65-a-share bid for the company.
Yesterday, Dell confirmed it had received competing bids from private-equity firm and True Wealth holding Blackstone and billionaire investor Carl Icahn. Dell shares jumped 3% on the news – they're currently trading at $14.55 (a 6.5% premium to Michael Dell's bid).
Michael Dell has yet to make another bid for his company... But he could make it difficult for competing bidders. He owns 16% of the firm. Whoever ends up taking the company over will need to have negotiations to assure him of his role in the company... A founder selling his stake and bailing on the company he created could have serious repercussions to the buyer.
"At the end of the day, he's going to want to have a say, whoever wins," a source familiar with the deal told Reuters. "He's made himself into more of a free agent. He's going to play around a little bit now and see what his position would be with each person."
We've discussed Dr. David Eifrig's "long health care" view in the Digest on several occasions... Doc's thesis is that these companies have a terrific tailwind: an aging U.S. population.
As Doc explained in a 2011 DailyWealth essay...
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[T]he growth rate of the 65-year-old set will explode in the next 20 years in the United States.
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... More elderly people means more money spent on health care.
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Unless everyone starts following my recommendations for walking, yoga, meditation, and diet, these demographic patterns mean an explosion in the use of pharmaceutical drugs for the elderly. For better or worse, most folks just want a pill to make everything better.
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Older people use three to four times the amount of prescription drugs as folks under 50. And more than 30 million people will gain Medicare coverage by 2014. This means an increasing number of written prescriptions.
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Today, shares of blue-chip pharmaceutical giants Johnson & Johnson (JNJ) and Eli Lilly (LLY) hit new highs. Johnson & Johnson hit an all-time high... Eli Lilly hit its highest share price since 2007. Doc recommended both companies to his Retirement Millionaire subscribers, who are up 50% on Johnson & Johnson since August 2010 and 89% on Eli Lilly since June 2010.
In his latest issue, Doc offered his current economic outlook. And right now, he's bullish. In fact, his latest issue is titled "All the Ingredients for a Stock Boom Are Lined Up."
Doc follows a number of indicators to "take the economy's temperature." And right now, he says everything is pointing toward more growth.
Including several health care stocks, Doc has 18 strong buys in his Retirement Millionaire portfolio today. Doc only recommends the safest and highest-quality companies... most of which pay large (and often, growing) dividends. He even tells readers how to allocate their portfolio between his equity and fixed-income holdings.
Plus, Doc shares loads of money-saving and health tips with his readers every month. In his latest issue, Doc told folks how to save money on their prescription drugs... why they should consider skipping the flu vaccine... and shared a way to potentially file your taxes for free...
Retirement Millionaire is the perfect newsletter for serious investors who want to compound their wealth with a balanced portfolio of high-quality stocks, while also getting health and money-saving advice. You can learn more about a subscription to Retirement Millionaire by clicking here... And best of all, we offer a risk-free trial. If you decide it isn't for you within the first four months, just let us know, and we will refund 100% of your money.
Even more bullish housing news... Residential real estate prices jumped 8.1% in January from the same period a year before – the biggest one-month move since June 2006, according to the S&P/Case-Shiller index of property values in 20 cities. That's on top of a 6.8% increase for 2012. We covered more bullish housing news in yesterday's Digest.
Following up on our comments yesterday about Jeroen Dijsselbloem – the Dutch finance minister and president of the European Union finance ministers' committee (the Eurogroup)...
Dijsselbloem went on the record with two news outlets saying the Cyprus "bail in" – which will confiscate a percentage of large bank accounts – can be viewed as a template for all other financial institutions in the eurozone.
We were amazed when we saw a high-ranking government official speaking so candidly. Late yesterday, however, his office retracted his comments.
Award-winning British journalist Faisal Islam noted that Dijsselbloem appeared on Dutch TV last night to smooth over the ordeal... He explained Dijsselbloem doesn't know the word "template," so he couldn't have used it.
New 52-week highs (as of 3/25/13): Fission Energy (FIS.V), W.R. Berkley (WRB), Eli Lilly (LLY), Prestige Brands Holdings (PBH), Chubb (CB), Navigators Group (NAVG), Texas Pacific Land Trust (TPL), Enterprise Products Partners (EPD), Cheniere Energy (LNG), CVS Caremark (CVS), and Sysco (SYY).
An unusually quiet day for the mailbag... Send us your notes to feedback@stansberryresearch.com.
"You're spot on reporting on the real estate market. I was just in South Beach at the end of Feb – stayed at the Barbazon on Ocean. Wife and I looking at property 'South of Fifth'; property prices has really jumped from a few years ago. I love SOBE." – Paid-up subscriber Frank
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Miami Beach, Florida
March 26, 2013
Either inflation will heat up and become the dominant force in the world economy, forcing interest rates higher... That would cause a catastrophic collapse in the bond market.