Wallstreetwest/25/dp1st/mark2nd
BENJAMIN MARK COLE
Global Crossing Ltd., the huge undersea cable company that’s the handiwork of L.A. billionaire investor Gary Winnick, is a favorite of Salomon Smith Barney’s Jack Grubman, routinely ranked by Institutional Investor as the No. 1 telecommunications analyst.
Of course, it should be remembered that Global Crossing has gone from $9.50 a share when it went public a year ago to a peak of $65 in May, before retreating to the low-$30s (and resulting in hundreds of millions of dollars in paper losses for Winnick). Still, Grubman expects it to reach $45 within a year.
Some of the recent weakness has been related to investor worries that Global’s pending acquisition of Frontier Corp., a local and long-distance provider in New York, might somehow be foiled.
Frontier was the subject of a months-long bidding war between Global and Qwest Communications International Inc. that ended last month when Qwest agreed to acquire U.S. West for $35 billion while Global took Frontier for $11.1 billion. The price of Global stock fell sharply during that period.
Grubman said investors should stop wringing their hands. “Both companies are committed to the merger, and we believe a merger will close” by October at the latest, Grubman wrote in an Aug. 14 letter to Salomon clients.
Grubman may have a good pipeline, since his firm is Global Crossing’s banker in the merger, which is set for a shareholders vote on Sept. 22 and which is supported by the boards of both companies.
One obvious concern is that 33 million shares of insider stock are now available for possible sale after clearing Securities and Exchange Commission Rule 144 restrictions on Aug. 14. The shares are part of the 412 million issued by Global.
Again, Grubman says not to worry. “Most of the shareholders are longtime friends and associates of the Global Crossing sponsors,” he wrote. “Most have hedged their stock positions, and in speaking to these owners I find most are buyers.”
Index for free, baby
The transactional costs of investing just keep going down.
Online brokerages have cut trading costs to levels unimaginable a decade ago. And soon you may be able to put money into a new S & P; 500 index fund with no fees at all.
The fund, now in registration with the SEC, will be operated by Michael Witz, who this year launched the Stockjungle.com Web site, based in Culver City.
So how do you make money giving away fund services? Witz, in the SEC-mandated quiet period, wasn’t talking a lot last week.
But one theory, which he didn’t dispute, is that investors attracted to the fund might invest in three other funds that Witz is linking to the site and that will charge 1 percent in annual fees.
In addition, interest by investors in the Stockjungle Web site could aid the sale of banner advertising.
The three Stockjungle offerings that do charge fees are the Market Leaders Growth fund, which covers companies with big industry market shares; a pure play Internet fund; and the Community Intelligence fund for stocks suggested by visitors to the Stockjungle.com Web site (though final say on inclusion will be held by the fund manager).
Witz previously was a financial analyst with the Financial Resource Group Inc. in Marina del Rey, which provided the capital for start-up of the funds.
Vans shows strength
St. Louis-based brokerage A.G. Edwards & Sons Inc. likes Vans Inc., the Santa Fe Springs shoe importer and skateboard park operator.
For the year ended May 31, the company posted $205.1 million in sales vs. $117.4 million four years earlier. That’s a compounded annual growth rate of 20.4 percent. Net income also grew in the same four years $9.4 million vs. $4.2 million for a 31.3 percent annually compounded growth rate.
The conservative A.G. Edwards prefers steady track records like that.
At $11 a share, Vans trades at under 14 times estimated 2000 earnings, cheap by prevailing standards on Wall Street, where anything under 20 times earnings is generally seen as a cast-off.
But Vans is heavily dependent on the youth market mostly teen-aged boys or young men to buy its shoes and use its parks. Predicting that crowd is not always easy.
Internet success
Kline Hawkes & Co.’s California LP venture fund, which several years ago moved heavily into Internet infrastructure enterprises, seems to do better with each turn of the page.
Frank Kline, who leads the West Los Angeles-based shop, took a pre-IPO equity stake in San Jose-based AboveNet Communications Inc., a firm often identified as the Internet service provider for Internet service providers in that it helps with fast, reliable access to the Web. AboveNet went public last December, and suddenly Kline’s stake was worth about 700 percent more than he paid for it.
Then, in late June, Metromedia Fiber Network Inc. (controlled by billionaire John Kluge) announced it would buy AboveNet in a stock-swap deal. Now Kline’s stake is worth about 14 times what he paid for it.
Kline was also an early equity investor in Pasadena-based GoTo.com, another local Internet success story.
Kline revealed last week that investors in the California LP fund (opened in 1996) already have enjoyed a 55 percent annually compounded rate of return. Not surprisingly, he is working on a new offering, the Kline Hawkes Pacific fund, and will probably open an office in Seattle as well.
Kline does have one problem. With so much money under management (about $300 million), he can’t waste time on small start-ups. “I can’t invest $1 million. I have to invest at least $5 million or $10 million,” Kline says. “That isn’t a start-up anymore.”
Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].
