WSJ: CNC BULLS and BEARS DUKING IY OUT
From Wall Street Journal
July 24, 2000
Despite Wendt's Arrival, Conseco Bears Are On The Rise
By ALLISON BISBEY COLTER
interactive.wsj.com^CNC
NEW YORK -- Gary Wendt's arrival at the helm of Conseco
Inc. (CNC) may have lifted the company's stock price, but
there are more people than ever betting on the insurer's
demise.
The level of short sales not yet closed out, or short
interest, in Conseco shares rose to 63.9 million shares on
July 14 from 57 million shares on June 15, according to
figures released by the New York Stock Exchange late
Thursday.
Conseco, which was trading at around $5 a share in
mid-June, rose as high as 11 3/8 after Wendt, the former
chairman and chief executive of General Electric Co.'s (GE)
GE Capital Corp., took over at the end of last month.
Wendt replaced founder Steven Hilbert, who was forced by
the board in April to resign as chairman and chief
executive.
While the rally early this month was undoubtedly fueled by
short covering, market watchers say some of the bears
who took cover were replaced by a new crowd who felt more
comfortable shorting the stock at higher levels.
Conseco closed at 8 1/8 Friday, down 1/16 or 0.8%.
The stock is 80% above its recent low of 4 1/2, reached in
May, but still well below the 52-week high of 31 5/8,
reached in July 1999.
Conseco traded as high as $58 a share in 1998, before the
company bought its consumer finance business, the former
Green Tree Financial, for $6 billion in stock.
While no one questions Wendt's reputation, Conseco bears
say they're as convinced as ever that the company is
unsalvageable. Add up the strikes, as they see them - a
highly leveraged balance sheet, a subprime lending business
that soaks up cash flow, the likely loss of insurance business
following a downgrade of the Conseco's
claims-paying ability - and you have a company headed for
a major capital restructuring that will inevitably favor
its creditors over the shareholders.
Short sellers point to Wendt's $45 million signing bonus as
evidence that the new CEO is less than certain about his
ability to turn things around.
"Strip away all of the smoke, what you've got is a lowly
rated product in an industry where that's a major
liability," one investor with a major short position said.
"Even the greatest people have not been successful in
saving some companies."
But as Alan Abelson used to say in the television ads, the
people buying Conseco are equally convinced the stock is
going to rise.
Conseco bulls point to a shakeout in the subprime lending
business that will ultimately benefit Conseco Finance, the
abundance of other assets that can be sold, and,
ultimately, to the size of the short interest itself, as
positive factors.
They note that, by his own admission,
Wendt forfeited $20 million to take the top job at Conseco.
That's the difference between his signing bonus and what
he would have received under a non-compete agreement with
his former employer.
Minneapolis financier Irwin Jacobs, who owns just under 5%
of Conseco, believes a number of people have continued to
short the stock on the way up. "It's been a pretty constant
number" of short sellers, he said, noting that the volume
of shares traded over the past few weeks was insufficient
to cover a sizable amount of short interest.
Conseco's average daily trading volume is currently running
at about 7.6 million shares.
------------------------------------------------------
TA |
