REUTERS:"Liquidator" Jacobs bets on insurer's turnaround
biz.yahoo.com
Friday August 11, 6:01 pm Eastern Time
"Liquidator" Jacobs bets on insurer's turnaround
By Bill Rigby
NEW YORK, Aug 11 (Reuters) - What do you do if you gamble
$100 million that a company's stock will go up, then find
some of Wall Street's smartest investors are betting
against you?
You can fold, or like Irwin Jacobs -- the veteran investor
also known as ``Irv the Liquidator'' -- you can take out
$200,000 worth of advertising in newspapers telling Wall
Street experts they are wrong.
Jacobs, the 59-year-old Minnesotan who made his name in the
1980s hunting companies to buy and sell at a profit,
is getting the word out as the company he invested in
-- troubled life insurer and loan firm Conseco Inc. (NYSE:CNC - news) --
is nearing a pivotal deadline to pay off $766 million in bank debt.
Jacobs' adversaries, Wall Street's short sellers think
Conseco isn't going to make it, and have bet the stock will
collapse.
So Jacobs last month took the rare step of urging
shareholders to join him in his battle against
short-sellers, and urged fellow Conseco holders to refuse
to make their shares available for short selling.
Short sellers, mostly sophisticated Wall Street investors
managing
other people's money,
managing
other people's money,
managing
other people's money,
borrow stock from their brokerage and order it sold.
They later aim to buy it back at a lower price.
But if there's no stock available, they cannot short.
``This is a high-stake poker game,''
Jacobs told Reuters in an interview. ``
The only reason a short seller can be there is because a
long lends the stock to them,
they couldn't play the game otherwise.''
Jacobs, who made takeover runs at American corporate icons
like Walt Disney Co. (NYSE:DIS - news) in the 1980s,
has spent almost $100 million on 15 million or so Conseco
shares since May, building up a stake worth just less than
5 percent -- the level where the holding has to be declared
publicly.
Jacobs moved in when Conseco's stock hit a 9-year low of
4-1/2 in May, driven down by a host of problems springing from Conseco's
$6 billion purchase of loan firm Green Tree Financial
two years ago.
The stock traded as high as 58-1/8 before the acquisition closed in June 1998.
Buying the shares between $4.50 and $7 a piece,
Jacobs has already made a tidy profit at Conseco's
closing price of 7-5/8 on Friday on the New York Stock
Exchange.
But he thinks the shares are worth more,
and blames Wall Street's hedge funds,
the high-return investing clubs
for the wealthy
and risk-hungry, for talking the company down.
So he took out two half-page advertisements in the
Wall Street Journal -- costing $77,000 a piece, according to the Journal's rate card --
and one in the Sunday New York Times business section, for about $63,000.
``I for one have been appalled by the barrage of
disparaging rumours and dire predictions of doom that have
circulated about Conseco,'' the ad said.
``I believe it is no mystery as to where the misleading
negative rumours have come from, the short sellers''.
Jacobs went on to ask Conseco shareholders to pull their
accounts from brokerages if these firms lend their Conseco
stock to short-sellers.
Jacobs' own brokers, which include
Donaldson Lufkin & Jenrette (NYSE:DLJ - news), have
complied with his requests, Jacobs said.
Spokespeople at Jacobs' brokerages declined comment.
If Jacobs' plan was to relieve the pressure of short
sellers on Conseco's stock price, he failed.
Conseco shares have fallen 18 percent since the first ad
appeared July 28.
About 64 million, or 20 percent, of Conseco's
325 million outstanding shares are in short positions,
according to the latest exchange data.
That makes about 45 percent of the public float,
that is, the amount of shares not owned by insiders and
institutions.
But Jacobs says his offensive is working.
``They are doing exactly what I hoped they would do,
they're getting madder and shorting more stock.
There's no rationale -- they just have a blind love of the
short side,'' Jacobs said.
``They want to see this company go under,
but they are not going to get their wishes,
that's obvious.''
Others are not so sure. Conseco must repay $766 million in
bank debt by Sept. 22, and debt agencies have taken down
the insurer's financial strength ratings several notches
in the past few weeks.
New Conseco chief Gary Wendt, who made his name running
similar businesses at General Electric Co.'s
(NYSE:GE - news) GE Capital, is looking to sell assets
quickly to raise money, but analysts say his plan may
falter.
``People are really confused about how he (Wendt) can
achieve everything he wants to achieve,''
said Standard & Poor's analyst Daniel Martin.
``You cannot grow Conseco Finance (the loans unit) while at
the same time expecting it to provide the cash needed to
support Conseco Inc. (the holding group)''.
Jacobs, on the other hand, is counting on Wendt to turn the
company around. He reckons Conseco's shares can climb as
high as $30 over the next few years, based on $2 to $3
annual earnings per share at an price-to-earnings multiple
of around 10 times, which is still quite low for an
insurance company.
Expect more noise from Jacobs if it doesn't turn out that
way.
``I'll do what I've got to do.
People know I'm pretty serious about this thing,''
Jacobs said.
``The only thing I can tell you is it won't be my tombstone.''
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