A couple of new thoughts on FGI
(Mind wandered a little while I was watching Seahawks back-ass into an ugly win over the Bears. Heh Heh)
(1) Fundamental Trouble for the Yards? Naaah
Slider: If the case for new-builds is so bleak wouldn't it make sense to be shorting the second tier yards (e.g., UFAB, GIFI -- apologies to B Bull <vbg>) in addition to and even heavier than FGI? In a dwindling pie scenario isn't the top yard a safer bet than than the competitors? Since across-the-board shorting doesn't seem to be happening, maybe selling and extreme short interest in FGI is not at all attributable to macro-conditions but rather temporary conditions unique to FGI.
In any case, I do disagree that FGI's new build biz is hopeless... there's the Illion hull and the two Ocean Rig hulls which alone could account for $600 million. I higlighted the Illion excerpt for the August 10Q in a recent post, and Big Dog added his thoughts on Ocean Rig's hulls. And we're still not even counting the deals yet to see the light of day -- per B Dog.
Beyond THAT, I think I read Matt Simmon's comment somewhere (probalby ODB) that FGI's margin on re-furbs and repair exceeds new builds. JL might be thinking he'll turn all that 20-30 yr. old cold stacked iron into tall cotton.
(2) Selling Pressure
The merger more than likely will be consummated, particularly now that the terms are sweetened for HLX. Upon merging, those institutions owing both FGI and HLX will instantly become heavily overweighted in FGI. Unless a compelling case can be made to maintain the overweight (ironically, the nasty high short interest and a few new orders/rebuild orders might to exactly that), those institutions will have to sell FGI. If any of that selling is happening now, it is obviously forcing FGI stock onto a reluctant market -- one that is starved of credible substantive information due to the SEC 'quiet' rules and an unfortunately non-reactive or indifferent FGI management.
And why wouldn't the selling occur now? Dump FGI and buy HLX now and you wind up post-merger with lower-basis FGI courtesy of the arbitrage premium. If this dynamic is at work it seems obvious that FGI will drift lower short term. But in my view, that will only create a wonderful buying window for this fundamentally sound, industry leader that seems to be picking up HLX cheap -- especially if the Navy deals work out.
So, are there institutions institutions with meaningful positions in both FGI and HLX? As near as I can tell from Vickers there are four (as of 6/30/99)
FGI / HLX
Barclays Bank: 487,000 / 483,000
Citigroup: 316,000 / 807,000
Taunus Corp.: 228,000 / 162,000
Vanguard Grp.: 187,000 / 440,000
Just my 2cents. Leaving now for a BBQ at the park. Its mid-70s and blue sky here in Seattle. Damn, I love this City on days like this. Regards all. |
