Tuesday, May 13, 2008

Electric Power Development (#9513): A Synopsis

Some things are simpler to understand than others. Be that as it may, some activists seem to have difficulties comprehending even the most overtly simple of concepts. But then there are always some people that must learn the hard way.

* TCI ostensibly thought Elect Power Dev was "Cheap" and ripe.

* So did I, and thus, I bought some.

* And TCI bought some too. (Lots more than me)

* And TCI bought more.

* In the process, TCI ramped the price.

* So I sold my stock to TCI (TYVM!)

* TCI collected huge Perf Fees as a result of this ramp. TY (investors) VM.

* After the buy & ramp, they made some noise (as activists do).Something to do with investing less and paying shareholders more.

* I shorted some stock for the fun of it.

* TCI were told by Mgmt (and 2-in-3 shareholders) in no polite terms to "Fuck to the fuck Off". Ok maybe it wasn't that impolite (but it well could have been).

* TCI subsequently lost lots of mark-to-market money as 9513 fell ~50% and underperformed TOPIX by 33%.

* I bought my short back. TYVM.

* TCI didn't have to return to their investors, any of their perf fees formerly earned.
* TCI still had their [large] position so made more noise, this time pitching investors on the benefits of something they called "MAXIMIZE VALUE VIA EFFICIENT CAPITAL STRUCTURES". Errrr ... In other words: "Cut investment. Leverage-up. And pay us more dividends".

* Elec Power Dev Board said in a Press Release: "The last time we checked WE were the management, and YOU were the shareholders. IF YOU want to be the MANAGEMENT, Then YOU must BUY the MAJORITY.

* TCI accepted their dare, and said they would like to buy more.

* This may have been a ploy, but at less than YEN4000/share (5% earnings yield) and nearZIRP YEN rates, this perhaps was sincere.

* 9513 only has a YEN600bn market cap, so this remained plausible given TCI's apparent AUM.

* A plan was hatched by TeamJapan to win, once and for all.

* MoF and MITI said: "We are GOD. You are NOT. You are not welcome here. Now Fuck the fuck off"

* TCI now has a very large and less-than-marketable position in 9513, with no immediate exit.

The moral? Do not tug on Superman's cape, Do not piss into the wind, Do not fuck with the people that make the rules unless (a) you've already made enough money, (b) you have a good "Plan B" (e.g. compromising pictures of important Ministers with, for example, Spitzer's ho') or (c) it's not your money.


Anonymous said...

Let's see, Electric Power Development (J-Power) came about after WW2 when cash was short and a central institution for energy R&D was needed. In other words it's a public corporation with a specific mission backed by the government of Japan. Along comes The Children's Investment Fund (TCI) and acquires a big stake. Not because it's a safe investment but because they thought a quick buck could be made by cutting R&D and increasing dividends.

What the hell were they thinking? That strategy is anathema to both J-power and the government! For that matter, why should a supposedly nice fund like TCI (think of the children!) want to cripple research into new power generation when nobody can stop talking about the environment and this energy crisis?

No matter how I look at this I can't help but see greed and stupidity on the part of TCI.

Macro Man said...

I've not enjoyed much about this week, but reading this little vignette (and especially the sticker at the bottom) have put a smile on my face.

"Cassandra" said...

Glad I could help MM. TCI's AsianChief Ho (not the Spitzer kind) is ex-Citadel if that has any bearing on anything. The quote on "Maximizing yada yada yada through efficient blahblah capital structures" was taken directly from their "case" to shareholders which was on the web yesterday, but whose link has disappeared today. It was in any event pathetically amateurish, and embarrassing to hedge funds in general and the activist movement in particular.

The debacle will likely spawn some further amusing apt puns such as:

The obvious:

"Heave Ho"

The descriptive:

"Ho-ly Bitch-slap, batman!"

Or the newly minted, not-soo-to-be forgotten phrase of a phucked activist operation:


or essential reading for would-be Activists..

"The Ho NOT To Be An Activist in 10 Easy Steps"

Macro Man said...

Don't forget the street version: "Step off, Ho!"

Chris said...

It just gets better:

May 15 (Bloomberg) -- The Children's Investment Fund Management (UK) LLP has asked J-Power's auditors to decide in 60 days whether the company should sue its board for a decline in
profit, a letter says.

Of all the companies in Japan to go for, what on earth possessed them to take a crack at J-Power? Did they fail to notice the enormous capex plans were about to push FCF off a cliff? Or its 28% equity ratio? Or the small matter of it being Japan's only alternative energy provider and a quite clear maximum shareholding restriction? Someone deserves to be shot for that decision. Look out below-ho-ho..

"Cassandra" said...


It's not Brian Hunter-meglomanic hubris-originating stupidity, but investors should be concerned at the oversight, and, if it's NOT an oversight issue, than investors should be double concerned at the decision-making process within TCI itself. But note: it's not as if managers can't make mistakes. Heck, I am on 70-75% onside, on average. But there is little excuse in such careless thoughtlessness where the operation sizes are large and the magnitude of potential loss equally outsized.

Off-topic, your website is one of the most simply beautiful I've seen . It also didn't escape me that - in your personal description - your priorities were admiringly ordered (being a lover of most things above tree-line myself)

Anonymous said...

first Steel Partners, now TCI.

Team Japan 2, International Financial Parasites 0

I'm loving it!