Paulson's Piano Play: Taking Stock (08/14)

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August 14 (Bloomberg) -- On today's "Taking Stock," Pimm Fox helps you to think like a professional investor and discover the next "big thing." (Source: Bloomberg)

. . . correct this is "taking stock" for wednesday, august 14th, 2013. i'm pimm fox.

He will tell you why it is never over until the fat lady sings.

Billionaire john paulson with these instruments, a hedge fund honor making last-minute deals but for tonight's headlines.

Plus, running shoes , he's going to tell us why the fight for your soul is not over.

And it is time to meet meet me.

It is competing with the likes of facebook and order.

For companies making headlines, let's go to of libya stearns.

Correct the biggest trader of it -- the biggest trader of networking equipment is reporting fourth quarter sales and profits in line with estimates.

And federal prosecutors led by the an attorney here charged two former jpmorgan chase employees with attempting to conceal trading losses last year.

It is part of the banks probe of the $6.2 billion loss on derivatives.

He called it a perfect storm of individual misconduct and attic -- and inadequate internal controls.

And declining revenues for john deere to 2014. the world's largest farm equipment maker pointed to retail sales for the drop.

Revenue was bolstered by a rally in commodities.

Thanks very much.

And john paulson and co.

Has teamed will be ivories at stein way.

Today, we agreed to be acquired by john paulson.

Edging out bid by south korea's ms.

O. instruments as well as -- musical instruments as well as kkr.

The president of cjs securities, a special -- and also joined by a special situation mergers strategist.

You're the only analyst that covers stein way.

It is an unusual industry, it tends to not get very much coverage.

And it is our firms specialty.

But how long have you been watching the fortune of stein way back we have been following it about 13 years.

Steinway has gone through a couple of different iterations.

It is a family firm, and then there was some strategic review that may or may not have split off the different pieces.

Tell us about what's got you to this current iteration.

They believed there was tremendous value hitting in the company because the some of the parts would be worth much more than the public stock.

They believe the piano brand was iconic globally and would get a tremendous value if it company did not have its business.

When they were approached early on by one of their directors to sell, they took that as an opportunity to perform its strategic review of the company.

What are the assets of stein way musical docked here but the company has two operating units, the piano business, which is extremely well known, but within the band business, it is number one in the world for brass and woodwind instruments.

In the trumpet, clarinet, to buzz, and -- tu bas, and they are the leader in that market.

There are about 75% of the profitability.

And their student business is about 75% of the volume, but only 25% of the profitability.

If they did not have this business, the total value of its kindway would be materially -- of the steinway it would be materially higher.

What they did not have this business?

They had an investment bankers to a number of opportunities and it could not get a higher price to their satisfaction and halted the process.

All of the activities he now has occurred after the new year and after the hot process had ended.

-- after the process had ended.

Selling their real-estate.

One of the things you have noted is that mergers and acquisitions are never really over until they are really, really over.

Happy wednesday.

Thanks for having me on.

I definitely agree with the situation.

That is one of the stood -- the things that stood out to me.

When the thing deal was announced that essentially -- was it kohlberg?

Yes, i kohlberg.

I knew that there was an opportunity for the bid to be higher in light of the fact of the background.

The background was very robust.

He there was, based on conversations i had with other companies and on my own analysis, other companies still interested.

There is a company that has been in the game.

The on 30% of the company.

Are they going to share the shares -- sell the shares to paulson and company?

That is the big question.

If they want to come back, they have to bid something close to 4110. the determination fee is $13.4 million, which equates to about $41.10. there are a public company.

They have a $150 million paper gain because the 3% that they own at $40, that is a 3% paper gain right now.

Do they want to up the offer?

That is the question.

What do you think?

Will they up the offer or will this be the finale?

We will know tonight when they go shot time frame and spyridon -- when the go bookshop time frame encz.

This is a fluid situation.

He owns 34%, technically, of the company, and he paid a much higher price.

He has an interesting to tuition, because to win this deal, and here it is why the stock is trading above the bid now, he has financing.

He's got an interesting dynamic.

He loves this business.

He bought most of its shares by paying about a 20% premium directly to the company to buy the shares several years ago, and he is a music fanatic.

I do not think he wants to get up very easily.

But the question is, financially, he is competing with a pretty deep-pocketed person.

And steinway has facilities in the u.s., but also overseas.

They have facilities in hamburg.

The and they have other facilities for band and parents.

-- band instruments.

Most of them are in the u.s.. he loves the industry.

Have you learned to play the piano as a result of covering the company?

No, but i've seen some pretty good piano players play in the basement of their building.

It is and in utah -- is a unique process.

They make about 12 per day at peak capacity.

It is a very fun thing to watch.

We will wait and see what happens with the final performance, perhaps.

My thanks to you both.

Some breaking news from bloomberg.

Sysco is going to cut about 5% of its workforce, or four thousand jobs.

Let's go to cory johnson with details.

The company just reported their quarterly results, and they hit say they're cutting 4000 positions.

He but they're also betting the gross margins that are over 20%. -- they are also guiding the gross margins that are over 20%. he cut 56,000 employees at the end of the last full fiscal year.

We do not know the recent years count.

They will have to cut a lot of jobs in order to manage costs.

They're not specify what or where those jobs will be.

And they are down nearly 10%. we are talking about a $48 billion to $50 billion company per year.

But they are saying they're very much on the offensive.

That is just color.

The fact of the matter is they continue to see revenue growth and continued tuesday profit growth.

The company is saying that while they are seen inconsistent global demand, that is not the kind of thing you want to hear from a company that can often be quite bullish in their conference call.

What is their strategy to continue to acquire companies, and sometimes they purchased companies that they later find don't fit the strategic position of the firm?

One of their unspoken skills at cisco is to fold companies in and see the growth.

At issue is the shares and acquisition, and then they buy back the cash generatored shares of the companies.

When you see a company that has been cobbled together literally of hundreds of acquisitions over the last 15 years, and their guidance does not include acquisitions, but i think everyone on wall street certain expects -- certainly expects that they will be adding to the revenues of the products that have already existed in the past.

Thank you very much, cory johnson.

Shares of cisco down about 9 and 1/2% after it -- in after hours trading.

The chairman and chief executive will be on bloomberg tv tomorrow at 930 a m coming up, the use of drones is becoming more mainstream.

We will talk about how the they are entering the commercial world.

? first, drawn makers, robotic leaders, they always showcase the latest innovations at the annual conference in washington, d.c. i want to get some insight from experts that were there.

The president and chief executive of liquid robotics joins as from washington, d.c. we also have the president of propulsive wing.

I know you have something that you would like to talk about and show us.

You've got an actual drown, don't you?

Yes, this is something we have been working on for quite a few years.

I don't know if you can see it here.

It is very unusual.

We take these cross flow fans and instead of propellers or jet engines, we embed them in a very thick green.

-- a thick w8iing.

And you can take one of these and literally throw it in the air.

There is no one inside, so it is basically like a radio controlled airplane.

On the topic of drones, i know you have some expertise in the track -- the defense industry.

You also worked for the department of the army as well as the department of defense.

What is the outlook of rounds as a commercial enterprise?

-- of drones as a commercial enterprise?

Cracks in instances where you have a lot of expensive -- in instances where you have a lot of expense to collect data or you have very boring jobs, they're a very fantastic way to accomplish reducing margin and reducing risk.

On the cost of these devices, what does the one that you have -- estimated cost?

And what are the symptoms?

They're no good unless they are connected to a system that can analyze the data.

It is a carbon fiber body, and that is what we do, make carbon fiber products.

It is probably a few thousand dollars for the vehicle itself.

But you're right, the communications, the up links, the ground station, a software all has to be there.

You have to have some kind of sensor package.

And from what i've seen, that is where a lot of the focus, developing the software and hardware to go along with that.

That can be a lot more expensive than the vehicle itself.

Liquid robotics, what does the company in to do?

-- aim to do?

Our customers serviced those who move across the ocean.

It is very expensive to collect data across the ocean.

A huge amount of the commodities market is controlled by the weather and the weather is mostly controlled by the ocean.

We do not have nearly enough data to be able to manage that.

Our company operates missions and data collection for oil and gas, national and international security compliant and marine construction -- security, and marine construction, to reduce the cost and risk and so they can do a better job collecting those resources in those environments.

To put the assets where they are needed and to be able to collect and connect the various structures, for example, in the oil and gas industry, you've got to make sure that the right type shows up in the right place.

We can go out and put those sensors and communicate with those under water.

Our platform is a floating data center.

We have a tremendous amount of high-performance, low power computing on board.

We are able to collect large amounts of data, analyze them on board, and then send it out.

We are thousands of miles offshore, offered -- operating for years at a time.

We harvest all of our energy from the environment, which allows us to operate -- we have a record for crossing the pacific, a law against duration for traveling autonomously from sydney to australia -- from the united states to sydney, australia.

There's a lot to be done with automating that environment.

It is a booming business.

Thank you, gentlemen, very much.

We're going to hear a lot more about drones in the future.

Yet the mountain in nevada.

It could be a viable and safe option for storing america's nuclear waste.

Why is the site still unopened box will tell you more, next.

-- still unopened.

-- why is the site still unopened?

We will tell you more next.

And sysco's earnings are down as the company reports it will cut by% of its workforce.

Details next next ? today is the deadline for major investment funds on wall street.

-- on wall street to file their quarterly holdings bonds.

Carl icahn seemed to jump the gun is.

By tweeting his position in the shares.

Su keenan has more.

The it was a bit unusual.

We knew that apple would a merger with a key question.

Did hedge funds hold on to the widely held funds or sell in the last quarter?

Carl icahn is pushing 500 -- carl icahn's favorite stock is pushing 500 today.

Check out tiger global.

There are -- they sold their entire position while taking new positions in coca-cola and qualcomm.

And apple is a cut its investment in apple by almost a third.

He also bought 6.8 million shares of goodyear and almost 4 million shares of bank of america.

He was up 17% in the first half of the year, mainly on his banking bet, which he appears to be sticking with.

Meanwhile, the cooperman art more than 12.5 million shares, a brand new position, after the second debt.

And paul tudor jones investment highlights a very interesting position.

Stock pickers are increasingly being e.t.f.'s. the ticker is hyg, corporate bond e.t.f.. he also cut back on his financial e.t.f., which is his third largest.

And check out bridgewater.

It he cut his position and spider e.t.f.'s and added to his emerging market e.t.f. the's. it is 26 minutes past the hour.

It is time for on the markets.

The s&p 500 lower by eight points, a decline of more than half a percent.

It the dow jones industrial loses 113, a drop of nearly a third -- three-quarters of 1%, and the nasdaq was down 15. apple gained nearly 2%. it broke the $500 barrier today, keeping the upward momentum from are -- from carl icahn that he had a large stake in the iphone maker.

Next, raising money and crowd funding.

? this "taking stock" on bloomberg.

I'm pimm fox.

For today's headlines, let's go to mark crumpton.

Two jpmorgan london- based employees have been charged for attempting to conceal trading losses.

This was not a tempest in a teapot, but rather a perfect storm of individual misconduct and inadequate internal controls.

The charges are a result of an investigation into jpmorgan's $6.2 billion loss on derivatives bets.

Janet yellen is the most qualified and the most likely candidate to run the fed, according to a bloomberg news survey of private economists.

Yellen is favored over lawrence summers to replace outgoing fed chairman ben bernanke.

Egypt has declared a month-long state emergency after egyptian security forces stormed morsi supporter camps.

The violence has resulted in the deaths of over two hundred people, according to egypt's health ministry.

Secretary of state john kerry today condemned the violence.

New issues, such as how to transport of their wastes from hanford, washington to nevada, that story is coming up.

Nuclear waste and where to store it is much and had died from having to do with congress allocating -- and how to store it is in the headlines, having to do with congress allocating storage.

For more, i spoke to the chief executive of the national environmental services company perm fix.

It provides a nuclear waste treatment services in the u.s. we are focused on nuclear.

We treat nuclear waste and have four facilities in the u.s. that we bring nuclear waste into and then treat it so it can be safely disposed of.

We also have a service group that focuses on providing the safety aspects of dealing with nuclear.

What are some of the myths about nuclear energy that you hope to dispel?

The biggest one is that when you compare nuclear to all of the other options, coal, even gas, a nuclear still comes out on top.

When you say comes out on top, meaning in terms of what?

In terms of environmentally being the best, in terms of the least number of deaths, in terms of harding -- alarming the public the least -- in terms of harming the public the least and providing carbon-free energy.

He even with the cushy much, a tremendous problem, but no deaths -- even with the fukushima problem got a tremendous problem, but no deaths and it has been mostly a financial disaster.

Do you see things with the modern reactors that would make people take another look at nuclear power?

Correct the modern reactors are much better than they used to be.

And the new reactors even at fukushima have been upgraded.

We still have a big problem with the nuclear waste, which we are very focused on.

Tell us what is happening, for example, in hanford, washington.

One of our main facilities is located at hanford.

We treat a variety of radioactive wastes there.

Also, we are very active at some of the facilities.

Hanford was the production facility for plutonium, which was a very messy process and produced a lot of waste.

The site today is still somewhat of a mass.

We're working very hard to clean them up.

One of the potential solution has to do with nevada and yu cca flats.

It is an area that has been designated for many years to take the nuclear waste, but it is not open.


Correct you have -- you have a site and spent 20 years licensing it and getting it ready to go.

And then for political reasons is stopped.

Do you think there's any chance it will be open anytime soon?

It will be very difficult.

It is always possible.

The supreme court just rolled justruled -- just ruled the law that shut it down was illegal.

And they have started the process to get it started back up.

Coming up, facebook may be the king of social media, but another website company is nipping at its heels.

? if you are a start up, raising money never ends.

Or does it?

The co-founder of icrowd is here to tell us more, and maybe tell us a little bit about why it may be easier to raise money in september.

Let's start off with the idea of what your company is, for those who are not familiar with this crowd funding idea.

I've found is a place for investors, and to the north, and small companies to me to my give advice, and get advice, and a place to network.

If you think about the things that struck need to get off the ground, or small companies need to grow, they need advice, but number one, they need to get money.

And as i mentioned, something will happen in september that might change the dynamics of this business.

What is coming after labor day?

Actually, after september 23rd, the sec has lifted the ban on what is known as general solicitation.

That means companies can now broadly advertise the fact that they are raising money.

They can make a one-on-one connection to investors.

It is very disruptive.

Because what you are doing is you are supplanting those that could show you a private deal that may be going on.

Now companies will be able to go directly to investors.

It is probably best that they use an intermediary like icrowd , because we can aggregate investors.

Now gives a place where investors can go and have a choice among companies.

It is not go or no go, but they can create an emotional connection first and then determine if they can create a financial that work with them.

It is almost like a social network for companies that are looking to it raise money and start investing -- and for those who are wanting to start investing.

We will be the gateway to be able to show those companies to the general public.

I want to bring into the conversation a gentleman who is the head of the company called meet me.

That is a company that is the top grossing social android apple and is going after facebook.

He is joining us from the growth conference in boston.

Give us the details of what meet me is and how it is going to compete with facebook.

Meet me if the number one social network for meeting new people in the u.s. we have more than 1 million people who log in every single day.

Our users that on average 100 times a month on mobile.

We have doubled our mobile revenue in just the last year.

Most of that is coming from iphone and android.

What we really envisioned meet me to be is the conduit to the discussion around you, whether on the subway platform were standing in line at starbucks.

Facebook is the place to connect with people you know.

Meet me if the place where you connect to people you might want to know.

It is strange to send a route -- a request to someone on facebook, but on the meet me it happens many times a day.

The people have multifaceted identities.

You're a different person at church then you are from of your friends that you are at the bar or coffee house.

Hang on, because i want to ask brad about vetting.

We will talk about it in the social network said, but also vetting in terms of those who come onto the platform.

How do you make sure that those who are present in plants or businesses and those who might want to invest either are, indeed, who they are and that it is legitimate in?

It gets back to the social network.

That gets back to the issue.

Transparency is something that breeds honesty.

The more you can find out about something, the more you have to be honest in the public domain, or you will not get financing.

If you think about what investors look for in the company, we see the same thing with crowd funding today and the same thing with venture-capital spirit -- venture- capital lists.

Part of that gets back to how big my footprint is and what my background is.

Can i found -- find that out on line?

How prepared to raise money am i? how well do i present myself as a company?

That is how people will discover what is really going on behind companies that are presenting themselves for investment.

Jeff cook, do you that the people that signed up for meet me?

Is there some way to determine whether they are not the people they present themselves to become or maybe get together under purposes that are not necessarily hold some?

-- who lesome?

Yes, we have a safety committee led by a 20-year law enforcement veteran.

But we have a betting system that looks at hearings within 20 minutes of it being unloaded.

We have a fairly large abuse organization, constituting about one-quarter to one-third of our head count.

Cut how important is it to expand beyond the social network -- how important is it to expand beyond a social network and bring in things like games?

Because we also bring in things like online gaming opportunities.

For us, the games are too -- are a means to an end.

The end is meeting new people.

We use them as social attractions to encourage them to meet one another.

Is this geographically based?

We were fairly u.s. center for a long time, and then we merge with a company called que pasa and we went from 13% of our traffic in international to now 40%. basically, we have all the languages where there is high smart phone penetration.

Icrowd -- what about icrowd and its future?

Where are you raising money?

Interestingly enough, about 40% of what new start-ups do is they bootstrap.

They rely on their own money before they take money from family and friends.

And only a small portion ever get outside financing.

And that is what makes financing so difficult for start-ups.

A lot of times you look at technology companies and what they do is displaced a more traditional way of doing business.

Who or what does icrowd displays?

Potentially a couple of things.

One is broker-dealers.

Rather than disintermediation, which is what i think you're talking about, getting rid of the middleman, it might be more like trans intermediation, we are on line method of matching investors with the company.

I want to thank you very much.

Coming up, carl icahn has filed his 13f with the securities and exchange commission.

? breaking news from bloomberg.

Carl icahn has released his13 f with the -- his 13f with the sec.

Su keenan has more.

His latest filing shows he raised his stake would arrive in the last quarter from 611,000 shares to a total stake of 765 million.

He also added transocean . we are not seeing a lot of selling.

We are just going through some of the data.

Moore capital has just filed, the hedge fund run by louis bacon.

They have taken stake in lululemon, among other stocks.

We already know that he exited his position here in margolies.

The that the latest as these filings come out.

More coming up on bloomberg television.

Let's turn our television -- our attention to running.

It is a $15 billion per year market and the competition is fierce.

It includes nike, i degas, brooks, and new balance.

There's a new competitor developed in switzerland, used by a sixth time iron and champion.

I got the chance to use them today, walking all over our newsroom.

Joining me is the co-founder.

Thanks for coming in.

Thank you for having me.

Give us the background of why we need another company producing more running shoes.

You have to come up with a very novel idea to bring a new running shoe on the market.

The big idea is to combine the training shoe that is very comfortable with the competition issue that is very fast and gives you a strong push off.

This is for speed, or for avoiding injury?

It is for speed.

It is great to run on a sandy beach, but only to land.

At the same time, it is faster to run on a racetrack.

How can you combine a sandy beach with a race track?

It is fast and a hard push on.

The the how do you go to an actual running shoe that is in the $15 billion market that competes against companies like nike?

Correct that was quite the process.

If i can quickly show the product, the iron man that you just mentioned, he started out as a swiss engineer . and he started working on the issue, the elements that worked best.

These fall back to give you stop cushioning and also give you hard push off.

It is a unique running field that is lightfast -- light, fast, and very comfortable.

Harder to determine what to charge for these?

We were basically in the range of other performance shoes.

Between $120 to $150. correct and what about distribution?

That is a challenge, whether you are a running shoe from nike or the the another company.

We work happy to see the the how we were embraced running shoes stores.

A lot of stores have taken us out in the airline.

We have around 800 stores in 20 countries.

What about the expansion plans, and having to fund the expansion?

That cannot be cheap.

Correct know, of course, we grow very fast and we have some -- no, of course, we grow very fast and have some investors looking to invest.

Wearing them around the newsroom, many people come -- commented on the color combinations and the fact that the leases are the same colors as the soles.

-- the laces are the same colors as the soles.

Who determines that?

We have a sole and technology that is very visible, and the color is very bright.

We get a lot of positive results from this design.

How do you make sure that someone doesn't take their shoes and make them similar to yours?

It is not easy to do this technology.

It has worldwide patents.

It is a very complex process to come up with.

It does that mean you've got to have specialized machinery in order to make issues?

It is quite complex and tooling.

We had a long learning curve to come up with it also.

What about getting celebrity endorsements?

In that part of the plan?

Or you just letting issues speak for themselves?

The most important for us our top athletes worldwide.

We have 100 elite athletes running in our shoes.

For instance, the winner in a race last year has just started using them in her training.

Where are the biggest markets for you?

Cracks in europe, our home market, and we also just started in japan and south korea.

What about running shoes for young adults or even for children?

We start with small prices.

If you're a teenager, you are probably going to run a lot.

Do you run any races?

Correct probably -- probably 7 mi.

Per day.

You've got your running shoes on.

It is 56 minutes past the hour, time for on the market.

The dow jones industrial lost 113 today, a drop of about three-quarters of 1%. the s&p 500 down eight, lower by half of 1%. the nasdaq fell 15. one stock moving in after-hours trading, sysco.

Shares down about 9.5%. thanks for taking stock.

Good night.


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